Lesson 4.

1: Budgeting

Lesson Summary
Budgeting is a fundamental skill/step learned to become a financially-literate person. It
involves setting goals, identifying incomes and expenses, separating needs and wants, Etc.
Steps in budgeting will ultimately lead to ensure that one has available money to spend on what
he/she needs to spend/consume.

Learning Outcomes
After the lesson, the learners expect to:
1. Explain the importance of budgeting.
2. Formulate a budget plan.

Motivation Question
Dr. Roa earns P30,000.00 per month from his clinic. He spends less or more than his total
earnings each month. Sometimes he has money left over, but most of the time, he is left with
nothing and even borrows money to meet his needs.

Do one think there is something wrong with the way

he handles his money? Why?

Discussion
BUDGETING AND ITS IMPORTANCE
Budgeting is the act of making a strategy to spend all that money on it. This spending
plan is called a budget. Having this spending plan helps one decides whether one is going to
provide enough resources to meet one's needs or want to achieve. If one is not using enough
resources to do whatever one wants to do, one should use this planning process to manage
one's expenses and concentrate one's resources on the things that matter to oneself.
Budgeting is only matching one's expenses against one's revenue. If they do not match,
and one spends more than one dose, one will have issues. Many people do not know that they
consume more than they earn and steadily fall back into debt each year. If one is not using
enough resources to do whatever one wants to do, one can use this planning tool to prioritize
one's expenses and concentrate one's resources on the things that truly matter to one.
Why is Budgeting so Important?
Since financial planning helps one sets up a realistic budget, one still has enough money
for the things one needs and issues that matter to oneself. The budget or expenditure plan will
either keep one-off from debt or help one get out of debt if one is already in credit.

BUDGET FORECASTING AND PLANNING

When one makes one's first budget, start using it, and feel confident about how it will
keep one's budget on board, one may want to plan one's budget plan or expenditure for six
months to a year. One can quickly predict which months one's finances will be tight and which
ones will have extra capital.
One will then search for ways to stay out of one's life's highs and downs so that things
can be more stable and enjoyable. One will then find ways to make the expenses even higher
and lower so that things can be more sustainable and fun. Increasing one's budget to the future
helps one estimates how much money one will save on essential items like one's holiday, a new
car, one's first house or home renovation, an emergency savings plan, or a pension plan. Using
a real schedule to project one's expenditures for the year, one will also benefit from one's long-
term financial schedule.
One can then makes realistic assumptions about one's annual income and expense and
plan for long term financial goals like starting one's own business, buying an investment or

MONEY MANAGEMENT STRATEGIES

Look back from one's first paycheck (assuming you got it)—paper money, parenting
income, or a part-time check. Did it come with instructions? Instructions seem to be one of the
most straightforward tools these days, and still, with anything as critical as our paychecks, we
are left to sort it out on our own. Everyone is born with the skills of money management. By the
moment we are adults, we are supposed to handle our money effectively. As a result, many
people feel normal feelings when they do not know how to do anything right. They can include
resentment, remorse, envy, rage, shame, and dissatisfaction. Whether driving a car or playing
an instrument, master the ability to handle money–but it is not too late to begin! Doing so
typically accounts for significant benefits. Individuals do not make much money because they
budget well, but they will be able to spend the money they do appropriately.
Anyone who handles their money professionally has a sense of peace and learns how:
Pay for their household expenses.
Hold debts at a sustainable pace.
Choose things that make life fun.
Avoid excessive worry about money.
It is not how many ones do, and what one is doing on what one has earned.
Appropriate financial planning does not require a magic formula for finding enough money.
It just means making the best out of the money one gets.
Before going much further, take a closer look at one's present level of money management skills.
Address the following issues honestly, depending on what one is doing now. Tell oneself
how so much work one makes to manage one's income? Can one record what one spent per
day, per week, or a couple of weeks? Many times, do one regret wasting so much money on
something that is going to help one so little?
One does not need to share one's responses with others–they are all about helping one
find out how one may want to develop one's budgeting skills.
The budget is the cornerstone of successful financial planning.
Nevertheless, for many people, the word "budget" conveys a sense of anxiety or anger.
One's financial plan is one's money strategy. It anchors on the decisions one makes and
the values one set. Creating a spending plan or budget is a step-by-step procedure. When
done, one's budget is the stable base from which one can control one's current income and
expenditures and prepare for potential opportunities.

