Budgeting: Making the Most of Your Money
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What is a Budget?
• A plan that matches your estimated
income with your estimated
expenditures
– Many major decision in your life will be
driven based on a budget
– Based on budget goals
Budget Goals
• Short-Term Goals
– Involve immediate needs or desires such as ability
to pay for food, car repairs, medical emergencies,
and apartment rent
• Medium-Term Goals
– These are goals you hope to achieve in the next
few years, such as a college education, a big
vacation, a new home, home improvements, a
new car. You will need to save now to pay for
future expenses.
Budget Goals
• Long-Term Goals
– These are goals you hope to achieve in
five, ten, or more years from now. These
goals, mean building substantial savings
for a change in career, a change in
lifestyle, and a comfortable retirement.
Budgeting: Making the Most of Your Money
FIXED, VARIABLE, OR PERIODIC?
Expense Fixed Variable Periodic
Loan Payment X
Electric Bill X
Twice-yearly Insurance
Payment X
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Budgeting: Making the Most of Your Money
Personal
Plan for
One Week
$20.00Balance
$120.00Savings and Spending
$140.00Income
$120.00Total Savings & Spending
15.00Miscellaneous
33.00Transportation
16.50Gifts and Contributions
10.00Entertainment
14.50Clothing
11.00Food
$20.00Savings (PYF)
Savings and Spending
$140.00Total Income
15.00Allowance
$125.00Part-Time Job
Income (after taxes)
One Week
Personal Spending/Savings Plan
$20.00Balance
$120.00Savings and Spending
$140.00Income
$120.00Total Savings & Spending
15.00Miscellaneous
33.00Transportation
16.50Gifts and Contributions
10.00Entertainment
14.50Clothing
11.00Food
$20.00Savings (PYF)
Savings and Spending
$140.00Total Income
15.00Allowance
$125.00Part-Time Job
Income (after taxes)
One Week
Personal Spending/Savings Plan
How to determine Net Worth
• To determine Net Worth, you have to
know how much you own (assets) and
how much you owe (liabilities).
• Subtract your liabilities from your assets
to get your Net Worth.
Net Worth = Assets - Liabilities
How to Build a Budget
1. Decide on a time frame for tracking expenses (week, two weeks, month).
2. List all money you have coming in (income).
3. Make categories for all expenses.
4. Subtract total expenses from income.
5. Study your budget and your financial plan to make sure it fits with your plans and goals.
Income
• Gross Pay
– The salary or wages earned before taxes
and deductions
• Net Pay
– The amount of money you take home after
taxes and other deductions have been
subtracted from your gross pay.
• The amount you actually have to spend
Payroll Deductions
• Federal Income Tax – A withholding pulled out of each paycheck and
sent to the federal government
• FICA Taxes – If you're a wage or salaried employee, you pay
only half the FICA bill (6.2% for Social Security plus 1.45% for Medicare), and the tax is automatically withheld. Your employer contributes the other half.
– If you're self-employed, however, you're expected to cough up both the employee and the employer share of FICA. You are, however, permitted to deduct half of this self-employment tax as a business expense.
Payroll Deductions
• NYS Income Tax deduction
– Another withholding going to New York
State
• Other deductions
– Health insurance (if cost shared or burden
on employee)
– Life or dental insurance
– Optional Savings plans
Pay Statement
Taxes
• W-4 Forms
– You complete Form W-4 so that your employer can withhold the correct federal income tax from your pay. Consider completing a new Form W-4 each year and when your personal or financial situation changes.
• W-2 Forms
– You will need to report all wages you earned from your job or jobs during the year. Your employers are required to provide you with Form W-2, Wage and Tax Statement. Form W-2 must be mailed out or hand-delivered to you no later than January 31st.