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Personal Finance: FREE Budgeting DEMO Lesson

Try this Budgeting DEMO lesson from our Personal Finance course "Budgeting-Spending and Savings." (In collaboration with PF Labs)


Budgeting


When learning about managing your finances, many experts will recommend you begin with a budget. A budget is a tool that tracks your income and expenses, and it allows you to set goals and make plans for the future. Developing a budget for a specific project, a special event, or to help you with your monthly spending are all examples of using a budget to help you manage your personal finances.





 

Categorizing and Analyzing Your Spending


Once you have your records in front of you, it’s time to categorize your spending. Your goal is to separate all of your spending into needs versus wants and then into fixed versus variable expenses.


Needs and Wants


Needs are the things you must purchase to survive. They include necessities such as rent, utility bills, groceries, and medical expenses. They also include legal responsibilities such as paying taxes.


Wants are things that you choose to spend money on, but they are items you don’t really need. Eating out, holiday gifts for friends and family, TV/streaming subscriptions, and new clothes might be in this category.


Once you have sorted your records into needs versus wants, you need to look closer and divide them into fixed and variable expenses.


Fixed and Variable


Fixed expenses are items where the cost stays the same from one month to the next. This means you can reliably plan for these expenditures. They include expenses such as rent, your cell phone bill, or a subscription fee for a video streaming service.


Variable expenses change from month to month, so it’s hard to plan accurately for these expenses. They might include how much you spend on fashion, how many times you go out to eat, or how much you spend on gas for your car.


Some of your expenses may need to be split into smaller categories. For example, food is a need, so you could try to lump all the money you spend on eating into one category. But it’s more realistic to separate your food items into categories such as groceries, coffee, and eating out


Putting It All Together


Once you finished sorting your records, list the categories of everything you’ve spent money on, placing the information in 4 different boxes, fixed needs, fixed wants, variable needs, and variable wants. Every penny spent in the months you’re analyzing should be included in these boxes.


Fixed Needs

Fixed Wants

Rent

Car Insurance

Renter’s Insurance

TV Package

Spotify Account

Gym Membership

Variable Needs

Variable Needs

Gas for car

Electricity

Groceries

Eating out

Birthday Gifts

Manicure

Try to complete this spending analysis for the past six months if you can. What you’re looking for is enough data so that you can determine your average spending in each category. The more months you can look at, the better your future budget plan will be!


 

Setting Your Savings Goal


Now that you have an honest understanding of how much money flows in and how much flows out, you can set a realistic savings goal for every month.


Your savings goal will come from two concepts, Pay Yourself First and creating your Emergency Fund.


Pay Yourself First


Pay Yourself First means that you make your savings goals your #1 priority. This strategy has consistently proven to be the most effective way to achieve long-term financial goals. A pay-yourself-first strategy means that before you pay any bills or address any of your expenses, you set aside money for your savings. You no longer wait to see how much money is left at the end of the month to put into your savings account. Savings are taken care of before everything else.


Following the pay-yourself-first strategy means you would rather hit your savings goals and occasionally be late paying other expenses than wait until the end of the month and only save what is left over. Your savings goal sits at the very top of your fixed needs category every month. So you can consistently build up your savings account.


How much should you save?


A good savings goal should be at least 10% of your expected income every month. If you have never been consistent with saving, you may need to find ways to adjust your other expenses so you can always hit your savings target.


What you do with the money you have saved is up to you. Investing can help your savings grow, but investing includes risks. Keeping your money in a savings account is safe, but it is not the fastest way to build wealth.



 

Basic Budgeting Strategies


We have a whole other lesson focusing just on budgeting strategies, but when you build your first budget, keep these tips in mind:


  • Be honest with yourself. If you are not honest with how much income you have or how you are spending money now, you will never be able to effectively control your spending in the future.

  • Focus on cutting fixed expenses. If you need to make budget cuts, focus on your fixed expenses first. If you can shave money off your rent or downgrade recurring monthly subscriptions, it will have a much bigger long-term impact on your savings goals than if you skip going to the restaurant once or twice a month.

  • Automatic monthly contributions to savings. Set up automatic transfers to move money from your checking account to your savings account either every time you make a deposit or at a fixed time each month. If you don’t need to remember to transfer the money, it makes it much easier to hit your savings goals.

  • Monthly budget status checks. Spend a few minutes each month checking your bank account balance, credit card balance, and review what bills still need to be paid. This will give you a good feel for how much money you can safely spend without breaking your budget.

  • Extra Money. When you spend less than you budgeted, you have freed up money that can be saved or invested. This is a win-win for you.

If you go over budget by spending more than you planned, you will potentially have less money the following month. You may need to make sacrifices and do with less. Thinking about opportunity cost and doing some comparison shopping will be more important as you now have less money than was anticipated.



 

The DEMO lesson above is part of FunCation's Personal Finance course "Budgeting-Spending and Savings." You can find the Personal Finance course in our FAFlex Curriculum Membership for just $24.99/month per student.




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