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Budgeting

Budgeting. “Pay Yourself First”. Personal Budget. Working Tool Take Control Directs flow of cash received towards financial goals Must be Flexible! Takes discipline. NEFE High School Financial Planning Program. ?. Unit Two – Budgeting: Making the Most of Your Money. 2-A-1.

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Budgeting

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  1. Budgeting “Pay Yourself First”

  2. Personal Budget • Working Tool • Take Control • Directs flow of cash received towards financial goals • Must be Flexible! • Takes discipline

  3. NEFE High School Financial Planning Program ? Unit Two – Budgeting: Making the Most of Your Money 2-A-1

  4. NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money 2-A-2

  5. Reasons for 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. 2-B-1 1 2 3

  6. 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. 2-B-2 1 2 3

  7. PAY YOUR$ELF FIRST! S etting aside money for “big ticket items” A voids borrowing, which costs you a lot! It’s a V ery wise thing to do, because E very time you pay yourself first, you are developing asaving habitthat leaves you with more money to spend later on for things that are really important to you!

  8. 2 Parts of Budgeting • 1. Income: Money Received from any source (limited source) • 2. Expenses: Money spent to satisfy needs/wants

  9. GROSS VS NET • Gross pay is the total amount you earn before any deductions are subtracted. • $6.50 X40=$260.00 • Net pay is the amount you “take home” after deductions. • Overtime is time worked beyond the regular hours • A standard workday is 8 continuous hours with scheduled breaks plus an unpaid lunch period. • A standard work week is 40 hours in a 5 day period of time.

  10. OVERTIME • Fair Labor Standards Act states that: • “employers must pay hourly workers for overtime at the rate of 1 1/2 times the regular rate of pay.” • So… if regular pay is $6.50- then overtime would be $9.75. • 40 hours x $6.50 = $260.00 • 5 hours X $9.75 = $48.75 • Gross pay = $308.75

  11. Paycheck Stub • Salaried employees do not receive additional pay for overtime work. • Their gross pay is the same month after month. • The employer divides the salary into equal amounts for each pay period. • Under the “YTD” heading, your gross pay is added up throughout the year.

  12. Money subtracted from Gross Income: Union Dues Health Insurance Savings plans Taxes Taxes are the largest deductions-required by law Income- Payroll Deductions

  13. 4 Payroll Taxes • 1. Federal Income Tax • 2. State Income Tax • 3. Social Security Tax (FICA) • 4. Medicare Tax (FICA) • FICA- Federal Insurance Contribution Act Employees match contributions

  14. Example:

  15. W-4 Form Withholding Allowance Certificate

  16. NET PAY • When all deductions are taken out of your gross pay, the amount left is your net pay. • Net pay is the amount of money you can actually spend. • Net pay is often called “take-home pay” because it is the amount you can actually use as you wish • Regular wages or salary + Overtime= Gross Pay • Gross Pay - Deductions = Net Pay

  17. W-2

  18. Federal W-2 Wage & Tax Statement • Employees receive at beginning of year • Itemizes money earned & withheld by IRS • Based on previous year income • Employee can determine if paid too much/ too little to IRS • Tax refund- too much • Taxes owed- too little

  19. IRS • Internal Revenue Service • Responsible for collecting taxes

  20. Tax Information • Single tax payers who earn less than $8,500 do not have to file a tax return

  21. 2nd part of Budgeting: Expenses! • Money spent to satisfy needs/wants • Working Budget: Expenses & income balance • Expenses should not exceed income • Limited resources- choices on how to spend money • Opportunity costs vs. delayed gratification

  22. Fixed: Savings- PYF (Leftover approach never works) Example: Car payment Insurance Same amount of payment each time Variable: Examples: Gas, Food, Entertainment costs, clothing Can change month to month Expenses included in Budget

  23. How to Build a Budget • Decide on a time frame for tracking expenses (week, two weeks, month). • List all money you have coming in (income). • Make categories for all expenses. • Subtract total expenses from income. • Study your budget and your financial plan to make sure it fits with your plans and goals. 2-F 1 2 3 4 5

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