Intro to Finance Notes - Unit 1 - Budgeting

1. Mr. Elsesser
Introduction to
Financial Management

2. Answer this question…
 What kinds of restraints can impact
a budget?

3. Once you establish your budget plan, it is
essential for you to consider the obstacles that
block your path.
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The following factors can impact your budget:
 Limited Resources
 One-time Annual Expenses
 Needs vs. Wants
 Opportunity Cost
 Managing your Income against Fixed and
Variable Expenses

4. 
Limited Resources
 How will you use your:
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

Income
Summer income and personal savings
Childhood gift money
Money left to you by a deceased relative
 Should you use this money to achieve a short or long term
goals?

Budgeting for One-Time Annual Expenses
 Monthly budgets should account for all annual expenses.
 Even though you only make one payment a year, make paying
this bill easier on yourself by dividing the cost by 12 months or 52
weeks.
 Car insurance that costs $600 every 6 months can cost you $25 a
week!

5.  Prioritize Needs and Wants
 We want, we want, we want. WE NEED THIS TO LIVE
LIFE!!!
 Prioritize needs over wants!
 Develop a SPENDING PLAN:
 Plan that specifies how you can obtain the things you need and
want without breaking the bank!
 Example: Mr. E’s Authentic Chairs from Yankee Stadium

6.  Opportunity Cost
 A possibility you give up when you make one choice over
another.
 Also known as a TRADE-OFF.
 Make sure that you weigh your alternatives using a financial
lens.
 ASK: How will this impact my monthly budget???

7.  Analyzing Your Income over your Fixed and
Variable Expenses:
 Personal Income:
 Money that is earned or received by a single individual. (Does not
always have to be job related).
 Personal Income should not exceed your Fixed
and Variable expenses.
 Fixed Expense: You need a car, but does it NEED to be brand
new? Do you have to live in a water view apartment?
 Variable Expense: Finding yourself with no spending money?
Don’t eat out every night! Buy store brand goods. Rent a
movie instead of going to one.

8. Answer this question…
 Identify as many factors as possible
that could make it difficult for your to
keep your monthly budget in balance.

9. To keep your budget in balance, you need to practice
the 3 R’s!

 Reality:
 Assess your present situation (income and expenses). There is only a
limited amount of money to use. Prioritize your goals!
 Responsibility:
 Once you spend money it is gone. Make smart decisions. Be sure you
can cover all your expenses. Don’t accrue debt.
 Restraint:
 Managing money requires self-control. When you want something—
ask yourself how badly you want it? Is it a need or want? What is
something bigger you can get if you give this up?
 Do not be an impulse buyer. Use a shopping list!

10. Budgets need constant evaluation. Here are some things
to watch for:

 What is your DISPOSABLE INCOME?
 Money remaining in your pay check after taxes/deductions.
What you have to spend, pay bills, or save.
 Do you have a SURPLUS?
 Occurs when expense are less than income taken in.
 Also known as DISCRETIONARY INCOME?
 Money that is left over for spending (luxuries), investing or
saving after fixed expenses and personal necessities are paid.
 What are your options for this money?
 Buy stuff
 Put it in savings
 Invest

11. Budgets need constant evaluation. Here are some
things to watch for:

 Do you have a DEFICIT?
 Occurs when expenses exceed income.
 Can occur when you overspend on a variable expense.
 WHAT CAN YOU DO TO FIX THIS???
 Borrow from savings. (should make an effort to pay back)
 Adjust spending in another variable category of budget.
 Readjust your strategies in saving to achieve your
short, intermediate, or long term goals.
 Call The National Bank of
Mom and Dad (just kidding)

12. 
Maximize your Money! Be Smart! Don’t experience a deficit!
 Comparison Shopping:
 The practice of comparing the price of products or services from different
vendors before buying.
 Negotiation:
 Conferring with others to come to terms or reach an agreement to buy/sell
at a price below what is listed.
 Coupons:
 A certificate accompanying a product that may be redeemed for a cash
discount.
 Catalog Shopping:
 A list of items for sale. Can sometimes be less expensive then buying at a
physical store.
 Internet Shopping:
 Buying or selling products or services over the Internet. Will almost always
be a cheaper method of acquisition.

13.  Understanding the Influence of
Advertising and Peer Pressure on Spending.
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Teens typically spend without thinking about the future.
Usually no logic in decisions—they have money—they spend!
Let advertisers take control of their emotions and self-doubts.
Help advertisers promote through their use of social media.
 Strategies to Achieve Short, Intermediate
and Long-Term goals:
 Treat these goals like monthly fixed bills. Pay yourself an allotment of
whatever you feel you can afford.
 If you cannot make payments one month due to other expenses, put what
you can, if anything. towards your goal(s). You can always make it up
next month.
 Remember the 3 R’s!

14. Answer this question…
 What do you think the importance is
of having an “emergency fund?”
 What are the possible ramifications if
you do not have one of these when
emergency situations arise?

15.  Establishing an emergency fund can be a
lifesaver for your budget during times of
crisis in your life.
 EMERGENCY FUND:
 Money set aside for emergency expenses.
Create this by:
 “Pay Yourself First”:
 Routing a specified amount of money to a
savings/investment account at the time your
paycheck is received.
 Ensures you incorporate savings in your budget.

16.  Your emergency fund must have:
 3 – 6 months of income
 Increases to 1 year fund as life responsibilities increase
 Ex: Buying a home, starting a family, etc.
 Establish an emergency fund before
starting to invest.
 Emergency funds are LIQUID.
 They are cash savings accounts.
 These funds protect you against unforeseen
circumstances:
 Ex: Unemployment, inflation, acts of God, etc.