Budgeting is the process of planning for how you will spend your money. Simply, it compares expenses with income to see if your needs and wants are affordable. The primary purpose of budgeting is to meet your short and long-term financial goals, one of which should be saving. Every dollar you spend should be planned against a category.
- I can develop a short and long-term budget (spending plan).
- I can track and control spending.
- I can plan and have the discipline to save for longer-term needs.
Key Learning Points:
- Budgeting is simply a spending guide with $ amounts and timing. The point of budgeting is to assure that you save. If you keep spending more than your earn, eventually you will go broke.
- Plan for next 12 months (by month) and next 5-20 years (by year).
- Periodic expenses require short-term savings.
- An “envelope system” is a simple way to keep track and control some expenses.
- We are stewards of God’s gifts of time, talents and treasure.
- Track your spending for a month. Make a list of all the categories in which you spend.
- Find a budget template that you feel comfortable with. Two are below; use the simple PDF file if you like to use a calculator, use the advance Excel file if you know spreadsheets. Develop you monthly budget.
- Assess spending at the end of the month. Did all bills get paid as expected including savings?
- Continue to update and practice budgeting each month.
- Steps to develop a spending plan.
- Determine your monthly income. Do you plan based on one income or two? Income can come from any steady source, e.g. alimony, Social Security. Is your income fixed or variable? Plan on the low side.
- List your fixed monthly expenses. Fixed expenses stay the same every month, such as a car payment.
- Know your variable expenses. Variable expenses change from month to month, such as groceries. Calculate an average.
- Track and plan for large, periodic expenses, such as car insurance. Know the due date.
- Compare your income with your expenses. Are your expenses less than your income? Aim to have 15% left over.
- Set priorities, goals, and limits.
- Set a savings plan and make it a priority. “Pay yourself first.”
- Always keep an emergency fund. Start with $500-1000.
- Plan/save ahead for major purchases and avoid impulse decisions.
- Keep track of your spending. Keep it simple, e.g. keep receipts; consider Quicken.
- Give the plan time to work; adjust the plan quarterly.
- Pay Yourself First: An important first step is to transfer your targeting savings amount before you write the rest of your bills.
- Save at 3 Levels: Savings at 3 levels….periodic expenses, masterplan expenses (e.g. new roof or remodel), long-term (e.g. college, retirement). Aim for 15% or more of your income for long-term savings (depends on age).
- Tips for Sticking to a Spending Plan. Adapted from: CreditSmart, Managing Your Money
o Communicate with your immediate family members about issues related to your spending plan.
o Be prepared to compromise: purchase a less expensive item or hold back on the purchase altogether.
o Develop a user-friendly system of documenting expenses.
o Be creative and use incentives.
- Envelope System. An envelope is used to hold cash for a budgeted category such as “fun” or “clothing”. Actual spending then comes only from the envelope.
Exercises for Older Teens and Adults:
- Use one of the budget templates below. Which budget items are not currently being planned? Can you think of some missing expense areas?
- Develop current and future monthly budget, e.g. currently in an apartment and in the future in a house.
Exercises for Younger Teens (13-16):
- Same as above except with a smaller number of categories. Reinforce the need to have a part-time job.
Questions to Encourage Critical Thinking:
- What obstacles are getting in the way of meeting your current or future spending plan?
- What actions are needed to insure you can meet the spending plan?
- How do you handle expenses that don’t occur monthly?
- How can you set goals as a family?
Tools and Templates:
- Monthly Budget Template (pdf) on FTC.gov
- Advanced Budget Template: Short and Long-Term Cash Flow Plan (Excel).
- Budget – Plan for allocating resources: a plan specifying how resources, especially time or money, will be allocated or spent during a particular period. Cash flow planning is another term for budgeting.
Web Sites/Short Stories/Essays:
- See the general book list on Money Management Overview.
- Dave Ramsey “Budgeting” Money Makeover on YouTube
- Bill Cosby on Budgeting on YouTube (a clip from the original Bill Cosby Show).
- “Suppose one of you wants to build a tower. Will he not first sit down and estimate the cost to see if he has enough money to complete it? For if he lays the foundation and is not able to finish it, everyone who sees it will ridicule him, saying, `This fellow began to build and was not able to finish.” (Luke 14:28-30, NIV)
- “There is nothing in saving money. The thing to do with it is to put it back into yourself, into your work, into the thing that is important, into whatever you are so much interested in that it is more important than money.” – Henry Ford
- “Don’t tell me what you value, show me your budget, and I’ll tell you what you value.” – Joe Biden
- None at this time.
Summary 2-page Lesson Examples, coming soon:
- Money Management – Budgeting.