Post on 01-Apr-2015
(also known as “how much money can I spend?”)(also known as “how much money can I spend?”)
Planning 10Planning 10Learning Guide 15Learning Guide 15
Money Management
Budgets
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Watch this corner for prompts on when you are expected to click the mouse button.
Learning Guide ObjectivesLearning Guide Objectives
Upon completion of this learning guide, it is expected that students will:
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Differentiate between needs and wants, setting priorities
Understand the need for making provisions for saving
Know when to convert weekly/monthly/annual expenses or income
Identify fixed and variable expenses
Understand the need to plan for unforeseen expenses
Recognize that an appropriate budget includes 10% of the net income left each month, AND includes a regular long term savings contribution, also of 10% of the net income.)
Recognize that an appropriate budget includes 10% of the net income left each month, AND includes a regular long term savings contribution, also of 10% of the net income.)
This is
especia
lly
importa
nt!
Recognize that an appropriate budget includes 10% of the net income left each month, AND includes a regular long term savings contribution, also of 10% of the net income.)
Why Budget?Why Budget?
A budget helps you to keep track of your expenses, live within your income, and save for both planned and unplanned future expenditures.
It also allows you to analyze your spending habits and efficiently trim un-necessary spending, without sacrificing your chosen lifestyle.
Most importantly, a budget makes sure that you don’t have “too much month left at the end of money.”
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Why Budget?Why Budget?
People who don’t budget wisely or realistically will commonly spend more than they can afford, and end up borrowing to cover expenses. Of course, borrowing money costs you even more money, which gets you deeper into debt, which causes you to borrow more money and on and on and on and on ad nauseum.
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How Much Debt Is Too Much?How Much Debt Is Too Much?
At one time, any debt at all was too much debt. However, that is not realistic in today’s society.
Today’s young people face enormous unavoidable debt load potential in their immediate future: education.
Learning how to manage your money now will help you to avoid as much debt as possible.
But how do you know when you are carrying too much debt?
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Any one of these symptoms may indicate too much debt load. Two or more and you’re headed for real trouble!
• You do not have any savings. Financial advisors recommend that you have the equivalent of three (3) months net income in your savings account at all times.
• You make minimum payments on credit cards and loans.
• You use credit where you used to use cash, e.g. groceries, fast food.
• You are carrying debt on more than two major credit cards.
• After you make a credit card payment, you increase the balance by at least that much again in the following month (so you never pay down the balance).
• You are at or near your credit limit on any ONE or more credit cards.
• Your credit card is declined when trying to make a purchase.
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Signs of Too Much DebtSigns of Too Much Debt
Signs of Too Much DebtSigns of Too Much Debt• You take cash advances on your credit card to pay other bills.
• You have been denied credit when applying for a loan or a credit card.
• You bounce cheques.
• You get calls from collectors.
• You lie to your family and friends about your spending habits.
• You hide your credit card statements.
• You constantly argue with family and friends about your finances.
Early recognition of too much debt load is critical in finding a solution to the problem. Budgeting is the primary tool in avoiding and/or fixing debt load.
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A Good BudgetA Good BudgetThere are many ways to evaluate your budget, but three things
are present in every realistic budget:
1. All day to day expenses are covered every month, without dipping into your 3 month savings “cushion”.
2. You are contributing to long-term savings every month. These are plans such as an RESP (Registered Education Savings Plan) or an RRSP (Registered Retirement Savings Plan). Your minimum monthly contribution should be at least 10% of your net income for the month.
3. After your budget planning is finished for a month, there is at least 10% of your net income for the month left over (this is your “slush fund” which helps keep your 3 month cushion replenished).
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Budget ComponentsBudget Components
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There are three components to a budget: Setting it up, analyzing spending habits, and making adjustments.
Household budgets are done on a month by month basis. This is because most services are billed monthly (water, electricity, phone, cable, rent, mortgage). It is important to remember to adjust everything to a monthly period. If we give a yearly income, and you put it into a monthly budget without adjusting it (dividing by 12), your budget will most definitely not work!
One other thing: we work our budget in dollar amounts, partial dollar amounts are rounded up or down to the nearest dollar.
Processing A BudgetProcessing A Budget
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We’re going to tell you all about Ray and his expenditures. By arranging his spending into a budget worksheet, analyzing his spending, and making adjustments, you’re going to see how you can do the same to avoid falling into a debt-trap.