SEVEN STEPS TO A BUDGET THAT WORKS

Step 1: Set Goals

Before you can begin to manage your money, you need to identify what is important to
you. Then you have a foundation to decide what you want to do with your money. Write down
what is important to you and use your list to help you determine goals for your money. Some
ideas to help you get started are:

If it is important for you to... Your goal may be to…

• live without money worries • pay off credit cards

• have a home for your family
• spend time traveling
• enjoy camping with friends
• help your children gain an
education
• start a business
• drive a particular kind of vehicl
• save 3 months of rent for “just in case”
• build up savings to take time off work
• buy new camping supplies
• contribute to a RESP
• save enough to apply for a business
loan
• save up a moderate down payment

It is not as hard as one would imagine. A short-term target could be to pay off the debt or
purchase a new gadget. A medium-term target could be to take the trip or save a home loan for
a new vehicle. Long-term goals usually include retirement plans, saving for a home, or having
kids begin with their own. Be practical when creating goals. One can still raise one's savings
later, but start preparing for prosperity! It can be somewhat inspiring to see one's strategies in
black and white, so take the time to write down one's financial objectives. Pick a paper and pen
and take it down, copy it on one's screen or mobile for one.
Step 2: Identify Income and Expenses

When one sets goals for one's money, it is a chance to search where it comes from and
where it is going. It is easy to get into habits when we manage our income. Many cash
management habits are optimistic and encourage us to reap benefits eventually.

Some are pessimistic, and they can lead us to problems. Start by listing all sources of
family income and amounts. Include everything: salaries (after taxes), fees, self-employed
income, child tax benefits, insurance, child care & spousal assistance, and other daily earnings.
If one keeps track of family spending, this is the perfect place to get started.

Most households do not report their spending, and one might need to collect money from
bank account or credit card statements, check ledger books, invoices, or cash receipts. Most of
our expenses are on a weekly or monthly basis, e.g., car fuel, food, utility costs. There are
indeed seasonal or regular costs that need to include in our budgets, such as presents, vet
payments, vacations, home maintenance, new glasses, or clothes. To measure monthly sums
for one's annual expenditures, simply divide by 12 the amount one spends per year.

Trying to look back and finding expenditures is an excellent start to the process.

One may just have noted that there appears to be more cash going out than one has
reported. Maybe it is because every household has "leakage" expenses –small items that are
not recorded for but pile up.

Step 3: Separate Needs from Wants

The principle of effective money management is to distinguish needs from wants. When
one is unsure whether an object is a need or a need, go without it for an amount of time. If one
really cannot live without it after that time, it could be a need. Nevertheless, the basics, such as
shelter or travel, require a desire vs. a need for measurement. For example, one could have
evaluated all practicable modes of transport to get to work and concluded that one needs to buy
a vehicle.

Okay, but the car one is buying is another option one is making. Does one purchase the
more costly SUV one wants, or does one wants a cheaper, more affordable vehicle to meet one's
needs? Nearly everything one buys includes a desire vs. a need for commitment, and eventually,
how one makes those decisions will decide whether or not one achieves one's goals.

Step 4: Design Budget

The word budget is not acceptable to some people because it means constraints,
scarcity, and no money to spend on fun.

Take it easy. One's budget is one's spending plan – it will help one lives within one's
means, prevent money stress issues, and give one the ability to make choices about what one
is doing. More importantly, a budget will help one to chart one's path to achieving one's dreams.
 One needs to make sure that one's expenses are not more than one's revenue before
one can go any further. One needs to make individual decisions based on what one has learned
when one monitors one's spending and when one differentiates one's wants from the wants.

