budgeting

Budgeting“Pay Yourself First”

Personal BudgetPersonal Budget Working Tool

Take Control

Directs flow of cash received towards financial goals

Must be Flexible!

Takes discipline

Creating a BudgetCreating a Budget

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Reasons for a Reasons for a Spending Plan Spending Plan ……Helps you determine where you are spending Helps you determine where you are spending

your money currently.your money currently.

……Helps you decide where to spend your money in Helps you decide where to spend your money in the future. the future.

……You have an organized way to save for things that You have an organized way to save for things that cost more. cost more.

……Puts you in control of your financial future, Puts you in control of your financial future, beginning NOW.beginning NOW.

People Without a Budget… People Without a Budget… ……Are less likely to know what they Are less likely to know what they

have.have.

……Have no plan, often coming up Have no plan, often coming up short before their next paycheck or short before their next paycheck or allowance.allowance.

……Are almost certain to have no plan Are almost certain to have no plan to save for more expensive spending to save for more expensive spending goals.goals.

PAY YOUR$ELF PAY YOUR$ELF FIRST!FIRST!

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etting aside money for “big ticket etting aside money for “big ticket items”items”voids borrowing, which costs you a lot! voids borrowing, which costs you a lot! It’s aIt’s a ery wise thing to do, ery wise thing to do, becausebecause

very time you pay yourself first, you are very time you pay yourself first, you are developing adeveloping a saving habitsaving habit that leaves you that leaves you with more money to spend later on for with more money to spend later on for things that are really important to you!things that are really important to you!

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2 Parts of Budgeting2 Parts of Budgeting 1. Income: Money Received from any source

(limited source)

2. Expenses: Money spent to satisfy needs/wants

GROSS VS NETGROSS VS NET Gross pay is the total amount you earn before

any deductions are subtracted. $6.50 X40=$260.00

Net pay is the amount you “take home” after deductions.

Overtime is time worked beyond the regular hours

A standard workday is 8 continuous hours with scheduled breaks plus an unpaid lunch period.

A standard work week is 40 hours in a 5 day period of time.

OVERTIMEOVERTIME Fair Labor Standards Act states that:

“employers must pay hourly workers for overtime at the rate of 1 1/2 times the regular rate of pay.”

So… if regular pay is $6.50, then overtime would be $9.75. 40 hours X $6.50 = $260.00 5 hours X $9.75 = $48.75 Gross pay = $308.75

Paycheck StubPaycheck Stub Salaried employees do not receive

additional pay for overtime work.

Their gross pay is the same month after month.

The employer divides the salary into equal amounts for each pay period.

Under the “YTD” heading, your gross pay is added up throughout the year.

Income- Payroll Income- Payroll DeductionsDeductions

Money subtracted from Gross Income: Union Dues Health Insurance Savings plans Taxes

Taxes are the largest

deductions-required by

law

4 Payroll Taxes4 Payroll Taxes 1. Federal Income Tax

2. State Income Tax

3. Social Security Tax (FICA) May be able to collect at age 62, average payout

$1,230 per month

4. Medicare Tax (FICA) Can collect at age 65

FICA- Federal Insurance Contribution Act

Employees match contributions of employers to SS

Progressive Income Progressive Income taxtax

W-4 Form W-4 Form

Withholding Withholding

Allowance Allowance

CertificateCertificate

Purpose: So your employer

can withhold the correct federal income tax from your pay

NET PAYNET PAY When all deductions are taken out of your gross

pay, the amount left is your net pay.

Net pay is the amount of money you can actually spend.

Net pay is often called “take-home pay” because it is the amount you can actually use as you wish

Regular wages or salary + Overtime= Gross Pay

Gross Pay - Deductions = Net Pay

Example:

Federal W-2 Wage & Tax Federal W-2 Wage & Tax StatementStatement

Employees receive at beginning of year (January-February)

Itemizes money earned & withheld by IRS

Based on previous year income

Employee can determine if paid too much/ too little to IRS Tax refund- too much Taxes owed- too little

IRSIRS Internal Revenue

Service

Responsible for collecting taxes

When & how to file your When & how to file your tax returntax return

Single tax payers who earn less than $8,500 do not have to file a tax return

Gather your W-2 and any other documents you need

Complete a 1040EZ if you are single or married with no dependents and have income less than $50,00

Go to irs.gov for more info & forms

April 15 is the deadline to file!

22ndnd part of Budgeting: part of Budgeting: Expenses!Expenses!

Money spent to satisfy needs/wants

Working Budget: Expenses & income balance

Expenses should not exceed income

Limited resources- choices on how to spend money

Opportunity costs vs. delayed gratification

Expenses included Expenses included in Budgetin Budget

FIXED EXPENSES

Savings- PYF (Leftover approach never works)

Example: Car payment

Insurance Same amount of

payment each time

VARIABLE EXPENSES

Examples: Gas,

Food, Entertainment costs, clothing

Can change month to month

How to Build a BudgetHow to Build a Budget

l Decide on a time frame for tracking Decide on a time frame for tracking expenses (week, two weeks, month).expenses (week, two weeks, month).

l List all money you have coming in List all money you have coming in (income).(income).

l Make categories for all expenses.Make categories for all expenses.

l Subtract total expenses from income.Subtract total expenses from income.

l Study your budget and your financial Study your budget and your financial plan to make sure it fits with your plan to make sure it fits with your plans and goals.plans and goals.