Budgeting Combined

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 Chapter 6
• Develop a clear understanding of
  – Short term (1 year)
     • Usually smaller purchases, less expensive
     • Minimal impact
  – Long term (over 2 years)
     • Larger purchases, more expensive
     • Impact life
  – Prioritize
     • Your values, goals, hope, dreams
     • Current family
     • Future family
    Factors going into a budget
• Income - $ coming in!!
  – Salary/Bonuses
  – Gifts
  – Dividends/Interest
  – Net income
• Expenses - $ going out!!
  – Fixed (little to no control, consistent)
  – Variable/Flexible (a lot to complete
    control, inconsistent)
               Budget tips
• Don’t spend every penny you receive
• Keep excellent records
  – Track income and expenses
  – Develop filing system
• Review your budget regularly
  – Revise and update as needed
  – Track over/under and adjust
• Personalize your budget
• Evaluate trade-offs
             Budget Tips
• Keep it simple and flexible
• Don’t follow someone else’s budget
• Don’t put unnecessary items in the budget
• Make sure to have an emergency fund
  included (2-3 months’ salary)
• Keep it realistic!
              Budget Pitfalls
•   Budgets that are too specific
•   Predicting the wrong amounts
•   Lumping too much under ―Miscellaneous‖
•   Overlooking a budget (failing to take the
                      Sample Budget
Category              Budgeted    Actual         Over/Under
           SALARY         1,500        1,498                  -2
Fixed expenses
             RENT           800            795                5
Flexible expenses
          UTILITIES         300            320            -20
          SAVINGS           100            100                0
Income Less                 300            283            -17
Expenses and
• Individual transportation
  – Bicycles
  – In-line skates
  – Motorcycles
• Public transportation
• Carpooling
       How to Choose a Car
• General rule – 20% of take home pay
• Can you afford it?
  New or used?
  – Reliability
  – Cost
  – Mileage (odometer)
• Class, make, model
• Do your homework (Blue Book, Edmonds’)
             Choosing a car
•   Features
•   Options
•   Dealer add-ons
•   Extended warranty
•   Safety features
•   Used cars checklist
            To Buy or Lease?
• Purchase
  – Investigate options (credit unions, banks,
    special offers—do the math!)
• Leasing
  – Renting a vehicle
              Lease Terms
• Gross capitalized cost – your cost (negotiate!)
• Capitalized cost reduction – cash down payment
• Acquisition fee – Setting up lease (including a
  security deposit)
• Residual value – predicted lease-end value
  (purchase price at end of lease)
• Money factor - interest rate you pay for
  financing lease
             Lease Terms
• Monthly payment
• Mileage allowance
• Excess wear fee – inquire about this
  before you sign!
• Disposition fee – fee paid when car is
  returned at end of lease (cost of getting
  car ready to sell to someone else)
          Steps to Leasing
• Negotiate the price of the car (gross
  capitalized cost) Know the residual value
  (if 60%, you should expect to pay 40%
  over the term of lease)
• Down payment and security deposit
• Financing
• Return car (have mechanic look over first!)
   You should consider a lease if
• Can’t pay cash for the new car you want
  Don’t drive a lot of miles
• Don’t keep your car for many years
• Keep your cars in excellent condition
            The F&I Office
      (Financing and Insurance)
• Financing (F&I manager usually adds 1-2% on
  interest rate as commission for arranging loan)
• Insurance
  – Accidental Death and Dismemberment (pays off
    the balance of lease or loan if accidentally die or are
  – Gap protection (pays the difference between what
    you owe and what your car is worth if it is totaled)
  – Extended warranty (extends manufacturer’s warranty
    on certain parts or services)
              Purchasing the car
• Invoice price – the amount the dealer paid from the
• Do your homework!
• Sticker price – the MSRP (Manufacturer Suggested
  Retail Price 9-11% above invoice usually)
• Fair profit – 3% above invoice
• Take invoice, subtract rebates, add 3%
• Trade in
   – Sell yourself for more $$
   – Do your homework first, if you decide to trade it in
           Shopping for new cars
•   Get referrals
•   No-haggle dealers (Saturn)
•   Shop on the Internet
•   Time to shop
    –   End of month
    –   Cold months
    –   September
    –   Slow months, August/December
• Test drive
• Don’t be pressured
• Don’t tell them what you can afford
• Negotiate the price of the car first, (don’t
  bring up the trade-in just yet!)
• Explore other financing first
• Doc fee, prep fee—look at all the charges
• Do your homework!
         Fees to expect to pay
•   Sales tax
•   Destination charge (shipping)
•   License and registration
•   Documentation fee ($50-$100 MAX!)
•   Any add-ons you agree to!!!
             Maintaining a car
• Owner’s manual
• Maintenance schedule
• Tires
  – Inflated properly
  – Check tread
• Check your oil & have regular oil changes
• Check all fluids
• Get tune-ups regularly
          Maintaining a car
• Brakes (good for about 40,000 miles)
• Routine checks
  – Belts
  – Windshield wipers
  – Check for leaks
• Exterior maintenance
  – Wash
  – Wax yearly
                 Maintaining a car