Protecting Oneself Against Financial Disaster - Emergency Savings

When one has financial problems, savings may be the farthest thing from one's mind,
but even during this period, one must intend to have money for the unforeseen. Those who
have funds available to pay for their living costs and seasonal expenses do not need to rely on
loans when an emergency occurs. They may not be capable of paying back. Setting aside
money for savings is the difference between making a budget that succeeds and a budget that
just does not succeed. Not only will it shield one from financial catastrophe, but it also helps one
meets those goals.

Emergency savings fund one is necessary living expenses in the event of a decrease in
one's salary. For example, in the event of job losses, it takes typically three months to recover
on track with either a new source of funding or outside support.

One will need rental money, grocery stores, and other essentials; that is what one's
emergency savings are. When one faces an unexpected vehicle or home repair bill, there will be
emergency funds necessary to pay for everything. Utilizing income tax refund money,
unanticipated rewards, or bonus money will leap to start an emergency savings account.
Concerning emergency savings, there is a need for general savings that one can use to achieve
one's financial goals and ensure stable financial stability.

How Much Should One Save?

There seems to be no mystical number that tells one what one has supposed to save
every month. Depending on one's income, one's debt load, one's life stage, whether one is
working, unemployed or retired, and one's financial needs. One can find it challenging to set
aside savings at first.

If one has unpaid debts to pay or are not in the habit of saving, it is necessary to move.
Save a small sum from each paycheck at first and every the much as one can. One will be
surprised how easily one's savings will add up once one has just begun!

Step 5: Put One Plan into Action

One has set goals, defined revenues and expenditures, calculated how much to save on
seasonal expenditures, and made decisions about needs and desires.

Use Planning Worksheet to help one gets started:

In the budget tab, one can report what one decides to spend. The money allocated in
one's savings account is the cost that one subtracts from one's earnings. When one has money
in one's bank account that one needs for this month's expenditure, take note of it as earnings for
this month. Please do not hesitate to delete any checks one has written that have not cleared
one's account yet. Report one's net pay checksum for every date of payment. Include any other
money one earns in the month in which one earns it. Start deciding when the costs charge out
of the budget column. It will depend on the dates of one's contract. Start with expenditures due
on different days, e.g., mortgage, hydro, or auto insurance. Seek to balance the expenditures
evenly during the month. Some one's salary for each pay period, and if there is any leftover, add
it to one's savings account. Deduct one's salary from each pay cycle, and since there is no
leftover, incorporate it to one's savings. When one is short, re-examine one's expenditures and
see what one will or determine whether one is in a position to raise one's income.

Irregular Income

Not everybody has a stable career with a stable paycheck. One can have seasonal jobs, be
self-employed, or be on commissions. In these situations, one did not rely on cash pouring in
daily. It does not mean one cannot make a plan, but one needs to prepare in more specifics.
Separate savings plan for income tax payments at year-end will be part of the planning process.
Even if one is self-employed, one needs to take deliberate action to differentiate one's personal
and company funds.

If one has an erratic income for a couple of years, one strategy is to calculate the
average net income one has at least three years per year, divide by 12, and use that amount to
build up one's current finances.

When this amount is not adequate to cover one's expenditures, one will decide whether
one can raise one's revenue or one's expenditures to balance one's budget.

Setting up a budget if one has an unusual income is to set up a holding fund. One pays
a monthly sum based on what one has established that one can afford and what will allow one
to fulfill one's responsibilities. The holding account would have a more excellent balance during
the months with higher profits. The balance of the holding account will decline during the leaner
months. Nevertheless, the amount one pays for oneself does not vary monthly.

The method of holding an account also works well for learners. When one has an
amount of money saved from work or receives a lump sum of student loan aid, set it aside in a
separate account so that one does not spend it all again. Pay a monthly or weekly fee to satisfy
one's commitments. One could also choose to add part-time income to one's weekly amount
while attending classes. It increases one's curriculum vitae, but it will also reduce one's long-
term tuition expenses. The third way of dealing with irregular income is to have two budgets,
one for good months and one for tighter months.

