BUDGETING 101
How to track where your money is being spent
What is a BUDGET?
 A Budget is a policy document allocating burdens and
benefits
 Since budgeting allows you to create a spending plan
for your money, it ensures that you will always have
enough money for the things you need and the things
that are important to you. Following a budget or
spending plan will also keep you out of debt or help you
work your way out of debt if you are currently in debt.
Why have a BUDGET?
 Living without a budget is similar to traveling across the
country without a roadmap. While both can be
accomplished, the result is usually expensive and
wasteful.
 The household budget lists every anticipated expense in
major categories that can be directly tied to actual
expenditures.
 Many people view the use of a budget as restraining
and remedial, but most wealthy people have grown
their financial wealth through the use of a strict budget.
“Look at the mortgage crisis and how many families
lost their homes– 3.9 million. Look at the amount of
money- $1.1 trillion- we owe in student loan debt. The
amount we owe in credit card debt- $ 845 billion. It’s
pretty clear that adults don’t know much about
money.”
 Without a budget, a Deficit- Excess of expenditures over
revenues is a real likelihood.
 Expenditures- what you are purchasing.
 Revenues- earned income
“Parents are the number one influence on their children’s
financial behaviors, so it’s up to us to raise a generation of
mindful consumers, investors, savers, and givers.”
1. Acts as a roadmap – Creating the budget will reveal
where every dollar is currently being spent.
When the course being followed is incorrect, the
budget can be used to re-route your plan.
The budget is a living document that must be
updated with the changes that occur in your life.
“Children as young as 3 years old can grasp financial
concepts like saving and spending.”
2. A budget Reveals waste - A detailed budget that is
compared against the actual monthly expenditures will
reveal the incorrect use of money.
When money is spent on non-budgeted items, budget
shortfalls are created and can be corrected.
When you can identify a source of waste you can then
take corrective action.
REVIEW
1. What is a Budget? Explain what it does.
2. Is a Budget static or evolving? Explain.
3. Living without a budget is similar to traveling across
the country without a roadmap. Explain what this
means.
“Money is finite and it’s important to
make wise choices, because once you
spend the money you have, you don’t
have more to spend.”
3. Aligns priorities – Identifying needs versus wants
Family discussions over the budget can reveal
differences in priorities that may often cause conflict.
Conversations to address the underlying priorities will
correct the problems and reduce disagreements over
money.
Since money is such a stressful part of marriage,
identifying discrepancies before they become an issue
can do a lot of good.
“You may have to wait
to buy something you
want.”
4. Builds new habits – Working within the budget
will shift actual expenses from unnecessary
categories into the most essential household
categories.
Efforts to stay within the budget will build new
spending habits that can be maintained over
time.
Money will be available for the most important
expenses and debt reduction becomes possible.
Budgeting activities provide substantial benefits to personal
financial health because the budget:
5. Reduces stress – Following the budget throughout the
year gives everyone an accurate picture of the financial
health of the family.
Guesses are no longer required to determine if large
purchases and vacations are affordable.
When annual expenses are budgeted each month,
sufficient funds will exist to pay the bill when it becomes
due.
Budgeting activities provide substantial benefits to personal
financial health because the budget:
6. Controls spending – Balancing expenditures and
revenues.
If expenditures exceed budgeted amounts, corrections
can be made in the coming months to control the
monthly flow of money.
When outstanding debt is weighing on the monthly
finances, the budget can show areas where spending
can be reduced to find the money to repay the debt.
REVIEW
1. Budgets align priorities. Explain what this means?
2. Budgeting can cause stress and marital problems.
How can following a budget reduce stress?
3. Budgeting controls spending. Explain what this
means.
Trade-Offs and Opportunity Cost
 Trade-off is the alternative people give up when
they make a choice.
 Opportunity cost is the value of the next-best
alternative a person gives up
 Not the value of all possible alternatives
Analyzing Choices
 Cost-benefit analysis- examination of costs, expected
benefits of choices.
 Marginal cost (focus on cost)
 Additional cost of using one more unit of a good or service
 Marginal benefit (focus on how it affects you)
 Additional benefit of using one more unit of a good or
service
Making Choices
 Factor 1: Motivations for Choice
 People motivated by incentives, utility and by self-interest
 Factor 2: No Free Lunch
 All choices have a cost
 choosing one thing means giving up another, or paying a
cost
 Costs can take the form of money, time, or other thing of
value (ex. Internet servers)
 People will economize
 Incentive- something that motivates us to shop.
 Utility- something we buy because we need it
(FUNCTIONAL)
Quiz/Review
1.Explain the relationship between the terms in each of
these pairs:
a)Incentive, utility
b)Trade-off, opportunity cost
c)Marginal cost, marginal benefit
2.Two movies are playing at your movie-theater
complex. You have a half-price coupon for one.
However, you choose to see the other. How might this
still be an example of economizing?
3.Use the concepts of marginal costs and marginal
benefits to explain why some people might see the
same movie ten times while others will watch it only
once or twice.
Budgeting activities provide substantial benefits to personal
financial health because the budget:
7. Coordinates efforts – Setting budget amounts allows
every family member to provide input.
If the family goal is to have an annual vacation, simple
reminders can be given in response to why money
cannot be spent on other categories until enough
money is saved for the vacation.
The budget acts as a barometer for the family finances.
Budgeting activities provide substantial benefits to personal
financial health because the budget:
8. Transforms money into a tool – Budgeting all monthly
expenditures will change the mindset toward money.
Instead of spending impulsively, money will be valued as
a tool to reach goals and fulfill needs.
Children raised under a budget will learn the value of
money because they are involved in some of the
decisions necessary to establish the budget.
Budgeting activities provide substantial benefits to personal
financial health because the budget:
9. Creates margin –As less money is spent, excess income
becomes available and is considered financial margin.
Debt repayment and living according to the budget will
move the family toward living within the monthly income.
These funds can then be applied to other financial goals.
Budgeting activities provide substantial benefits to personal
financial health because the budget:
10. Grows savings – Short- and long-term goals can be
reached through savings efforts that seemed impossible
just months before a budget was created.
Budgeting activities make money available to save some
of the monthly income for various reasons.
Savings becomes the highest priority and money can be
saved ahead of paying the bills since every expense is
closely monitored and compared to the budget.
Budgeting activities provide substantial benefits to personal
financial health because the budget:
11. Accelerates financial goals – Many goals can be set
and reached because the budget has been used
consistently to monitor the financial activities.
As margin is created within the financial budget and
savings becomes a priority, the family can move toward
major goals like:
- funding college education for each child.
Keeping Track of Your Money
 Tracking every cent, and budgeting apps make it so
simple to do just that.
 You’ve got your phone with you all the time, so tracking
your spending each day literally takes less than a
minute.
 Hopefully one of those apps is just the ticket you need
to get on track with your budgeting!
Typical Views on a Phone
HomeBudget with Sync
 ($4.99 – 4.5 stars)
Everyone has a budgeting system that works for them.
For Johnny and me, this is the holy grail. We swear by
this app. The design and flow is intuitive and really easy
to set up. But the biggest draw has always been that it
syncs our budget in the cloud to both of our phones so
that we’re always on the same page.
Melissa P.
Dollarbird
 ($1.99 – 4.5 stars)
This app’s design is simple and intuitive. And it’s
calendar-centric, tracking where you are for the month
and charting your net worth over time. It’s a beaut, and
we’d be using it exclusively if only it had a sync option!
EXAMPLES
EXAMPLES
Credits
 http://financialplan.about.com/od/budgetingyourmon
ey/a/11-Ways-Budgeting-Can-Improve-Your-Life.htm