• Save your receipts
   –   Repairs
   –   Use dealership for warranty work
   –   Dealerships rather expensive vs. repair shops
   –   Get estimates before agreeing to work
   –   Ask about guarantees
• Lemon Laws
   – Defect cannot be fixed after 3-4 attempts
   – Car in shop for 30 days or more during warranty period
   – Numerous major problems
Home Ownership
How to Buy a Home?

           Housing Options
• Parents’ Home
• Dorms
  – Apartments
  – Efficiency apartment/loft
• Duplex
  – Condominiums/Townhouses
  – Association fees
• Mobile home
    Sharing Housing Costs
Roommates should discuss and agree upon:
– Neatness
– House guests
– Quite time
– Personal space
– TV and stereo use
– Phone use
– Pets
      Sharing Housing Costs
  – Divide responsibilities
  – Cooking
  – Dishwashing
  – Cleaning
  – Grocery shopping
  – Expenses (rent, utilities, phone, groceries)
• Furnishings and decorations
• Make a written agreement
        Renting an Apartment
• Rent should be no more than 1/3 net pay
  (amount remaining after deductions)
  – Convenience
  – Neighborhood
  – Environment
  – Size and condition
  – Facilities
  – Pets
       Renting an Apartment
  – Searching
  – Referrals
  – Newspaper
  – Internet
  – Real Estate Agents
• Apartment Managers
         Renting an Apartment
• Lease terms – length, rent, due date, security
  deposit, utilities covered, facilities, restrictions,
  pets, rules, repairs, visitation, notice
• Make a list of existing damage before you move
  in, in the presence of landlord
• Packing, reserve truck early
• Change-of-address cards
• Set up utilities
                    Buying a Home
• 2.5 times your gross income
    – Mortgage (property serves as collateral for loan)
    – Principal (amount you borrow)
    – Down payment (% of the purchase price up front….usually around
      20%, but may vary)
    – Example: interest=9% on $100,000 loan for 30 yrs. total interest of
    – Points (service fees by lender, each point = 1%..additional int.)
• Closing costs (collection of fees to cover tasks of lender)
• Homeowner’s Insurance
    – Property taxes
• Mortgage insurance (if gov’t insured loan, mortgage may also
  include mortgage insurance. In exchange, you get a loan with a
  smaller down payment)
            Types of Mortgages
• Fixed (interest rate remains the same, usually last from
  15 – 30 years)
• Adjustable-rate (ARM)
   – Interest rate goes up or down based on economy rising or falling
• FHA (Insured by Federal Housing Administration to
  reduce the down payment 3 – 10%, protects the lender
  not you)
• VA (Military veterans @ favorable rates, insured by the
  Veteran’s Administration)
• Graduated-payment (small payments now and go up on
  a regular schedule over time)
  Benefits of Home Ownership
• Appreciation
• Interest and taxes deductible
• Equity (difference between what a home is
  worth and what the buyer still owes on the
            Shopping for a Home
•   Consider your needs and wants
•   Real estate agents (MLS..Mulitple Listing Sites)
•   Be thorough in investigating houses
•   Have a house inspection done professionally
    –   Process
    –   Offer
    –   Counter offer
    –   Acceptance
          Buying a House
• Find mortgage
• Set closing date
• Request an attorney
      Furnishing your Home
• Make a plan on what to buy
  – Quality vs. price
  – Hardwood (maple/oak) vs. softwood
• Look for bargains
• Check energy labels/long term expenses
Elements of Budgeting

