Budgeting Starter questions.... What is budgeting? Definition •A budget is a plan of expected income, expected expenses, expected savings for a period of time. Why Budget? • In groups identify as many reasons WHY you would need to budget. Why Budget? • To prevent a person from forgetting about irregular but necessary expenditure eg; annual insurances or emergency expenses like car repairs. • So you don’t run out of money before next pay day. • To stop you getting into debt. • To avoid unnecessary spending. Why Budget? But the main reason is a positive one: it allows you to take control of your finances and make sure that your spending and saving allows you to achieve your goals – like getting that car, or going for a trip overseas. Activity give an example of what you could do instead of spending money on the following Takeaways New SMART phone New computer game New school jumper $5 on lunch for school $2.00 on soft drink everyday $200 a month on heating your home Cook at home Budget Format There are 4 main areas to consider when preparing a budget. 1. Income 2. Expenses (Essential and Non Essential) 3. Intended Saving 4. Surplus OR Deficit Terms and Definitions Matching Game • HANDOUT to students match the terms with definitions Terms and Definitions Income = money received from employment, investments, or interest from deposits Expenses = an amount of money that is needed to pay for or buy something. Essential = something that is an absolute necessity Non Essential = spending on things that are a want rather than a need Saving = an amount of money that is not spent or used Surplus = When income is greater than expenses Deficit = When expenses are greater than income Identify the following as either: Essential – spending on something that is an absolute necessity OR Non Essential - spending on things that are a want rather than a need 1. 2. 3. 4. 5. 6. Clothing Rent Car repairs Entertainment Petrol Cell phone payments 7. Food – grocery 8. Food - snacks Identify the following as either Essential or Non Essential Expenses ANSWERS • • • • • • • • Clothing – Non Essential Rent - Essential Car repairs - Essential Entertainment – Non Essential Petrol - Essential Cell phone payments – Essential Food – grocery - Essential Food – snacks – Non Essential Group Brainstorm - on an A4 paper write as many different types of expenses that you can think of for yourselves and your families Students to write these on the white board and then ask students which ones are ESSENTIAL. CIRCLE these ones. Does everyone agree?? Essential or Non Essential Activity HANDOUT an activity sheet to each group. Students have 3 mins ONLY to categorize the expenses as either essential or non essential. When time is up the group must swap with the group beside them. The winning team is the one with the most expenses correctly categorized. How do you prepare a budget? STEP 1 You need to list our income. STEP 2 You need to list all our expenses. STEP 3 You need to sort out our expenses into Essential and Non- essential expenses. STEP 4 Now prepare the budget. It must balance i.e. your income must equal your expenses or your expenses plus savings if we have money left over. Budget Format Example Income Wages 400 Less Essential Spending Rent 100 Petrol 50 Car repairs 40 Cell Phone payments 20 Food – Grocery 100 310 Less Non Essential Spending Entertainment 50 Clothing 50 Food - Snacks 30 130 Total Spending 440 Balance (deficit) (40) The aim is to Balance the Budget so there is NO deficit or surplus! A deficit is when ......... are greater than income A surplus is when .......... is .......... than expenses QUESTION? What should you do to get rid of a deficit? What should you do to get rid of a deficit ANSWER You must reduce your non essential expenses What do you do with a surplus? What do you do with a surplus? You can either: ▫ increase your savings ▫ increase your spending. However in life it is more beneficial if you increase your savings! Maths note.... Sometimes, we will be approximating weekly figures rather than worrying about getting things to be mathematically perfect. So if you are given monthly figures and need to convert to weekly figures, divide by 4. If you are given a yearly (annual) figure – What would you divide it by to get a weekly figure? Do Now – Personal Budget for Jerome Kamo HANDOUT a copy of the budget to each student. Students to replace the ?’s with the correct figures Your turn! Prepare a WEEKLY budget for Reginald Singh Reginald’s main job pays $500 a week. His rent per week is $120 and he spends $75 a week on food. His bus fare per month is $100 and his cell phone expenses are $20 per month. He spends $50 a week going out with friends and another $25 a week on takeaways. Create a budget for Reginald. How much is Reginald able to SAVE to balance his budget? Weekly budget for Reginald Singh Income $ $ $ Wages 500 Less Essential Spending Rent 120 Food 75 Bus Fares 25 Cell Phone payments 5 225 Less Non Essential Spending Entertainment 50 Food - Takeaways 25 75 Total Spending 300 Budget SURPLUS 200 SAVINGS Balanced BUDGET (200) NIL Prepare a budget for the Leota Family HANDOUT a copy of Leota Family, Each student to prepare a budget for the Leota Family.