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Introduction to Business & Technology

What is a Budget? A plan for

spending and saving money

Most people think budgets are: Rigid and inflexible

Painful – who wants to eat Top Ramen every night!

No fun!“A budget takes the fun out of money” – Mason Cooley

Why Budgets Make Sense Budgets help you:

Set priorities

Achieve what’s important to you

A good budget is: Realistic Ongoing Clear and easy to

use

Budget Categories Income

Gross Net

Savings Emergencies Long-Term Retirement Short-Term

Expenses Fixed Variable Discretionary

Income: Money Earned Gross income: An

individual’s income before taxes.

Net income: Income after taxes are paid.

Taxes- Georgia state taxes

can range from 1-6% depending on your income

Federal Taxes also vary by income and can range from 10-39.6%

Taxes and Deductions

Say your first job pays $30,000/year: Your salary is your gross income (30,000). Take off at least 25% for taxes and other deductions to find your net income. That’s what’s left for you to spend.Example:

Gross salary = $30,000Minus 25% taxes and deductions - 7,500Net income $22,500

Savings: Pay Yourself First Savings- unspent incomeTypes:

Emergencies: Plan to set aside three months’ living expenses

Long-term: Large ticket items (house, car, college)

Retirement: It’s never too early to start

Short-term: Vacation, clothes, new skis

“When it rains, it pours- make sure you save for the rainy day,” Anonymous

Interest on Savings Accounts Interest: when you save your money in a savings account with a bank, they will

pay you with interest. They are paying you because:

1) It is incentive to use their banking services

2) They use your money for capital and investments

Interest rates are a percentage of the money that you get back based on the amount you invest with the bank; so the more you put in, the more money you get back. These rates vary from bank to bank.

“CD”- an agreement that locks your money into an account that you cannot access for a set amount of time, but a bank will give you a higher fixed interest rate for compensation. A CD…

1.) Generally lasts for 1-5 years 2.) Cannot be accessed by the depositor (unlike savings

accounts) 3.)Has a higher interest rate as opposed to savings

accounts

Savings: Certificate of Deposit

Savings: Stock Investments

Stock- a type of money investment that signifies ownership in a corporation and represents a claim on a part of the corporation’s assets, earnings, and losses. Stocks are usually…

1.) Long term investments 2.) Extremely variable 3.) Not guaranteed (savings accounts & certificates of

deposit are guaranteed by our government)

Personal Savings Rate Declining

1974 to 1984 10% 1985-1994 Fell to

4.8% 2004 1.8% 2005 -0.5% 2006 -0.7%

This is the first time the rate has not been negative since the Great Depression}

Expenses Expense: A cost

to meet a need or pay a debt

Types of expenses Fixed Variable Discretionary

Needs vs. WantsNeeds are

essentials: Food Shelter Clothing Transportation

Wants are extras: Eating out Big, expensive house Shop till you drop Brand-new or

expensive car

Fixed ExpensesCosts that occur regularly and do not vary in amount

Rent Mortgage Car payment Insurance premium School loans Others?

Variable ExpensesCosts that occur regularly but may vary in amount:

Electricity Water and Garbage Telephone Gasoline Groceries

Ways to Reduce your Grocery BillMake a shopping list

Study grocery ads

Buy store-brand products

Avoid impulse purchases

Learn the basic prices of your favorite foods.

Discretionary ExpensesCosts determined by personal wants that may be controlled

Movies, videos, CDs Sports Eating out Grooming and

clothes Concerts and plays Vacations Others?

Budget Summary

Establish a budget: Income Savings Expenses

Fixed Variable Discretionary

End up with a budget surplus and you’re a success!