Ray’s gross pay is $39,000 per year.Ray pays the following yearly expenses: Car insurance, $1500. Health insurance, $250. License plates,
$50. Heating costs, $600. Clothing, $1200. Medical $250. Dental $300. Car repairs, $400. Vacation, $1500.
Ray pays $600 a month for rent, and has a monthly car payment of $200. Also, he pays $120 per month for his parking spot at work.
Ray deposits $200 a month in his long term savings plan, spends $300 a month on food, $200 on gas and oil, $50 on telephone, $90 on cable and internet, and pays $200 child support.
Let’s do the first component of a budget: Setting it up.
First, we need a budget worksheet. The worksheet is divided into three main sections:
1. Income
2. Expenditures
3. Summary
The Expenditures is further divided into two sections:
1. Regular Expenses (Needs)
2. Discretionary Expenses (Wants)
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Budget WorksheetsBudget Worksheets
Let’s look at the first main section: Income
We’ll insert the gross income, deductions, child support amounts, and finally, the net income. As this presentation fills out the worksheet, you should do the same with a pencil on the blank sheet provided with the learning guide, in Ray’s column. Later on, you will fill in “Annette’s” column yourself.
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Budget WorksheetsBudget Worksheets
Item Description + or -
Gross work income “Gross pay” is pay before deductions are made + $
DeductionsIncome tax: 30% of grossEmployment insurance: 2% of grossCanada Pension Plan: 5% of gross
- $
- $
- $
Child support received + $
Child support paid - $
Net monthly income = $
Let’s look at the first main section: Income
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Budget WorksheetsBudget Worksheets
Item Description + or -
Gross work income “Gross pay” is pay before deductions are made + $
DeductionsIncome tax: 30% of grossEmployment insurance: 2% of grossCanada Pension Plan: 5% of gross
- $
- $
- $
Child support received + $
Child support paid - $
Net monthly income = $
“Gross” pay is pay before any deductions (income tax, union dues etc) are made. If Ray works 80 hours at $10/hour, his gross pay is 80 x $10 = $800. His “net” pay will probably be around $500.
The first line is where we will put Ray’s gross income (and you will write it on your worksheet).
Let’s look at the first main section: Income
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Budget WorksheetsBudget Worksheets
Item Description + or -
Gross work income “Gross pay” is pay before deductions are made + $
DeductionsIncome tax: 30% of grossEmployment insurance: 2% of grossCanada Pension Plan: 5% of gross
- $
- $
- $
Child support received + $
Child support paid - $
Net monthly income = $
Ray earns $39,000 per year. Notice that this pay is given PER YEAR, but the budget is done in montly periods. Therefore, we have to divide by 12. $39,000 / 12 = $3250
3250
Be sure to continue to fill in your worksheet as we go along…
Let’s look at the first main section: Income
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Budget WorksheetsBudget Worksheets
Item Description + or -
Gross work income “Gross pay” is pay before deductions are made + $
DeductionsIncome tax: 30% of grossEmployment insurance: 2% of grossCanada Pension Plan: 5% of gross
- $
- $
- $
Child support received + $
Child support paid - $
Net monthly income = $
The next three lines are for pay cheque deductions. The figures are given, so it’s just arithmetic to figure out the amounts.
3250
30% of $3250 = $975
975
2% of $3250 = $ 65
65
5% of $3250 = $162
162
Let’s look at the first main section: Income
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Budget WorksheetsBudget Worksheets
Item Description + or -
Gross work income “Gross pay” is pay before deductions are made + $
DeductionsIncome tax: 30% of grossEmployment insurance: 2% of grossCanada Pension Plan: 5% of gross
- $
- $
- $
Child support received + $
Child support paid - $
Net monthly income = $
From reading about Ray, we know that he does not receive any child support, but he does pay $200 per month to his ex-wife.
325097565
162
0
200
Let’s look at the first main section: Income
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Budget WorksheetsBudget Worksheets
Item Description + or -
Gross work income “Gross pay” is pay before deductions are made + $
DeductionsIncome tax: 30% of grossEmployment insurance: 2% of grossCanada Pension Plan: 5% of gross
- $
- $
- $
Child support received + $
Child support paid - $
Net monthly income = $
We have everything we need to figure out Ray’s “net” pay, which is the amount of money he actually has to spend each month:
325097565
162
0
200
$3250 - $975 - $65 - $162 + $0 - $200 = $1848
1848
So now Ray knows exactly how much he has to spend each month.
Now, let’s look at all his expenses and “slot” them into categories so we know where his $1848 goes each month.
