Unit 1: Part B - Purpose of Budgets
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Transcript of Unit 1: Part B - Purpose of Budgets
Unit 1: Budgeting Purpose of a Budget
Mr. ElsesserIntroduction to Business
DO NOW:BRAINSTORM:
Answer these questions…What steps do you think need to be taken in order to create a budget? What can happen if you do not have a spending plan? Identify some circumstances that may dictate when a budget needs to be changed.
Starting your BudgetStart by tracking income & expenses for one or two months to prepare a realistic budget.
Budget: A spending and savings plan for using your
money to best meet your wants and needs based on your income and expenses.
Your goal is to create a balanced budget: Balanced Budget:
Ensuring that the total of savings and expenses are the same as your total income amount.
Starting your BudgetYour budget/spending plan should have the following categories:
Income Money earned by individuals.
Fixed Expenses Expenses that stay the same each month.
Variable Expenses Expenses that can change each month.
InvestmentsMoney that you hope will generate interest or
appreciation. Savings
Money that you have left over after all expenditures.
7 Steps to Building a Budget…Step 1: Setting Financial Goals
What do you wish to do with your money?
Step 2: Estimating Your Income Include all take home pay, income on investments and savings. DO NOT INCLUDE MONEY YOU MAY NOT GET OR NOT YET EARNED (Bonuses, gifts, scheduled jobs).
Step 3: Budgeting for Unexpected Expenses and Savings
Deposit money to vacation accounts, personal goals, and emergency funds.
7 Steps to Building a Budget…Step 4: Budgeting for Fixed Expenses
What are all of your monthly bills?
Step 5: Budgeting for Variable Expenses
Expenses your incur that are either unexpected or varied. Heating and cooling, pleasure or fun, medical
expenses Can sometime depend on CONSUMER PRICE INDEX (CPI):
Measure of change in prices for commonly purchased goods and services in the United States.
FIXED, VARIABLE, OR PERIODIC?
Expense Fixed Variable Periodic
Loan Payment X
Electric Bill X
Twice-yearly Insurance Payment
X
Dinner and Movies X
Gas X
What kind of cost???
7 Steps to Building a Budget…Step 6: Recording What You Spend
BUDGET VARIANCE: Difference between the budgeted amount and the
actual amount that you spend.
Step 7: Reviewing Spending & Saving Patterns
Reviewing your financial progress Are you falling behind on bills? Have money left
over? Revising your goals and adjusting your budget.
What changes in your actions do you need to make?
Value of a Spending Plan…Helps you determine where you are spending your money currently.
…Helps you decide where to spend your money in the future.
…You have an organized way to save for things that cost more.
…Puts you in control of your financial future, beginning NOW.
People without a Budget…Are less likely to know what they have.…Have no plan, often coming up short before their next paycheck or allowance.…Are almost certain to have no plan to save for more expensive spending goals.
Things to Keep in Mind When Budgeting
Having a budget will not solve financial problems. Budgets need to be well planned and include ALL expenses/incomes. Budgets need to be practical. Budgets should be flexible. Budgets should AIM to help you create savings. Budgets may need to be adjusted or changed due to various circumstances.