ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6 WHAT’S AHEAD 6.1 Choose Financial Goals 6.2 Track Income and Expenses 6.3 Your Budget Worksheet 6.4 Create Your Budget for the Year
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
WHAT’S AHEAD
6.1 Choose Financial Goals
6.2 Track Income and Expenses
6.3 Your Budget Worksheet
6.4 Create Your Budget for the Year
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
LESSON 6.1
Choose Financial Goals
GOALS►Identify your financial goals.
►Explain how your goals might affect your family and
community.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
KEY TERM
budget
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Types of Financial Goals►Budget
►A plan for dividing income among spending and saving
options.
►Short-term financial goals
►Something you hope to achieve within a year
►Long-term financial goals
►Something you hope to achieve over a period of years
►Balancing short-term spending with long-term success
► If a person’s short-term goals do not contribute to his/her long-term
goals, it is unlikely that these goals will ever be achieved.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Your Goals Affect Others►Your family and your goals
►Your current family
► College expenses – parent loans
►Your future family
► Spouse, kids
►Your community and your goals
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
LESSON 6.2
Track Income and Expenses
GOALS►Describe how to set up an effective filing system for
your records.
►Explain the difference between fixed and flexible
spending.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
KEY TERMS
fixed expense
flexible/variable expense
luxury good
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Keep Financial Records►Track your income
►Track your spending
►Establish a filing system
►A good filing system needs to be comprehensive, easy to
use, and easy to maintain.
►Effective record keeping
►How to use financial records
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Fixed and Flexible Expenses►Fixed expenses: amounts you are committed to spend
► Must be paid and therefore must be included in a spending plan
► Example: mortgage, property taxes, insurance
►Flexible/ Variable expenses: amounts that you can choose
to spend or not to spend
► Flexible expenses may be important, although not required, and
should be included in a spending plan, but not to the extent that they
prevent payment of a fixed expense.
► Example: clothes, entertainment
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Fixed or flexible/variable expenses?►Monthly mortgage
►Car insurance
►Cable bill
►Movies
►Jeans
►Cell phone bill
►Electric bill
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Luxury Goods►Luxury goods: goods that have special qualities that
make them more expensive than alternative goods.
►Example: A new sports car is much more expensive than
a used compact car.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
LESSON 6.3
Your Budget Worksheet
GOALS►Identify steps you should take to create a budget
worksheet.
►Explain common problems with budgeting.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
KEY TERM
budget worksheet
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Create Your Budget Worksheet►Budget Worksheet: a planning document on which
you record your expected and actual income and
spending over a short time.
►Purpose is to compare how you think you spend your
income with how you actually spend it.
►Maintaining an accurate and complete record of
income and spending will enable an individual to
construct an appropriate one-month budget
worksheet.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Steps in Preparing Your Budget
Worksheet►Step 1: Create a worksheet
►Step 2: Estimate your income
►Step 3: Estimate your expenses and savings
►Step 4: Record your actual income and expenses
►Step 5: Calculate the differences
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Step 1: Create a Worksheet►List your sources of income and categories of spending
and savings.
►Personalize your worksheet by adding other categories.
►Add the amounts you expect to receive, spend, or save
during a month.
►Record the amounts you actually receive, spend, and
save.
►Calculate the difference.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Step 2: Estimate Your Income►Estimate income that occurs in the same amounts and
at regular times throughout the year.
►Be sure to use your net income from your paycheck
stubs – the income you bring home.
►Estimate Uneven Income
►Income may not be the same every month.
►Example: Servers/Tips, Part-Time, Bonus pay
►Be sure the Income is Real
►Think of all sources of income during the year.
►You can’t spend or save what you don’t have.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Step 3: Estimate
Your Expenses and Savings►Look in your records for your fixed and flexible
expenses.
►Plan for Uneven Expenses:
►Expenses can occur unevenly throughout the year.
►Many expenses are paid only once or twice a year.
►Example: Car Insurance, Property Taxes
►Charitable Giving
►Plan your savings
►Savings needs to be planned – it should not just be the
“left over” money.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Step 4: Record Your Actual
Income and Expenses►As you receive income and make purchases each
month, file your records in your filing system
►At the end of the month, get out your records and your
budget, and then record your actual income, expenses,
and savings.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Step 5: Calculate the Differences►Subtract the expected amount from the actual amount
in each row and record the difference.
►Positive numbers means that you spent or received
income more than you expected in that category.
►Negative number means that you spent or received
less than expected in that category.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Monthly Budget Example► Joan created and implemented a monthly budget worksheet for herself.
► Calculate monthly income, expenses, and savings for a 4-week period.
► Total Monthly Income: ________________________
► Total Monthly Expenses: _______________________
► Money left over for Savings: _____________________© 2010 South-Western, Cengage LearningSlide 22
Income
Paycheck (net) $175/week
Expenses
Eating out $50/week
Birthday gifts $75/month
Movies $20/week
Clothes $100/month
Personal care items $30/month
Savings ?/month
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Budget Pitfalls►Few consumers have realistic budgets.
►Some people get too specific.
►Some people don’t predict the correct amount of their
flexible expenses.
►Some people lump too many expenses under
miscellaneous.
►Some people give up on budgets because they think
budgets take too much time and effort.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
LESSON 6.4
Create Your Budget for the Year
GOALS►Evaluate and adjust your budget worksheet.
►Explain why consumers should create and update
yearly budgets.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
KEY TERM
audit
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Evaluate Your Budget Worksheet►Adjust your spending
►If your spending exceeds estimates, you can either adjust
your spending estimates or change your spending habits.
►You should choose whichever option best meets your
long-term goals.
►Make several plans
►Completing several budget worksheets will show how
various spending and saving options and allows you to
select the one that works best for you.
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ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Budgeting for the Year►Review and adjust your budget
►Relate your goals to your budget
►Adjust to changing goals
► Complete a budget audit
► Audit: A type of review in which a budget is check both for
accuracy and to determining whether it is helping to achieve
goals.
►Family budget
►Planning together
►Compromising
►The budget cycle© 2010 South-Western, Cengage LearningSlide 27
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Sample Family Budget
Slide 28 © 2010 South-Western, Cengage Learning
Home 44.0%
Clothes 13.7%
Savings 5.0%
Entertainment 5.2%
Food 9.8%Utilities 9.5%
Car 12.8%