BUDGETING 101 How to track where your money

BUDGETING 101 How to track where your money is being spent

What is a BUDGET? § A Budget is a policy document allocating burdens and benefits § Since budgeting allows you to create a spending plan for your money, it ensures that you will always have enough money for the things you need and the things that are important to you. Following a budget or spending plan will also keep you out of debt or help you work your way out of debt if you are currently in debt.

Why have a BUDGET? § Living without a budget is similar to traveling across the country without a roadmap. While both can be accomplished, the result is usually expensive and wasteful. § The household budget lists every anticipated expense in major categories that can be directly tied to actual expenditures. § Many people view the use of a budget as restraining and remedial, but most wealthy people have grown their financial wealth through the use of a strict budget.

“Look at the mortgage crisis and how many families lost their homes– 3. 9 million. Look at the amount of money- $1. 1 trillion- we owe in student loan debt. The amount we owe in credit card debt- $ 845 billion. It’s pretty clear that adults don’t know much about money. ” § Without a budget, a Deficit- Excess of expenditures over revenues is a real likelihood. § Expenditures- what you are purchasing. § Revenues- earned income

“Parents are the number one influence on their children’s financial behaviors, so it’s up to us to raise a generation of mindful consumers, investors, savers, and givers. ” 1. Acts as a roadmap – Creating the budget will reveal where every dollar is currently being spent. When the course being followed is incorrect, the budget can be used to re-route your plan. The budget is a living document that must be updated with the changes that occur in your life.

“Children as young as 3 years old can grasp financial concepts like saving and spending. ” 2. A budget Reveals waste - A detailed budget that is compared against the actual monthly expenditures will reveal the incorrect use of money. When money is spent on non-budgeted items, budget shortfalls are created and can be corrected. When you can identify a source of waste you can then take corrective action.

REVIEW 1. What is a Budget? Explain what it does. 2. Is a Budget static or evolving? Explain. 3. Living without a budget is similar to traveling across the country without a roadmap. Explain what this means.

“Money is finite and it’s important to make wise choices, because once you spend the money you have, you don’t have more to spend. ” 3. Aligns priorities – Identifying needs versus wants Family discussions over the budget can reveal differences in priorities that may often cause conflict. Conversations to address the underlying priorities will correct the problems and reduce disagreements over money. Since money is such a stressful part of marriage, identifying discrepancies before they become an issue can do a lot of good.

“You may have to wait to buy something you want. ” 4. Builds new habits – Working within the budget will shift actual expenses from unnecessary categories into the most essential household categories. Efforts to stay within the budget will build new spending habits that can be maintained over time. Money will be available for the most important expenses and debt reduction becomes possible.

Budgeting activities provide substantial benefits to personal financial health because the budget: 5. Reduces stress – Following the budget throughout the year gives everyone an accurate picture of the financial health of the family. Guesses are no longer required to determine if large purchases and vacations are affordable. When annual expenses are budgeted each month, sufficient funds will exist to pay the bill when it becomes due.

Budgeting activities provide substantial benefits to personal financial health because the budget: 6. Controls spending – Balancing expenditures and revenues. If expenditures exceed budgeted amounts, corrections can be made in the coming months to control the monthly flow of money. When outstanding debt is weighing on the monthly finances, the budget can show areas where spending can be reduced to find the money to repay the debt.

REVIEW 1. Budgets align priorities. Explain what this means? 2. Budgeting can cause stress and marital problems. How can following a budget reduce stress? 3. Budgeting controls spending. Explain what this means.

Trade-Offs and Opportunity Cost § Trade-off is the alternative people give up when they make a choice. § Opportunity cost is the value of the next-best alternative a person gives up § Not the value of all possible alternatives

Analyzing Choices § Cost-benefit analysis- examination of costs, expected benefits of choices. § Marginal cost (focus on cost) § Additional cost of using one more unit of a good or service § Marginal benefit (focus on how it affects you) § Additional benefit of using one more unit of a good or service

Making Choices § Factor 1: Motivations for Choice § People motivated by incentives, utility and by self-interest § Factor 2: No Free Lunch § All choices have a cost § choosing one thing means giving up another, or paying a cost § Costs can take the form of money, time, or other thing of value (ex. Internet servers) § People will economize

§ Incentive- something that motivates us to shop. § Utility- something we buy because we need it (FUNCTIONAL)

Quiz/Review 1. Explain the relationship between the terms in each of these pairs: a)Incentive, utility b)Trade-off, opportunity cost c)Marginal cost, marginal benefit 2. Two movies are playing at your movie-theater complex. You have a half-price coupon for one. However, you choose to see the other. How might this still be an example of economizing? 3. Use the concepts of marginal costs and marginal benefits to explain why some people might see the same movie ten times while others will watch it only once or twice.

Budgeting activities provide substantial benefits to personal financial health because the budget: 7. Coordinates efforts – Setting budget amounts allows every family member to provide input. If the family goal is to have an annual vacation, simple reminders can be given in response to why money cannot be spent on other categories until enough money is saved for the vacation. The budget acts as a barometer for the family finances.

Budgeting activities provide substantial benefits to personal financial health because the budget: 8. Transforms money into a tool – Budgeting all monthly expenditures will change the mindset toward money. Instead of spending impulsively, money will be valued as a tool to reach goals and fulfill needs. Children raised under a budget will learn the value of money because they are involved in some of the decisions necessary to establish the budget.

Budgeting activities provide substantial benefits to personal financial health because the budget: 9. Creates margin –As less money is spent, excess income becomes available and is considered financial margin. Debt repayment and living according to the budget will move the family toward living within the monthly income. These funds can then be applied to other financial goals.

Budgeting activities provide substantial benefits to personal financial health because the budget: 10. Grows savings – Short- and long-term goals can be reached through savings efforts that seemed impossible just months before a budget was created. Budgeting activities make money available to save some of the monthly income for various reasons. Savings becomes the highest priority and money can be saved ahead of paying the bills since every expense is closely monitored and compared to the budget.

Budgeting activities provide substantial benefits to personal financial health because the budget: 11. Accelerates financial goals – Many goals can be set and reached because the budget has been used consistently to monitor the financial activities. As margin is created within the financial budget and savings becomes a priority, the family can move toward major goals like: - funding college education for each child.

Keeping Track of Your Money § Tracking every cent, and budgeting apps make it so simple to do just that. § You’ve got your phone with you all the time, so tracking your spending each day literally takes less than a minute. § Hopefully one of those apps is just the ticket you need to get on track with your budgeting!

Typical Views on a Phone

Home. Budget with Sync § ($4. 99 – 4. 5 stars) Everyone has a budgeting system that works for them. For Johnny and me, this is the holy grail. We swear by this app. The design and flow is intuitive and really easy to set up. But the biggest draw has always been that it syncs our budget in the cloud to both of our phones so that we’re always on the same page. Melissa P.

Dollarbird § ($1. 99 – 4. 5 stars) This app’s design is simple and intuitive. And it’s calendar-centric, tracking where you are for the month and charting your net worth over time. It’s a beaut, and we’d be using it exclusively if only it had a sync option!

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