transition advisory program workshops presentation directions: © 2008 by cortez management...

Transition Advisory Program Workshops

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© 2008 by Cortez Management Corporation. Workshop not to be used without proper license.

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Learning to use a Budget

In this presentation, you will apply real life situations that will influence your ability to earn

and handle money.

By the end, you should have thought about where your money comes from, where it goes and how to

budget for the future.

A budget is a plan of future income and expenses. It is a way of

planning or tracking cash flow to manage your money.

Without a budget, you can easily fall into unexpected debt!

What is a Budget?

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Creating a budget helps you understand what you have and your spending habits.

It helps you examine your financial choices.

Creating a budget helps you understand what you have and your spending habits.

It helps you examine your financial choices.

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“The best place to start is where you arewith what you have.”

-Charles Schwab

Creating a Budget

The best way to make a budget for the future is to figure out how you spend your money now.First, look at where your money comes from (income)

and where it goes (expenses).

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The number one influence affecting your income is

EDUCATION!

In most cases, education is directly proportional to a person’s

income opportunity.

A good education is the first step to successful employment.

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Education Average Salary

No Diploma $21,788

HS Diploma $30,940

Some College $35,984

College Diploma $50,024

Advanced Diploma $62,556

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There are several types of income:

An hourly wage is a dollar amount paid for the hours worked.

A salary is a fixed amount paid for a set number of hours.

Commission is money paid by the employer for a service or percentage of product.

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Hourly Positions:

Factory Worker

Store Clerk

Data Entry

Salary Positions:

Office Manager

Teacher

Accountant

Commission Positions:

Auto Sales

Retail Sales

Financial Advisor

Artist

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Often hourly rates:• Are a fixed amount• Do not include management positions• Do not offer benefits• Cause your paycheck to vary, since it is based on the number of hours worked

Hourly WagesHourly Wages Hourly WagesHourly Wages

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Advantages Advantages

Disadvantages Disadvantages

Hourly Wages:

• Start at minimum wage

• Require overtime to be paid; if worked over 40 hours a week, or 1.5 times base pay

• No overtime, employees are

expected to complete tasks

regardless of number of hours.

• Moving up is limited

• Often more hours are expected

Salaried employees:

• Earn more

• Promotion potential

• Consistent paycheck

• Usually include a comprehensive benefit package

Salary PositionsSalary Positions Salary PositionsSalary Positions

Advantages Advantages

DisadvantagesDisadvantages DisadvantagesDisadvantages

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• When sales are down, decreased income

• Must be self-motivated, often not managed closely

• If sales are up, larger income

• Hours can be flexible

• Lots of people contact

CommissionCommission

AdvantagesAdvantages

DisadvantagesDisadvantages

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Health insuranceHealth insurance

Dental insuranceDental insurance

401K plans401K plansMedical savings plansMedical savings plans

Childcare plansChildcare plans Education reimbursementEducation reimbursement

Personal leavePersonal leave

DaycareDaycare VisionVision

Pension planPension plan

Life InsuranceLife Insurance

Benefits are various types of non-wage compensations provided to employees in addition to their normal

wages or salaries, such as:

Some positions include a benefits package. These benefits can result in decreased expenses. Be sure to

consider benefit packages when accepting a job.

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The goal is for your income to always be greater than your expenses!

The next consideration when planning a budget is expenses. An expense is the cash spent to pay for an item or service.

There are 2 types of expenses: 1. Discretionary (wants) 2. Fixed (needs)

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Discretionary expenses (wants) are those items that are not required and can be eliminated or greatly reduced.

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Always pay yourself!!

Include a specific savings amount in your budget.

Money in a savings account earns interest and is another form of income!

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Savings

To open a savings account go to a:

Bank, Savings & Loan or a Credit Union

A minimum amount of money is required to maintain the account.

Interest is the amount paid to you to keep your money in the bank. Think of it as “rent on your money”. It is a percentage rate and is usually paid quarterly, but can be paid monthly.

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If you deposited $25.00 a month into your savings account, for one year, then you would have saved $300.00.