Let’s look at the second main section of our worksheet: Expenditures
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Notice the two sub-sections of the main “Expenditures” section:
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
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ular
(Nee
ds)
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cret
iona
ry(W
ants
)
The top section are expenses that Ray HAS to pay (needs). These are things like food, housing, transportation, loan payments, etc.
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Notice the two sub-sections of the main “Expenditures” section:
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
The bottom section are expenses that Ray CHOOSES to pay (wants). These are things like vacations, hobbies, pets, entertainment, etc.
Let’s look at the second main section of our worksheet: Expenditures
Expenditures
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From reading about Ray, we know his expenditures each month.
He pays $1500 per year for car insurance. That’s PER YEAR, we have to divide by 12. $1500 / 12 = $125 PER MONTH. We put $125 with a (+) after it, in case we need to add more in the “Insurance(s)” category:
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+
Expenditures
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Ray pays $250 per year for health insurance. That’s PER YEAR, we have to divide by 12. $250 / 12 = $20.83 PER MONTH, but we use the nearest dollar, remember? We put $21 with a (+) after it, in case we need to add more in the “Insurance(s)” category (we’ve got two things there now):
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+125+21+
Expenditures
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Ray pays $50 per year for license plates. We’ll file that under “Transportation”. That’s PER YEAR, we have to divide by 12. $50 / 12 = $4 PER MONTH, (we use the nearest dollar, remember?). We put $4 with a (+) after it, in case we need to add more in the “Transportation” category:
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
Now, you’re going to ask “Who cares about $4 ? It’s peanuts!”Now, you’re going to ask “Who cares about $4 ? It’s peanuts!”
However, financial advisors caution you to watch out for the However, financial advisors caution you to watch out for the ““cappuccino factorcappuccino factor”.”.
Here’s how it works: you buy a cappuccino each day you work. Here’s how it works: you buy a cappuccino each day you work. That’s 20 days a month, that’s 20 cappuccinos. At about $4 each, That’s 20 days a month, that’s 20 cappuccinos. At about $4 each, that’s $80 per month, which is enough to blow your budget out of that’s $80 per month, which is enough to blow your budget out of the water…especially since if you ignore that “insignificant” the water…especially since if you ignore that “insignificant” amount, you’re probably ignoring other “insignificant” amounts as amount, you’re probably ignoring other “insignificant” amounts as well…all of which add up REAL fast! Put EVERYTHING in your well…all of which add up REAL fast! Put EVERYTHING in your budget!budget! Click for next
Expenditures
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Ray pays $600 per year for heating costs. We’ll file that under “Shelter”. That’s PER YEAR, we have to divide by 12. $600 / 12 = $50 PER MONTH. We put $50 with a (+) after it, in case we need to add more in the “Shelter” category:
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
50+
Expenditures
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Ray pays $1200 per year for clothing. We’ll file that under “Clothing” (duh). That’s PER YEAR, we have to divide by 12. $1200 / 12 = $100 PER MONTH. We put $100 with a (+) after it, in case we need to add more in the “Clothing” category:
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
50+
100+
Expenditures
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Ray pays $250 per year for medical expenses. We’ll file that under “Medical and Dental”. That’s PER YEAR, we have to divide by 12. $250 / 12 = $21 PER MONTH. We put $21 with a (+) after it, in case we need to add more in the “Medical and Dental” category:
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
50+
100+
21+
Expenditures
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Ray pays $300 per year for dental expenses. We’ll file that under “Medical and Dental”. That’s PER YEAR, we have to divide by 12. $300 / 12 = $25 PER MONTH. We put $25 with a (+) after it, in case we need to add more in the “Medical and Dental” category:
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
50+
100+
21+21+21+25+
Expenditures
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Ray pays $400 per year for car repairs. We’ll file that under “Transportation”. That’s PER YEAR, we have to divide by 12. $400 / 12 = $33 PER MONTH. We put $33 with a (+) after it, in case we need to add more in the “Transportation” category:
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
50+
100+
21+21+21+25+
4+33+
Expenditures
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Ray pays $1500 per year for vacation. We’ll file that under “Recreation”. That’s PER YEAR, we have to divide by 12. $1500 / 12 = $125 PER MONTH. We put $125 with a (+) after it, in case we need to add more in the “Recreation” category:
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
50+
100+
21+21+21+25+
4+33+
125+
Expenditures
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Ray pays $600 per month for rent. We’ll file that under “Shelter”. That’s PER MONTH, we don’t have to divide by 12. We put $600 with a (+) after it, in case we need to add more in the “Shelter” category:
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
50+
100+
21+21+21+25+
4+33+
125+
50+600+
Expenditures
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Ray has a car payment of $200 / month. We’ll file that under “Transportation”. We put $200 with a (+) after it, in case we need to add more in the “Transportation” category:
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
50+
100+
21+21+21+25+
4+33+
125+
50+600+
4+33+200+
Expenditures
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Ray works right downtown Victoria, and pays $120 per month for his private parking spot, just a half block from his office. We’ll file that under “Transportation”. We put $120 with a (+) after it, in case we need to add more in the “Transportation” category:
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
50+
100+
21+21+21+25+
4+33+
125+
50+600+
4+33+200+4+33+200+120+
Expenditures
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Ray did a learning guide in his high school planning class, and understands the importance of long term saving. He deposits $200 per month into his RRSP (Registered Retirement Savings Plan). We’ll file that under “Savings”. We put $200 with a (+) after it, in case we need to add more in the “Savings” category:
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
50+
100+
21+21+21+25+
4+33+
125+
50+600+
4+33+200+4+33+200+120+
200+
Expenditures
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Ray spends $300 per month on food and other grocery related items (toiletries, cleaning supplies, etc). We’ll file that under “Food”. We put $300 with the ever present (+) after it:
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
50+
100+
21+21+21+25+
4+33+
125+
50+600+
4+33+200+4+33+200+120+
200+
300+
Expenditures
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Ray spends $200 per month on gas and oil, which goes under “Transportation”.
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
50+
100+
21+21+21+25+
4+33+
125+
50+600+
4+33+200+4+33+200+120+
200+
300+
4+33+200+120+200+
Expenditures
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Ray spends $50 per month on telephone, which goes under “Shelter”. (Telephone is classed as a utility, as is natural gas, electricity, garbage pickup, recycling fees, water and things like that. Ray does not have any of those separate expenses because he pays rent, and those things are usually included in rent).
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
50+
100+
21+21+21+25+
4+33+
125+
50+600+
4+33+200+4+33+200+120+
200+
300+
4+33+200+120+200+
50+600+50+
If Ray had a cell phone, we would class the cell as “Miscellaneous” If Ray had a cell phone, we would class the cell as “Miscellaneous” (which is a WANT) because he already has a “landline”. However, if his (which is a WANT) because he already has a “landline”. However, if his cell phone was his only phone, we would class the cell phone as a utility cell phone was his only phone, we would class the cell phone as a utility (which is a NEED). In other words, one phone is a NEED, all phones (which is a NEED). In other words, one phone is a NEED, all phones after that are WANTS.after that are WANTS.
Expenditures
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Ray spends $90 per month on cable, which is bundled with his internet. That goes under “Entertainment”.
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
50+
100+
21+21+21+25+
4+33+
125+
50+600+
4+33+200+4+33+200+120+
200+
300+
4+33+200+120+200+
50+600+50+
90+
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Okay, that completes Ray’s expenditures. Your worksheet should match the one below.
Now it’s time to summarize our figures and see if Ray’s budget works or not…
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
50+
100+
21+21+21+25+
4+33+
125+
50+600+
4+33+200+4+33+200+120+
200+
300+
4+33+200+120+200+
50+600+50+
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Add up all of Ray’s Regular (Needs) Expenditures:
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
50+
100+
21+21+21+25+
4+33+
125+
50+600+
4+33+200+4+33+200+120+
200+
300+
4+33+200+120+200+
50+600+50+
50+600+50+300+100+4+33+200+120+200+125+21+21+25=
$1849$1849
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Add up all of Ray’s Discretionary (Wants) Expenditures:
Item Description
Shelter Rent or mortgage, utilities, maintenance $
Food Groceries, eating out, and non-food items purchased with groceries $
Clothing All family clothes, purchases, repairs, cleaning $
Transportation Payments, gas and oil, repairs, tune-ups, parking, public transportation $
Day Care Daycare and babysitting expenses $
Insurance(s) Medical, dental, car, house, renters, etc $
Medical and Dental Expenses only, not insurance costs. EG: not reimbursed prescriptions $
Loan payments Student loans, consumer loans, car loans etc $
Personal spending Cosmetics, haircuts, etc $
Savings Savings bonds, RRSPs, Pensions, Bank Account $
Education Tuition fees, books, etc $
Entertainment Cable, magazines, novels, movies $
Recreation Pets, sports, hobbies, vacations $
Miscellaneous Long distance telephone, coffee break snacks etc $
Reg
ular
(Nee
ds)
Dis
cret
iona
ry(W
ants
)
125+21+
4+
50+
100+
21+21+21+25+
4+33+
125+
50+600+
4+33+200+4+33+200+120+
200+
300+
4+33+200+120+200+
50+600+50+
200+125=
$325$325
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We’ve now completed the first two main sections of our Budget Worksheet, which were the income and the expenditures.