   Food, Clothes & Fun
What are your favorite foods?
•   Pizza
•   Asian food
•   Soul Food
•   Pasta/Italian
•   Watermelon/Fruit
•   Cake/Pie/Desserts
          A Balanced Diet
• Your body needs nutrients to stay healthy
• There are six major nutrients that help
  your body run.
  – Carbohydrates
  – Protein
  – Fats
  – Vitamins
  – Minerals
  – Water
    The Food Guide Pyramid
• The healthy way of life is to eat a balanced
• The food pyramid is based on scientific
  research on foods and nutritional needs.
  – Divides food into groups
  – Is divided into servings
  – Is changing
Food Pyramid
    Tips for Making Good Food
•   Eat a variety of foods each day
•   Choose foods that are low in fat and
•   Eat plenty of fruits, vegetables, and
    whole-grain products
•   Limit your consumption of sugar and salt.
    Avoid Dietary Problems
• Fast Food
• Dieting
• Eating Disorders
  – Anorexia nervosa
  – Bulimia
  – Obesity
• * The only healthy way to lose weight,
  keep it off, and remain healthy is to eat
  a balanced diet and exercise regularly*
       Shop for a Healthful Diet
•   Determine budget
•   Make a list
•   Look for coupons/specials
•   Don’t shop when hungry
•   Take advantage of sales
•   Resist impulse purchases
  Understanding the Language
• Fresh: product must not have been pre-
  cooked, altered, or frozen Low fat: 3
  grams of fat or less per serving
• Sugar free: less than .5 grams of sugar
  per serving
• Reduced calories or LIGHT: no more than
  ¾ of the calories of the product to which it
  is compared
    Understand the Language
• MORE of an ingredient: at least 10% must
  have been added High fiber: 5 grams or
  more of fiber per serving
• Cholesterol free: less than 2 milligrams of
  cholesterol and 2 grams or less of
  saturated fat per serving
• Low sodium: less than 5 milligrams of
  sodium per serving
    Understand the Language
• Fortified: vitamins and minerals have been
  added Enriched: vitamin B complex and
  iron have been added
          Nutrition Labels
– Fair Packaging and Labeling Act requires
  certain info to appear on every food package
  and standardized
– Serving size
– Daily values
– Ingredients
        Other Shopping Info
• Freshness date – expiration date 060905
• Unit Pricing
  – By law grocery stores must state
  – Allows you to truly compare
• Be cognizant of store psychology!
Choosing A Professional
    Letterman’s Top Ten
I’m Searching For
Someone Who….
   How much do you spend on
       clothing a year?
• Americans spend more than $400 billion
  each year to buy clothes
• There are three benefits of clothes
  – Utility: usefulness
  – Style: characteristics of clothing, differentiate
  – Value: the most you can get for price.
       Shopping for clothes
• Know what you want
• Know how much you can spend
• Know where to shop
               Natural Fibers
• Come from plants or animals
• Cotton – boll of cotton plant, shrinks, wrinkles,
  but durable and comfortable
• Linen – fibers from flax plant – lightweight, cool,
  wrinkles easily
• Wool – fleece of animals – warm, absorbs,
  resilient, soft but may be scratchy
• Silk – secretion from silkworm that it uses to
  build its cocoon, luxurious, unique luster – cool
  in summer, warm in winter, durable, but
  expensive and require dry cleaning or hand
         Manufactured Fibers
• Rayon – one of most versatile, soft, lustrous,
  and blends well Acetate – becoming popular,
  less expensive alternative to rayon, not as
  strong as rayon, soft lustrous, easy-care
• Nylon – strongest most durable synthetics, feels
  soft and silky, washable, seldom requires ironing
• Polyester – most widely used manufactured
  fiber, wrinkle-resistant, easy-car, permanent
       Recreation and Travel
• Budget
• Set your priorities
  – Equipment (golf, hockey)
  – Facilities (tennis courts)
  – Save for what you want
• Start small (try before you buy)
• Evaluate alternatives
• Travel guides
• Internet
• Transportation
  – Car
  – Bus
  – Train
  – Air
• Accommodations – hotel, youth hostels
                 Airfare tips
• Advance purchase          • Check in early
• Saturday night stay       • Make sure you have
• Be flexible (time, day)     all necessary
• Off-peak                    documents
• No changes!
• Get seat assignments
• Sign up for frequent
  flyer miles

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