Your savings account has an interest rate of 6%. Therefore, in a year your total would be $334.93; meaning you earned $34.93.If you left the money in your account and continued to deposit $25.00 a month, then at the end of five years, you would have

$1,777.94!

If you deposited $25.00 a month into your savings account, for one year, then you would have saved $300.00.

Your savings account has an interest rate of 6%. Therefore, in a year your total would be $334.93; meaning you earned $34.93.If you left the money in your account and continued to deposit $25.00 a month, then at the end of five years, you would have

$1,777.94!

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Years Amount

1 $334.93

2 $663.97

3 $1,013.31

4 $1,384.20

5 $1,777.97

Savings Scenario

Budgeting is managing your expenses within your income. If you fall short of

money, discretionary spending should be eliminated, or postponed.

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Mortgage/Rent

Insurance

• Renter/Homeowner’s Insurance

• Car Insurance

• Health Insurance

• Life Insurance

Car Payment

Utilities

• Electric

• Gas

• Phone Service

• Water

• Cable Television

• Internet Access

Taxes:

• Real Estate Taxes

• Car Taxes 2121

Fixed expenses (needs) are items that must be paid.

http://www.geico.com/

A mortgage is the amount you pay monthly to the bank for a period of time, usually 30 years, to buy your home.

Where you live is a fixed expense…

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Expenses vary as your life changes. For example, the decision to rent versus owning a home impacts your expenses, responsibility, and flexibility.

Rent is the amount you pay monthly to the landlord (owner) of the property where you live.

There are ADVANTAGES of RENTING:

Amenities included like: Pool, Tennis courts, and Exercise room

Moving or relocating is relatively simple.

No large down payment required, only a security deposit.

No responsibilities for maintenance like: Appliance repairs and Home Improvements

No equity risk if a downturn in the market occurs.

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There are DISADVANTAGES of RENTING:

No tax deductions for monthly payment.

No equity gains in the rising value of real estate.

Rents rise with inflation or market demand.

Restrictions are made regarding noise level, pets, children or decorative changes.

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There are ADVANTAGES of OWNING a HOME:

Mortgage payments contribute to an investment, most property increases in value over a period of years.

With a fixed loan, the payment remains constant for the life of the loan.

Homeowners can borrow against the equity, as the value of the home increases.

The interest paid on a mortgage and property taxes are income tax deductions.

Ownership contributes to financial security when the mortgage is paid off, especially in retirement, when income normally decreases.

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There are DISADVANTAGES of OWNING a HOME:

A down payment is needed, often 10% or more.

Owning a home requires a substantial commitment in time and money for maintenance, repairs, and association fees.

Homes can decrease in value if the neighborhood deteriorates or the real estate market suffers a decline.

Home ownership requires sufficient income to afford many types of insurance.

Property taxes could increase dramatically, depending on where you live.

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Insurance

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You are required to have insurance if you rent, own a home, or have a car.

Insurance is a contract (insurance policy) where one party (insurer) agrees to pay another party (insured) for losses affecting the insured's interests (the insurable interest).

Insurance is a fixed expense and usually the premiums are paid monthly.

A premium is the consideration that the insurer receives for paying the loss.

Disasters can happen in your daily life and insurance will help cover any damages or losses.

New or Used?New or Used?

Gas MileageGas Mileage

MaintenanceMaintenance

InsuranceInsurance

Another consideration is owning a car.

What can you afford to spend?

Allocate 10% of the budget.

One tank of gas per week = how many miles per week?

Under age 21 $50 - $100 per month.

Property TaxProperty Tax A percentage of car’s value owed to the city or county each year.

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UtilitiesUtilities

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Utilities are paid monthly and include public service facilities such as gas, electricity, telephone, water, internet, cable, etc.

Utilities are paid monthly and include public service facilities such as gas, electricity, telephone, water, internet, cable, etc.

Don’t forget to consider DEDUCTIONS…

Law requires FICA to be deducted for Social Security and Medicare.

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You must pay taxes on the income your receive.

On each paycheck you will have deductions for:

• Federal Income Tax

• State Income Tax

• FICA

DeductionsDeductions are automatically taken are automatically taken out of your paycheck.out of your paycheck.