We’re ready to proceed with the third main section of the worksheet: The SummaryThe Summary
Net Monthly Income + $
Regular Monthly Expenses - $
Discretionary Monthly Expenses - $
Monthly Balance = $
If you look at your worksheet, you see that Ray’s Net Monthly Income was $1848. Enter that amount in the summary in the appropriate spot:
1848
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We’ve now completed the first two main sections of our Budget Worksheet, which were the income and the expenditures.
We’re ready to proceed with the third main section of the worksheet: The SummaryThe Summary
Net Monthly Income + $
Regular Monthly Expenses - $
Discretionary Monthly Expenses - $
Monthly Balance = $
Again, from your worksheet, you see that Ray’s Regular Monthly Expenses are $1849. Enter that amount in the summary in the appropriate spot:
18481849
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We’ve now completed the first two main sections of our Budget Worksheet, which were the income and the expenditures.
We’re ready to proceed with the third main section of the worksheet: The SummaryThe Summary
Net Monthly Income + $
Regular Monthly Expenses - $
Discretionary Monthly Expenses - $
Monthly Balance = $
Lastly, his Descretionary Monthly Expenses are $325. Enter that amount in the summary in the appropriate spot:
18481849
325
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We’ve now completed the Summary section. Let’s do the math:
Net Monthly Income + $
Regular Monthly Expenses - $
Discretionary Monthly Expenses - $
Monthly Balance = $
18481849
325
1848 – 1849 – 325 =
- 326$-326$-326
Oh oh! Good thing Ray worked out a budget. He can see right away that he will have to borrow $326 every month just to break even…or will he? Will that be enough? Should he borrow more?
Let’s review what makes a good budget…
A Good BudgetA Good BudgetThere are many ways to evaluate your budget, but three things
are present in every realistic budget:
1. All day to day expenses are covered every month.
2. You are contributing to long-term savings every month. These are plans such as an RESP (Registered Education Savings Plan) or an RRSP (Registered Retirement Savings Plan). Your minimum monthly contribution should be at least 10% of your net income for the month.
3. After your budget planning is finished for a month, there is at least 10% of your net income for the month left over (this is your “slush fund”).
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There are many ways to evaluate your budget, but three things are present in every realistic budget:
1. All day to day expenses are covered every month.
2. You are contributing to long-term savings every month. These are plans such as an RESP (Registered Education Savings Plan) or an RRSP (Registered Retirement Savings Plan). Your minimum monthly contribution should be at least 10% of your net income for the month.
3. After your budget planning is finished for a month, there is at least 10% of your net income for the month left over (this is your “slush fund”).
Okay, Ray seems to do this
He does this, too…
Way to go, Ray!
There are many ways to evaluate your budget, but three things are present in every realistic budget:
1. All day to day expenses are covered every month.
2. You are contributing to long-term savings every month. These are plans such as an RESP (Registered Education Savings Plan) or an RRSP (Registered Retirement Savings Plan). Your minimum monthly contribution should be at least 10% of your net income for the month.
3. After your budget planning is finished for a month, there is at least 10% of your net income for the month left over (this is your “slush fund”).
There are many ways to evaluate your budget, but three things are present in every realistic budget:
1. All day to day expenses are covered every month.
2. You are contributing to long-term savings every month. These are plans such as an RESP (Registered Education Savings Plan) or an RRSP (Registered Retirement Savings Plan). Your minimum monthly contribution should be at least 10% of your net income for the month.
3. After your budget planning is finished for a month, there is at least 10% of your net income for the month left over (this is your “slush fund”).
Oh, oh…here we go…Ray has NO money left over (in fact, he’s $326 in the hole…but he needs to have 10% of his net income ($1848) left over…that’s another $185 he has to come up with…so he’s REALLY $326 + $185 = $511 short every month!
Needs vs WantsNeeds vs Wants
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When “push comes to shove”, you may need to make some (seemingly) drastic choices to save and make ends meet.
For example, believe it or not, a cell phone is NOT a necessity (although just try telling that to a teenager).
A sub-woofer in your car is NOT a necessity, the car is for transportation, not entertainment.
