Budgeting Coursework 

Next Steps

The following presentation of slides will cover all the basics you need to know about budgeting.  You’ll be tested at the end, so you can use these slides to improve your previous test score, and learn something new and useful about budgeting.

It's Your Money

Did you ever wonder where the money in your wallet went or how your bank account balance got so low?

How your money disappeared is not as big a mystery as you might think. If you don’t plan what you spend or keep track of what you buy, it’s easy to burn through cash.

Running short of money can result in much more serious consequences than having your ATM withdrawal rejected or needing to borrow money again. If you run out of money, you may have to drop out of school and put your other plans on hold.

To keep your life and goals on track, you need a budget. A budget can help you be smart about how you spend.

Don’t think of a budget as a set of rules. Think of it more as using a GPS on a road trip. The maps and positioning software tell you where you are, help you plan a route to where you’re going, and redirect you if you take a wrong turn. Without a map, you might get lost, waste time, and spend extra money.

What's a Budget, and What's it For?

A budget helps you see where you are financially, plan your spending—by the week, month, or semester,—and make adjustments if you get off track. Setting up a budget doesn’t require satellite-based technology—although technology such as the CashCourse Budget Wizard, worksheets, and calculators can help.

With a budget, you plan your spending. That way, you can pay your bills, afford the necessities of life, and have some money left over to have fun or buy some of the things you want.

Often, the best approach is to take a hard look at how you’ve spent money in the past. Your credit card bills and bank statements will help you track some of your spending. Keeping a penny-by-penny record of everything you spend, starting right now, also is very helpful.

Once you have a week or two of actual spending records, you can see exactly what you’re doing right and what habits you need to change.

Income and Expenses

When you’re ready to create a budget, start with your monthly income. That’s the amount of money you have to work with in your budget.

 Add up what you earn each month from all sources:

•  Take-home pay from a job or freelance work
• Allowance
• Summer work (include one month's worth of the total)
  
 

Note: One-time cash gifts, such as money you get for your birthday or a tax refund, also are income. But since you can’t plan on this every month, don’t include them here.

The next step is to add up your current expenses, using the records you have available. This list will undoubtedly be longer and more varied than your sources of income.

You can use the Income and Expense worksheets or the Budget Wizard to help record your expenses and income.

What You Need

If you’re serious about planning your spending, one of the first things you’ll have to do is to separate needs from wants.

Needs are things you can’t live or work without. Needs include a place to live, food, transportation, clothing, and insurance. Loan payments belong in this category, too. Regardless of what you borrowed money for, you need to pay it back. Otherwise, you’ll risk ever-increasing interest costs and fees, and maybe even going into default.

Although you have to pay for needs, you do have some control over what you spend. Consider the following ways you might be able to save money on needs:

• Bike to class instead of driving.
• Learn to do some basic cooking instead of eating out or ordering in every night.
• Cut back on options in your cable service or mobile phone plan.
• Save on your electric bills by not running the heat or AC on full tilt all the time.
• Consider getting a roommate.  As nice as it may be to have a place of your own, a roommate foots half the bill.
  
 

What You Want

Unlike needs, wants are things you can get by without, even though you’d like to have them.

The latest boots, a newer computer, and dinner at a special restaurant are all examples of things you might want, but probably don’t really need. If you decide that a want really is a need, such as an unlimited data plan for your phone, then you’ll have to sacrifice something else to pay for it.

Keep in mind that one person’s want may be another’s need, and the other way around. If you live in a city with decent public transportation, you probably don’t need a car, even if you’d love to have one. Outside a major city, however, you might need a car just to get to work. Even then, carpooling probably would be an option. Your need vs. want decision becomes one of driving with a friend, co-worker, or acquaintance compared to driving by yourself.

Once you decide where to draw the lines on a whole series of needs vs. wants, your budget decisions will be much clearer.

Making a Spending Plan

When you’re ready to use the information you’ve collected to make a spending plan or budget, subtract your expenses from your income.

You can use the Income vs. Expenses Worksheet to see where you stand.

Or, have the Budget Wizard do it for you.

If your answer is positive—that is, your income is higher than your expenses—you’re on the right track. You may want to increase the amount you’re saving for the future. Other than that, keep up the good work!

If your answer is negative, and your expenses are higher than your income, you have work to do. It helps to know that expenses can be broken down into two categories:

• Fixed expenses are amounts that you have to pay every month, no matter what. Rent, insurance, loan payments, and phone bills are usually fixed expenses. They won’t change unless you move or modify your plan.
• Flexible expenses cover other neccesities such as food and transportation, but also things that are fun.  How you handle flexible expenses will make or break your budget.   
  
  
   
  

Balancing Your Budget

If you have too little income or too many expenses, you’ll have to balance your budget. In other words, you need to get your expenses in line with your income.

The first step is to plug spending leaks and figure out which expenses you can cut. If you’ve separated your needs from your wants, you’re already off to a good start.

If you find that your expenses are still much too high, try cutting out some more wants. Then look at your needs and try to lower flexible expenses, such as food and clothing.

In addition to trying to cut expenses, you can work on increasing your income. You can look for a new job with higher pay, take a part-time job, or find freelance opportunities in addition to the work you already have.