DeductionsDeductions are automatically taken are automatically taken out of your paycheck.out of your paycheck.

Federal Income Taxes

State Income Taxes

Social Security

Medicare

Mandatory Payroll Deductions:

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What is your income?What are your expenses?

Starting today, keep track of your purchases - from a cup of coffee to movie tickets. It may help to hold onto your receipts.

Also, track any income, such as money earned from an after school job or money received as a gift on your birthday.

Keep track of everything by filling in the chart on your worksheet. Write down how much you spend in each category every month.

Don't forget to include money that you save!

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Income

Babysitting 1-2 nights weekly $50.00 $200.00 $2,600.00

Allowance weekly $25.00 $100.00 $1,300.00

Ice cream scooper (Part Time Job) weekly $59.00 $236.00 $3,068.00

$134.00 $536.00 $6,968.00

Expenses

Savings weekly $20.25 $81.00 $1,088.00

Gas weekly $25.00 $100.00 $1,300.00

Movies/Entertainment weekly $10.00 $40.00 $520.00

Restaurants/Fast food weekly $20.00 $80.00 $1,040.00

Coffee/snacks weekly $15.00 $60.00 $780.00

Cell phone monthly $8.75 $35.00 $420.00

Clothes/makeup weekly $35.00 $140.00 $1,820.00

$134.00 $536.00 $6,968.00

MS Excel is an easy way to start a budget… you can add columns for each month or rows for more expenses.

Does your spreadsheet look similar to the one below?Filling out a spreadsheet of your budget can help you track monthly income and expenses.Eventually, you will be able to tally a yearly total of your income and expenses.

Frequency Amount Monthly Yearly

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Your budget will change over time…

Your budget will change over time…

…and you will have to modify your budget as your life

changes.

…and you will have to modify your budget as your life

changes.

Let’s see how income and expenses impact a budget, by following the scenario of a twenty-five

year-old, single mother.

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Meet Susan.She is a single mother with a

high school education.

She is working as an administrative assistant in an insurance office earning $12.50 per hour.

She is divorced and has 2 children, ages 4 and 7.

She receives $700 a month in child support from her ex-husband, James. He is a maintenance tech at a hotel, making $20.00 per hour.

Susan’s Salary:

$12.50 per hour 2080 hours (40 hrs x 52 wks) = $26,000(times)

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Susan’s Budget

What is Susan’s Income?

Susan’s Income

Monthly Annually

Net Salary

Child Support

Total Income

$20,988.00$1,749.00

$700.00 $8,400.00

$2,449.00 $29,388.00

Susan’s monthly expenses should not exceed $2,449.00 per month.

Therefore, Susan’s income, after payroll taxes, is $1749.00. This is her “net pay” or the amount of money you take

home.

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Susan also receives $700.00 in child support from James each month, which is added to her income.

Susan’s first fixed expense is childcare.

The cost is $500 per month. Her four-year old child receives full-time care and her seven-year

old receives after-school care.

This cost cannot be adjusted.

Susan’s Expenses Monthly

Total Income

Childcare $500.00

$2,449.00

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Below is Susan’s budget, including her total income and all of her expenses.

Her budget is similar to an average American household.

Receptionist ($12.50/hr with Health Insurance) Weekly $500.00 -$76.45 $423.55 $1,749.26 $20,991.14

Child Support Weekly $175.00 $700.00 $8,400.00

TOTALS $2,449.26 $29,391.14

Childcare Weekly $100.00 $400.00 $4,800.00

Savings/Emergency Fund/Income Tax Monthly $75.00 $900.00

Apartment Monthly $625.00 $7,500.00

Utilies Monthly $130.00 $1,560.00

Car Payment Monthly $325.00 $3,900.00

Gas Monthly $125.00 $1,500.00

Car Insurance/Personal Property Tax Monthly $120.00 $1,440.00

Food/Groceries/Pharmacy Monthly $400.00 $4,800.00

Cell Phone Monthly $45.00 $540.00

Clothing Monthly $100.00 $1,200.00

Misc/Entertainment/Recreation Weekly $25.00 $100.00 $1,200.00

TOTALS $2,445.00 $29,340.00

Yearly AmountINCOME

EXPENSES

Frequency Monthly AmountPayroll Tax Deductions

Net WeeklyWeekly

As you can see, her expenses are barely less then her income.