Going to that concert is NOT a necessity, paying the rent is.
Eating out is NOT a necessity, paying the electricity bill is.
Cablevision is NOT a necessity, TV is not even a necessity.
Lots of things are nice to have, but when you’re really short of money, hard decisions have to be made…and once you live without some of those things, you’ll find you don’t miss them that much, anyway!
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So, let’s look over Ray’s budget and see where we can save him $511 each every month.
Take a look at your worksheet and see where you think Ray could cut back some.
There’s no right or wrong, here. The idea is to save Ray $511 per month, hopefully without causing him too much hardship! After all, if it’s too hard, he likely won’t make any changes.
Click your mouse button when you’ve made a few notes, and see if we come up with the same things.
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I like to make up a little worksheet to help visualize exactly exactly how we’re going to help Ray:
Item Old $$ New $$ Saved $$
Easy things first: He only has to put 10% of his net into his RRSP, so that’s $185. He’s putting in $200, let’s save him $15…not much, but it’s a start…
Item Old $$ New $$ Saved $$
RRSPRRSP 200200 185185 1515
1515
We’ll update this total each time…we’re trying to get it up to $511…(or more…)
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Item Old $$ New $$ Saved $$
Ray’s driving a pretty nice car with a $200 per month payment. Sure it’s nice to have a fancy car, with nice wheels, low profile tires, a ground effects kit, a stereo that shakes the rearview mirrors with it’s subwoofer…BUT IT’S NOT A NEED. Ray’s going to get a car that’s reliable, but maybe a few years older and a LOT less money!
Item Old $$ New $$ Saved $$
RRSPRRSP 200200 185185 1515
1515
Item Old $$ New $$ Saved $$
RRSPRRSP 200200 185185 1515
CarCar 200200 00 200200
215215
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While we’re on the subject of cars…let’s get rid of that parking spot. On second thought, let’s save Ray a TON of money…
Quit driving to work altogether. Get a monthly bus pass for $60 or so, save half a months gas and oil ($200/2=$100 saving), no parking spot ($120 saving), but cost $60…that’s a net saving of $160.
Item Old $$ New $$ Saved $$
RRSPRRSP 200200 185185 1515
CarCar 200200 00 200200
215215
Item Old $$ New $$ Saved $$
RRSPRRSP 200200 185185 1515
CarCar 200200 00 200200
TransportationTransportation 220220 6060 160160
375375
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Going good…we’ve saved Ray $375 a month, and so far the only sacrifice is that he’s not driving to work!
Let’s cut his clothing budget of $100 a month down to $75…net saving: $25
Item Old $$ New $$ Saved $$
RRSPRRSP 200200 185185 1515
CarCar 200200 00 200200
215215
Item Old $$ New $$ Saved $$
RRSPRRSP 200200 185185 1515
CarCar 200200 00 200200
TransportationTransportation 220220 6060 160160
375375
Item Old $$ New $$ Saved $$
RRSPRRSP 200200 185185 1515
CarCar 200200 00 200200
TransportationTransportation 220220 6060 160160
ClothingClothing 100100 7575 2525
400400
Remember how we’re doing this…
you have to do one for Annette
in our next example
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OK, we’re going to have Ray spend a bit more time shopping for bargains, buy caselot quantities, clip some coupons, and cut down on the fast food and ready made meals…savings on food: $100 month.
Item Old $$ New $$ Saved $$
RRSPRRSP 200200 185185 1515
CarCar 200200 00 200200
TransportationTransportation 220220 6060 160160
ClothingClothing 100100 7575 2525
400400
Item Old $$ New $$ Saved $$
RRSPRRSP 200200 185185 1515
CarCar 200200 00 200200
TransportationTransportation 220220 6060 160160
ClothingClothing 100100 7575 2525
FoodFood 300300 200200 100100
500500
And if we cut just $25 a month from his vacation savings, we’re reached our goal of saving $511 a month!
Whew…seems like a lot of work, but we basically did just three things:
Categorized each of Ray’s expenses
Summarized his spending
Adjusted his spending to make his budget work
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Your turn:
Set up Annette’s budget…A warning right now…her budget does NOT work.
Here’s a hint on how to save her some money: She has a mortgage, which means she owns her own home. Most houses have three or more bedrooms: how many does she need for her and her one child?
Hand in your completed worksheet for Ray, a completed budget worksheet for Annette, and your chart showing how you adjusted Annette’s budget so it works (similar to the one we did for Ray showing the item, how much was budgeted and how much was saved…).
Click to end