If your income is greater than your expenses, you can start building up an emergency fund and saving for your goals.

Emergency Funds

Everybody has a financial emergency now and then.

Computer repairs, car repairs, and medical expenses are common emergencies. Without money set aside in an emergency fund, you either have to wait until the next pay period to deal with it—which isn’t always possible—or borrow money to cover the surprise expense right away. (Remember that using a credit card for a car repair or medical copay is considered borrowing.)

To create your emergency fund, pay yourself first by making saving one of your fixed expenses. When you’re out of school and working full time, the rule of thumb is to save three to six months’ worth of living expenses in your emergency fund. For now, pick a dollar amount—say $500—and save something every month until that amount is in your savings account. If you spend some of your emergency fund, build it up again.

Remember that having the latest model smartphone isn’t an emergency. This money is only for real emergencies.

Setting Goals

Although sticking to a budget can be hard work, achieving the goals you’re saving for will make it all worthwhile.

The first goal in budgeting is to make your expenses equal to—or better yet, less than—your income. You’ll know you’re on the right track when you’re saving at least 10 percent of your income every month and still have money left over to pay for something you’ve been denying yourself.

Different goals have different time frames, typically based on what the goal will cost. Short-term goals, like saving up for buying a new phone, may take three months or less. Medium-term goals, such as upgrading your laptop, may take three months to a year. Long-term goals, such as getting a car, going to graduate school, or eventually owning a home, take more than one year, sometimes many more.

No matter the time frame of a goal, your ability to reach it depends on how you manage your budget every day.

Debt as a Part of Your Budget

Managing your spending also can help you avoid debt. While debt isn’t always a bad thing—borrowing for college is a debt that pays for itself in the long run—you need to budget for repayment when you do borrow.

Just as you make smart spending choices, you can make smart repayment choices.

If you have debts with high interest rates—credit card debt is a good example—consider paying off those debts as quickly as possible. After all, owing interest on tickets to a concert you attended two months ago isn’t a good use of your money. Two things will help you pay off high interest debt: paying more than the minimum balance due—ideally, as much as you can afford—and not increasing the debt by making new purchases.

With low-cost debt, on the other hand, the key is to never miss a payment. If you include the amount due in your fixed payment list and have the money to cover it, you should be in good shape.

Sticking to Your Budget

Sticking to your budget requires good spending habits. The following tips can help you stay focused and on track:

Cut down on using your debit and credit cards. You may think longer about a purchase if you’re spending cash rather than using plastic.

Write down your goals and display them in a place where you’ll see them every day. Frequently reviewing goals will help remind you why you’re being disciplined about your budget.

Pay your fixed bills first each month and then review your budget for flexible expenses. It’s better to cut back a little each week than be out of money at the end of the month.

Keep a spending notebook to track all of your expenses. It will help you decide where you can save money.

Managing Your Money

The worksheets and Budget Wizard aren’t the only budgeting tools available to you. Many banks offer online services that can make your financial life much easier.

Look for a bank that offers free automatic bill payment. That way you can identify fixed amounts, like rent and utility bills that need be paid in full, and authorize the bank to pay them each month when they are due. That way, your payment is never late. You just have to be sure there’s enough money in your account to cover what’s being withdrawn.

You also can arrange to have payments automatically debited by the payee (the person or company that’s billing you, for example, the electric company).

You may not want to arrange automatic payments for your credit card bills, however. With credit card payments, it’s nice to have the flexibility to pay over the minimum when you can. Changing the amount you pay each month may not be possible with an automatic payment program.

Protecting Your Credit

Using a budget also gives you a proactive way to protect your credit. Not overspending helps ensure that you’llhave enough money every month to meet your loan and credit card obligations. If you don’t follow your budget and fall behind on payments, it could damage your credit score and ability to borrow in the future.

If you budget carefully, you also should be able to limit all but essential uses of new credit. When you think about borrowing, figure out whether you can adjust your budget to cover the added cost—before you complete the loan application.

Delaying loan payments, missing payments, or borrowing to cover living expenses put your credit at risk. Using new credit to pay off old debt also is a sure sign of trouble. If either of these describes your situation, you may want to get some professional help in reworking your budget.

Keeping Good Records

Keeping good records and reviewing your budget on a regular schedule—at the end of the month, for example—can help you determine where you overspent and where you can afford to spend a little more.

Bank and credit card statements can help you keep track of income and expenses, but don’t rely on them alone. Keep your own records to track the smaller but recurring expenses your bank or credit card company may not list separately, such as what you did with the $50 you withdrew at the ATM.

Good record keeping helps you identify overspending and makes it easier to plan for next month or next year (particularly if you have a past budget as a reference point). Applying the lessons you’ve already learned about balancing your income and expenses and managing your spending gives you a head start.

If your record keeping shows that you’re on track, you might treat yourself to something from your list of wants.

Take Action!

Thank you for reviewing the slides. You are almost done! Next, you will take a 10 question post-test to assess what you have learned. Your scores will be sent to your email address and shared with the CashCourse administrator on your campus.

Download the Budgeting Action Plan to help get you started budgeting.