To most people, this is the most stringent way to efficiently handle their money, as it is
easy to get into spending habits during the better months and then feel depressed during the
tighter months.

Consumers compel to spend as they hope to get money back in the months to come. As
a result, they are developing a debt cycle that is becoming expensive and hard to change.

Step 6: Manage Seasonal Expenses

 Since one has built a workable budget and arranged one's paychecks, the last move is
to schedule one's saving money so that one can track and handle one's annual costs. The
Seasonal Expense Worksheet is going to give it a shot.

Set up a one-page binder for every seasonal cost item on the Budget Worksheet. The first
paragraph is what is currently in one's savings account (A). Note the date and how much each
time one deposit or withdraw. The following pages are for items one will need money when the
time arrives, e.g., car maintenance, trips abroad, giveaways, apparel, and others.

For instance, one deposits P300 into one's savings account twice per month and records
on the very first page of one's binder (A). Then, based on one's budget, one will record the
amount one needs for one's seasonal expenses on each of the following four pages (clothes
(B), car maintenance (C), giveaways & celebrations (D), travel & trips abroad (E)).

If an expense happens and one spends money on one's seasonal savings account, e.g.,
P40 on a friend's gift, report on the first page (A) what you borrowed (e.g., P40). Furthermore,
on the "Gift" tab (D), deduct P40 from the amount shown there and mention the explanation.
theThe key thing one needs to keep in mind is that some of one's seasonal expense pages
(each page except page one) will equal what you currently have in your savings. Making plans
to spend one's extra money, just as one does one's paychecks, would make it easier for one to
have the money one needs when one needs money.

It will help one escape the debt burden and give one the capacity to make decisions.

Step 7: Looking Ahead. Some, significant changes may include increased transport or housing
costs, or a loss of revenue or an increase in revenue. Any good plan shall involve monitoring,
periodic review, and odd random reassessment. Circumstances can alter, errors made, and
one's needs can vary at various times. Before one even builds one's spending plan, one will
need more time to monitor it to guarantee that founds on practical information. It is going to take
a month to begin to fall. One will work out some of the tricks during the second month, and the
routine will begin to become part of daily thoughts. It expects to start falling into place more
easily now. One's spending schedule will be up and running by the third month.
Congratulations, one has taken care of one's money!

However, if it does not work yet, consider the following questions:

Has one calculated one income accurately?

Are the figures for one expense correct?
Are everyone's revenue and expenditures being provided?
Is one strategy based on the real numbers or what one thinks one can make?
Has one given it a decent opportunity?
Will one need some professional care?

One will need to review the program every month for the first year.

If this is working, one can review it every 3-4 months during the second year. After that, one is
going to need to check it every year.
 Nonetheless, if there are any significant changes to one's financial life, one would need to re-
evaluate one's strategy and eventually improve it. Some significant changes may include increased
transport or housing costs, or a loss of revenue or an increase in revenue. Similar manner, big
purchases or expenses may mean that one is going to have to cut back somewhere else so that it all
fits anew. Once one becomes more accustomed to handling one's money efficiently, one's strategy
will feel healthy and become part of how one does things in one's family. A few steps blend at times,
or one may add a step or two to make it easier for oneself.

Life is going to happen; permit oneself to make changes that will help one's loved ones. Coming
up with a plan with a solid foundation will make it possible for one to get ahead rather than in
credit.

A Note About Credit

Credit will give us the opportunity that would otherwise not be open to us. Many
customers who buy their first home require a loan. When one wants to book a holiday online,
one usually need a credit or debit card. Nonetheless, to prevent burdensome and expensive
debt, one needs to consider how to use credit wisely within one's finances.

Reduce one's total debt payments (excluding mortgage payments) to no more than 15
percent –20 percent of your home payment.

Keep credit limits reasonable–if one has used or charged all of them to the limit, one
should be able to pay the full balance within one year and leave it paid off.

Pay the minimum amount due to a credit card every month and work to reduce the
balance.

Limit one's use of the card until paid in full.

Access videos on budgeting at this site:

https://www.mymoneycoach.ca/budgeting/budgeting-videos