Since Susan’s income is not much more than her total expenses, she must watch her expenses very carefully each month!!

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Using Susan’s original budget, find an apartment or home and a car that will work within her income by researching the newspaper, internet, home sales

flyers, etc.

Complete the blank spreadsheet and fill-in amounts for the monthly rent or mortgage and car payment.

What kind of home and car can she afford?

Remember, the expenses can NOT exceed the income.

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Susan’s Salary:

$12.50 per hour 2080 hours (in a year) = $24,960(times)

Husband’s Salary:

For this example, pretend Susan is still married to James. He is a maintenance tech at a hotel and makes $20 per hour. Let’s look at their budget.

(times) 2080 hours (in a year) = $41,600$20.00 per hour

Income Monthly Annually

Susan’s Salary*

James’ Salary*

Total Income*

$20,991.14

$34,100.00

$55,092.00

$1,749.26

$2,842.00

$5,546.67

*Remember Payroll Taxes*

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This is their budget:

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Mechanic ($20.00/hr with Health Insurance) Weekly 866.67 -156.00 $710.67 $2,842.68 $34,112.16

TOTALS $4,536.52 $54,438.24


Savings/Emergency Fund/Income Tax Monthly $200.00 $2,400.00

Apartment Monthly $750.00 $9,000.00


Car Payment Monthly $550.00 $6,600.00

Gas Monthly $300.00 $3,600.00


Food/Groceries/Pharmacy Weekly $150.00 $600.00 $7,200.00




TOTALS $3,555.00 $43,260.00

Yearly AmountINCOME

EXPENSES

Frequency Monthly AmountDeductions Net WeeklyWeekly

Find a home and two cars that will work within their income.

Research the newspaper, internet, home sales flyers, etc. Fill-in the blank spreadsheet, by writing the monthly amounts for the rent

or mortgage and 2 car payments.

What kind of home and cars can they afford?

Has marriage improved or deteriorated their lifestyle?

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Affording your Lifestyle Affording your Lifestyle

In this presentation, you have learned

about real life situations that will

affect your ability to earn and handle

money in the future.

Have you thought about how decisions today regarding education, career and family will affect your future budget

and lifestyle?4444

Activity Worksheet

Includes:

Activity 1 Ask the students to discuss the question, “What are your income and

expenses?” Have each student write down how much they spend in each category every month. Not forgetting to include money that they save each month!

Activity 2 Have the students take Susan’s original budget and find a home and a car

that will work within her income. Have them use the newspaper, internet, home sales flyers, etc. Give each student a copy of the Excel spreadsheet and have them input the figures for the monthly rent or mortgage and auto payment. Make sure you remind the students to remember, the expenses can NOT exceed the income.

Finally have each student come up with an answer to the question “What kind of home and car can she afford?”

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Activity Worksheet

Includes:

Activity 3 Have the students create Susan and James’s married budget. Have them

find a home and two cars that will work within their income. They can use the newspaper, internet, home sales flyers, etc. Give each student a copy of the Excel spreadsheet and have them input the monthly figures for the rent or mortgage and 2 car payments.

Finally have each student come up with an answer to the questions, “What kind of home and cars can they afford?” and “Has marriage improved or deteriorated their lifestyle?”

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Child Support Weekly $700.00 $8,400.00

TOTALS $2,449.26 $29,391.14



Apartment/House Monthly


Car Payment Monthly

Gas Monthly $200.00 $2,400.00






Activity 2

Yearly AmountINCOME

EXPENSES


Activity 2

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Mechanic ($20.00/hr with Health Insurance) Weekly 866.67 -156.00 $710.67 $2,842.68 $34,112.16

TOTALS $4,536.52 $54,438.24



Apartment/House Monthly


Car Payment Monthly

Gas Monthly $300.00 $3,600.00






TOTALS

Activity 3

Yearly AmountINCOME

EXPENSES


Activity 3

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