credit advisors foundation copyright 2007 budgeting workshop

Credit Advisors Foundation Copyright 2007

Budgeting Workshop


About Budgeting

Objectives for…

After completing this lesson you should be able to:• Prepare a thoughtful budget• Understand the components and percentages necessary to create a reasonable budget• Recognize the importance of budgeting


Let’s Get to Work


Income

Income can come from a variety of sources. PaychecksRental incomeInvestment dividendsChild support or alimony

For an accurate budget include all of your household income sources.


Income

Add all sources of income

Total them all for a one year period

Since most expenses are billed monthly:

Divide your overall total by 12

This is a monthly average income to use in your budget calculations.


Income Gross Net Monthly

Salary/Wages $ 45,000.00 $ 29,250.00

Partner Salary/Wages $ 60,000.00 $ 39,000.00

Child Support/Alimony $ -

Investment Income $ 120.00 $ 120.00

Other Income $ -

Total Household Income $ 105,120.00 $ 68,370.00 $ 5,697.50


Understanding expenses

Fixed expenses remain the same from month to month such as rent or mortgage, car or truck payment, or possibly level-pay utilities


Fixed Expenses Budget Actual Difference

Savings $ 50.00

Mortgage or Rent $ 1,300.00

Car Payment $ 450.00

Car Payment $ 500.00

Other Loan $ 200.00

Pledged Contributions $ 50.00

Life Insurance $ 20.00

Other:

Total Fixed Expenses $ 2,570.00



Variable expenses are not as predictable as fixed expenses. Examples: your electric bill in the summer, gasoline costs, or entertainment.


Variable Expenses Budget Actual Difference

Utilities $ 300.00

Home Maintenance $ 200.00

Food $ 500.00

Fuel $ 280.00

Clothing & Upkeep $ 100.00

Health Care $ 40.00

Recreation/Entertainment $ 72.00

Other

Goals $ 300.00

Total Variable Expenses $ 1,792.00



Periodic expenses are those expenses that are not monthly. They may be quarterly, semi-annual or even annual. Examples include some insurance, real estate taxes, car licensing, etc.


Periodic Expenses Budget Actual Difference

Home Insurance $ 75.00

Real Estate Taxes $ 210.00

Car Insurance $ 160.00

Car Licensing $ 900.00

Other $ 75.00

Total Periodic Expenses $ 1,420.00


Expenses

The first time it is always tough to remember everything

Budgeting is an art.

Let the calculations begin!


Why do we separate our expenses?

• Fixed expenses give us the least amount of flexibility.

• We can control variable expenses but only to a point.

• We have the most flexibility with periodic expenses but they often have the worst bite!


Determine your total monthly income & subtract your total

monthly expenses. Are there funds left over? Or are you in the red?

Total Monthly Income

- Total Monthly Expenses

Disposable Income


Total Variable Expenses $ 2,570.00

Total Fixed Expenses $ 1,792.00

Total Periodic Expenses $ 1,420.00

Total Expenses for Month $ 5,782.00

Summary

Total Income $ 5,697.50

Total Expenses $ 5,782.00

Remainder $ (94.50)


What’s going on ?

Many people find their budget in the black but their lives in the red!


Black or Red…all budgets can use adjustments and

analysis


Budget Adjustments

During budget development certain areas will become obvious focus points where adjustments can & should be made.


Budget Adjustments

Take a moment & review your list of expenses.

Don’t forget to look at income. Are there options for over-time, week-end work, etc.

Identify categories where adjustments could be made.


An important part of developing a budget is recognizing the difference between

Wants

big screen TV

vacation

jewelry

Needs

food

shelter

clothing


Understand how you spend money so you will be aware of influences to your budget by

Become aware of your common spending habits.


Monitor your spending habits to find black holes in your budget where money disappears

Keep a log for 30 days of everything you spend

Divide by type - food, clothing, & entertainment

Find patterns in your spending where wants are being lived as needs.


Analyze Black Hole Expenses

• When added to your budget, are you going over in particular categories?

• Were you aware of how much you were spending?

• Determine the time value of your purchases.

Total price/net hourly wage = time value


Take it to the Next Level• Experts say….

Suggested Expense Percentages

Housing 27%

Mortgage/Rent

Insurance

Taxes

Utilities

Food 16%

Transportation 12%

Car Loan

Gas

Tokens

Maintenance

Insurance

Licensing

Clothing 7%

Medical 6%

Recreation 5%

Other 17%

Savings 10%


Are you in the Black?Even Just a Little?


Reality

Budgeting is not fun.

It is about denying yourself and limiting yourself

UNLESS…..


Goals

You realize that budgeting is the process to help you achieve your biggest goals!


By making plans to achieve your dreams you

learn how to form your budget around…

Successful financial management builds on a foundation of goals.

Setting the goal to have a lump sum of money by a specific time allows you to plan beyond

everyday expenses with your budget.


How to set Goals:

Specific The more specific you are the more likely your success. Using SMART as a guideline will create a specific goal design

Measurable Your goal must be tangible. Determine the end result.

Achievable Begin with small or moderate goals to establish a pattern of success. Believe you can!

Realistic Review your target, timeframe, income & expenses. There’s nothing wrong with a challenge but stay honest about your level of dedication and determination.

Timely A goal needs a deadline for you to work towards.


Short term goals

Whether a goal is short or long term is not determined by it’s

importance or value…

but by the time it will take to reach the desired target.

A short term goal involves a timeframe of about one year or

less.


Examples of short term goals include:

$900 over the next 8 months for a summer vacation

$500 over 5 months for holiday gift-giving

$350 in the next 4 months for a new 27’ TV


Long term goals

A long term goal would require more time for it to be successfully achieved.

You may choose to budget the same amount as a short term goal but allow for a longer length of time to reach the targeted total.


Examples of long term goals include:

$2,000 over the next two years as a down payment for a new car

$10,000 over five years for a down payment on a home

$18,000 over the next 15 years for your child’s college tuition

This is where budgeting becomes FUN!!


Goals: The Gift that Keeps on Giving.

• Many goods actually become cheaper over time.

• PIF – The real cost of goods.

• Goals change!

• Success feeds on itself. If I can do this…


Additional Tips

• Involve every member of your household!

• Do not pre-maturely quit!

• Keep your eye on the ball – it’s not the budget but the goal!


Monitoring

A big part of maintaining your budget in the future involves continually monitoring your income and expenses in relation to your short and long term goals.


Remember…

Some people go over their budgets very carefully each month.

Others just go over them.

Which will you be?


Thanks for Coming!

credit advisors foundation copyright 2007 budgeting workshop

Documents

list of expenses

budget calculations

budget adjustmentstake

accurate budget

reasonable budget

thoughtful budget

monthly average income

overall total