Spending Plans..........................

Presentation on Spending Plans and Budgets

1. Spending Plans Financial Literacy 8 Outcome CT.FTL8.1

2. Vocabulary Asset Income Bonus Liability Budget Liquidity Commission Net Pay Discretionary Income Pay Yourself First Emergency Fund Piecework Expense Salary Fixed Expense Spreadsheet Gross Pay Tips Hourly Wage Variable Expense

3. Financial Resources Categories Income – Money that you earn from a job or career. Savings – Money that is not spent and it stored for later use. Investments – Something that is bought with the belief that is can be sold in the future for more. Material Things – Items of value that can be sold for money (assets).

4. Budgets A budget is a plan for the use of money over time based on goals, expenses, and expected income Budget values are estimates of expected income, saving, and expenses. Budgets help us make the most of our money and avoid financial problems Budgets can be created on paper or using a spreadsheet.

5. Spreadsheets A spreadsheet is a software program that formats data in columns and rows and can perform calculations Spreadsheets can help us to calculate and analyze our financial information Spreadsheet can help analyze various budget scenarios to find the best options.

6. Budget Example Income Monthly Work (part-time) $120.00 Allowance for household chores 40.00 Lunch money allowance 60.00 Savings account interest 2.00 Total income $222.00 Savings Deposit to savings account $ 22.00 Expenses Gifts $ 20.00 Clothes and shoes 60.00 Loan payment to parents 20.00 Lunches 60.00 Entertainment/miscellaneous 40.00 Total expenses $200.00 Total savings and expenses $222.00

7. Steps in Creating a Budget (Step 1) Step 1: Establish Financial Goals Short-term goals up one year to achieve Medium-term goals take from one to three years to achieve Long-term goals take more than three years to achieve

8. Short, Medium, Long Term Goals

9. Steps in Creating a Budget (Step 2) Step 2: Estimate Income Determine your budget period depending on when you receive most of your income Income is any form of money received allowance paycheck gifts gains from an investment sale of items owned

10. Budget Example Income Monthly Work (part-time) $120.00 Allowance for household chores 40.00 Lunch money allowance 60.00 Savings account interest 2.00 Total income $222.00 Savings Deposit to savings account $ 22.00 Expenses Gifts $ 20.00 Clothes and shoes 60.00 Loan payment to parents 20.00 Lunches 60.00 Entertainment/miscellaneous 40.00 Total expenses $200.00 Total savings and expenses $222.00 SUM

11. Steps in Creating a Budget (Step 3) Step 3: Estimate Savings and Expenses Savings Goal: Save at least 10% of income Budgeting for savings Pay yourself first is a personal financial strategy that can help you save money Money is put into savings or an emergency fund before paying other expenses. An emergency fund is an amount of money that can be easily accessed in case of a job layoff, illness, or unexpected expenses

12. Budget Example Income Monthly Work (part-time) $120.00 Allowance for household chores 40.00 Lunch money allowance 60.00 Savings account interest 2.00 Total income $222.00 Savings Deposit to savings account $ 22.00 Expenses Gifts $ 20.00 Clothes and shoes 60.00 Loan payment to parents 20.00 Lunches 60.00 Entertainment/miscellaneous 40.00 Total expenses $200.00 Total savings and expenses $222.00 10%

13. Expenses An expense is the cost of goods and services purchased Expenses are generally fixed or variable A fixed expense is a set amount that must be paid each budget period rent mortgage payments insurance premiums loan payments

14. Expenses A variable expense is a cost that changes both in the amount and time it must be paid food clothing entertainment Variable expenses may be necessary or discretionary A discretionary expense is an amount spent for an item that a person could do without Food is a necessary item, but an expensive restaurant dinner is a discretionary expense

15. Budget Example Income Monthly Work (part-time) $120.00 Allowance for household chores 40.00 Lunch money allowance 60.00 Savings account interest 2.00 Total income $222.00 Savings Deposit to savings account $ 22.00 Expenses Gifts $ 20.00 Clothes and shoes 60.00 Loan payment to parents 20.00 Lunches 60.00 Entertainment/miscellaneous 40.00 Total expenses $200.00 Total savings and expenses $222.00 SUM

16. Steps in Creating a Budget (Step 4) Step 4: Analyze Estimated Income and Expenses Analyze your estimated income and expenses in order to evaluate your budget Income should be more than Expenses. Budget should balance: Income = Savings + Expenses

17. Budget Example Income Monthly Work (part-time) $120.00 Allowance for household chores 40.00 Lunch money allowance 60.00 Savings account interest 2.00 Total income $222.00 Savings Deposit to savings account $ 22.00 Expenses Gifts $ 20.00 Clothes and shoes 60.00 Loan payment to parents 20.00 Lunches 60.00 Entertainment/miscellaneous 40.00 Total expenses $200.00 Total savings and expenses $222.00

18. Steps in Creating a Budget Do you have money left over? “Left Over” Money goes into Savings. Do you save & spend more than income? Find ways to increase income or reduce spending Can reduce savings occasionally

19. Steps in Creating a Budget (Step 5) Step 5: Analyze Actual Income & Expenses A variance is the difference between the budgeted amount and the actual amount Compare your actual income and expenses in your budget to find the variance Adjust your budget to reflect actual income and spending

20. Discretionary Income Discretionary income is the money that remains after a person has paid all expenses Also known as disposable income Discretionary income can be saved, invested, and/or spent

21. Why Budget? (Benefits of Using a Budget) Helps you track Income and Expenses Insure you don’t spend more than you earn Helps you meet your financial goals Helps you prepare for emergencies Lowers stress related to money.

