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Budgeting basics Gross income The amount of money BEFORE TAXES!!!! NET INCOME The amount of money AFTER taxes. What you “Take home” Calculate the taxes to be taken out……based on your gross salary • 10% on taxable income from $0 to $8,925, plus 15% on taxable income over $8,925 to $36,250, plus 25% on taxable income over $36,250 to $87,850, plus 28% on taxable income over $87,850 to $183,250, plus What is a budget? • It is a way to help you live as well as you can with the money you have. A plan for how you will spend your money An expense is money you spend 2 types of expenses: Fixed expenses Flexible expenses Fixed expenses • Remain the same each month Example: Rent/mortgage Car payment Student loans Flexible expenses Can change monthly Example: Utilities Food Clothing Components of a Spending Plan • Expense is money spent • Money going out of the gumball machine – Fixed expenses may have a fixed amount due each month and are contractual – Flexible expenses can vary each month in the amount owed and are not contractual What are two fixed expenses and two flexible expenses you currently have? Typical Spending Plan Expenses 10% 30% 18% 7% 16% 18% Housing Transportation Food Insurance Other Saving • • • A reference Provides guidance Based upon net income What variables may cause these percentages to be different? Unbalanced budget? • Not enough money to pay to bills • Not able to save money • Possible debt How can a budget help you? Lets you know where you’ve spent your money Allows you to set aside money for bills and expenses Can help prepare you for unforeseen events Makes it easier to save money How to create a budget? • Set goals (ex. I want to save $1,000 in the next year for a car) • Figure out your income • Calculate your expenses (food, rent, cell phone bill, etc) • Subtract income minus your expenses Having a plan Step 5: Evaluate and Make Adjustments • Financial planning is a process individuals engage in to achieve long-term financial success while having a quality standard of daily Step 4: Implement living and Control • A spending plan is a paper or electronic document used to record both planned and actual income through expenditures over a period of time Step 1: Track Current Income and Expenses Spending Plan Development Process Step 3: Allocate Money to Each Category Step 2: Creating Personalized Income and Expense Categories Sarah’s budget for May • Sarah’s income is $1200/month NET income Her monthly expenses include: $350 for rent $200 for car payment/insurance $30 for cable $100 student loans $80 utilities $50 gas for car $100 for food $40 savings $50 for entertainment How her month actually went..end of May $350 for rent $200 for car payment $30 for cable $100 for student loans $100 utilities $150 for food (she had friends over for dinner) $70 on a new outfit $100 for entertainment $50 on mom’s birthday $80 gas for car How did she do? • Did she have enough money? • What could she have done differently?