CHAPTER 6 BUDGETING How Will You Use Your Money?

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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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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Types of Financial Goals
►Budget
►Short-term financial goals
►Long-term financial goals
►Balancing short-term spending with long-term success
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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Types of Financial Goals
Budget – A plan for dividing income among spending
and saving options.
It can help you achieve more of what is important to
you during your life span.
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Types of Financial Goals
Short-term financial goals – things you hope to
achieve in less than one year.
Long-term financial goals – things you want to
achieve over more than one year.
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Types of Financial Goals
 Life-span goals - the most important things
you hope to achieve during your lifetime.
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Your Goals Affect Others
►Your family and your goals
►Your current family
►Your future family
►Your community and your goals
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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Why should your short-term goals fit in with your
life-span goals?
Why do other members of a community benefit
when individuals within that community achieve
their life-span goals?
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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Why should your short-term goals fit in with your
life-span goals?
If a person’s short-term goals do not contribute to his or her
life-span goals, it is unlikely that these goals will ever be
achieved.
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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Why do other members of a community benefit
when individuals within that community achieve
their life-span goals?
Other members of a community will benefit because
individuals who achieve their life-span goals will be
productive citizens in their chosen careers and spend
income in that community, pay taxes, and not require
public assistance.
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© 2010 South-Western, Cengage Learning
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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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
KEY TERMS
 fixed expense
 flexible expense
 luxury good
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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
KEY TERMS
 fixed expense – Amounts you are committed to
spend.
 flexible expense – Amounts that you can choose
to spend or not.
 luxury good – goods that have special qualities
that make them more expensive than
alternative goods.
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Keep Financial Records
►Track your income
►Track your spending
►Establish a filing system
►Effective record keeping
►How to use financial records
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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Describe a filing system you could set up to keep
records of your financial transactions.
How do fixed and flexible expenses affect your
spending plan?
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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Describe a filing system you could set up to keep
records of your financial transactions.
A filing system needs to be . . .
• comprehensive
• easy to use
• easy to maintain
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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
How do fixed and flexible expenses affect your
spending plan?
• Fixed expenses must be paid and therefore must be
included in a spending plan.
• 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 fixed
expenses.
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© 2010 South-Western, Cengage Learning
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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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
KEY TERM
 budget worksheet – a planning
document on which you record your
expected and actual income and
spending over a short time, usually a
month.
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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Create 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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© 2010 South-Western, Cengage Learning
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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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
What steps should you take to create a budget
worksheet for yourself?
What are some problems people may encounter
when trying to budget?
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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
What steps should you take to create a budget
worksheet for yourself?
• The best way to estimate future income and spending is
to examine past income and spending.
• 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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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
What are some problems people may encounter
when trying to budget?
People run into problems with budgets when they . . .
• Are too detailed
• Incorrectly predict the amount of flexible expenses
• Lump too many expenses under the miscellaneous
category
• Fail to set aside time to maintain the budget
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© 2010 South-Western, Cengage Learning
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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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
KEY TERM
 audit
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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Evaluate Your Budget Worksheet
►Adjust your spending
►Make several plans
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© 2010 South-Western, Cengage Learning
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
►Family budget
►Planning together
►Compromising
►The budget cycle
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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
Sample Family Budget
Utilities 9.5%
Entertainment 5.2%
Food 9.8%
Clothes 13.7%
Savings 5.0%
Car 12.8%
Home 44.0%
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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
How should you adjust your budget worksheet to
receive the greatest satisfaction from your
income over time?
What steps should people take to create and
update their yearly budgets?
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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
How should you adjust your budget worksheet to
receive the greatest satisfaction from your income
over time?
• 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 lifespan goals.
• Completing several budget worksheets will show various
spending and saving options and allow you to select the
one that works best for you.
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© 2010 South-Western, Cengage Learning
ECONOMIC EDUCATION FOR CONSUMERS ○ Chapter 6
What steps should people take to create and
update their yearly budgets?
• By reviewing your budget at least once a year, you can
compare your financial plan with what actually happened.
• You can also assess outcomes in light of any of your
goals that may have changed.
• With these evaluations in mind, you can make
appropriate adjustments for your next year’s budget.
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© 2010 South-Western, Cengage Learning

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