22. Better Budgeting

23. Assets and Liabilities An asset is an item of value that is owned cash stocks and bonds real estate personal possessions A liability is a current or future financial obligation

24. Assets and Liabilities Assets are divided into two categories Current assets include cash and savings that can be converted to cash quickly and easily Also called liquid assets Liquidity is the ease with which an asset can be converted into cash without losing value Fixed assets include investments for long-term goals, homes, autos, personal possessions, and durable goods

25. Assets and Liabilities Liabilities are divided into two categories on a net worth statement Current liabilities are items due soon, usually within the year Long-term liabilities include obligations to be paid over a long period of time

26. Types of Compensation

27. Earned Income Earned income is the income received from employment, including self-employment wages salaries commissions tips bonuses self-employment income

28. Wages A wage is payment for work that is usually calculated on an hourly, daily, or piecework basis Example: an hourly wage , which is a fixed amount paid for each hour worked Paid on a schedule, such as every week or every two weeks

29. Wages Minimum wage is the lowest hourly wage employers can pay most workers by law The US government sets and enforces the minimum wage through the Fair Labor Standards Act (FLSA)

30. Overtime Overtime wage is the amount paid for working time in a week that is beyond the standard 40-hour workweek Eligible workers who work more than 40 hours per week must receive overtime pay at least 1.5 times their regular hourly rate for the hours in excess of 40

31. Wages + Overtime regular earnings: 40 hours × $10 per hr. = $400 overtime rate: $10 per hr. × 1.5 = $15 per hr. overtime earnings: 4 hours × $15 per hr. = $60 total earnings: $400 + $60 = $460

32. Piecework Piecework is a wage based on a rate per unit of work completed Example: garment workers paid by the number of garments completed Total piecework wages must add up to at least the minimum wage

33. Salary Salary is a fixed payment for work and is expressed as an annual figure Paid in periodic equal payments at regular intervals during the year Examples are weekly, biweekly, semimonthly, monthly Salaried workers are expected to put in as much time as it takes to do the job

34. Calculating Earnings per Pay Period

35. Commission A commission is income paid as a percentage of sales made by a salesperson Some people work on a commission-only basis Others may receive a combination of a base salary plus commission Income can vary from month to month or year to year

36. Tips A tip is money paid for service beyond what is required Also called a gratuity This money belongs to workers, not their employers Common for food servers, taxi drivers, hair stylists, and other service-industry workers FLSA requires that tipped workers be paid at least the minimum wage

37. Bonus A bonus is money added to an employee’s base pay Incentives to encourage workers to perform better Usually based on worker performance, length of time with the company, or company performance

38. Profit (Self-Employment) Self-employed people work for themselves and earn income called profit or self-employment income Self-employed workers include artists, carpenters, consultants, and others Self-employed workers must arrange and pay for their own employment-related benefits

39. Payroll Deductions Gross pay is total income before payroll deductions A payroll deduction is a subtraction from gross pay Net pay , or take-home pay, is gross pay (plus bonuses) minus payroll deductions Some deductions are mandatory Social Security taxes Medicare taxes income taxes

40. Payroll Deductions The federal income tax system is built on a pay-as-you-earn concept Each working person pays taxes from each paycheck instead of in one lump sum each year State and local income taxes usually work this way, too

41. Payroll Deductions The amount of income tax withheld from your paycheck depends on multiple factors how much is earned marital status number of allowances claimed An allowance is an amount of earnings not subject to income taxes

42. FICA Most workers in the United States are covered by the Federal Insurance Contributions Act (FICA) FICA taxes, or Social Security and Medicare taxes, are taxes paid by the employee and employer that are used to finance the federal Social Security and Medicare programs

43. FICA FICA is a matching tax Employers must match the amount of FICA tax that the employees pay; each pays 7.65% 6.2% for Social Security with an annual cap on income that is subject to Social Security taxes 1.45% for Medicare with no cap on income taxed for Medicare

44. Taxes and Other Deductions Federal, state, and local withholding taxes are deducted from gross pay based on earnings, marital status, and the number of withholding allowances claimed Other voluntary deductions may be withheld for health, dental, vision, and other insurance that employees get through their employers

45. Sources of Income for Middle School Students Allowance Babysitting Lawn Care (summer) & Snow Removal (winter) Gifts (Birthdays, Holidays) Paper Route Odd Jobs for Parents (work in parents’ business) Part-Time Job