Financial Literacy Money Management and Budgeting

University:
University of the People
Course:
BUS 2204 | Personal Finance
Academic year:

2022
Views:

77

Pages:

2
Author:

Bidoggia5pt

MONEY MANAGEMENT AND BUDGETING ● WHAT IS A BUDGET? ○ A budget is a spending plan based on income and expenses. ● GROSS PAY vs NET PAY ○ It is important to understand the difference between gross pay and net pay in order to create a budget. ■ GROSS PAY: Your total pay before taxes. ■ NET PAY: Your total pay after taxes - This is what you create your budget on. ● NEEDS vs WANTS ○ Prioritize needs over wants. ■ NEEDS: You MUST have these to live and work - Food, water, shelter, clothing ■ WANTS: You can live without these - Vacations, home renovations, new technology ● BUDGETING STRATEGIES ○ 50/20/30 ■ 50% of your NET PAY income goes to your needs, 20% to your wants, and 30% to savings. ○ Pay Yourself First ■ Transfer a predetermined amount of money into your savings account after each paycheck. Then, you should pay your bills, then you should budget the rest of the money appropriately (needs and wants). ○ Zero-Based Budget ■ Every single dollar of your income is assigned to a specific expense - your ending balance for the month should be zero. ○ Envelope Budget ■ Specific amounts of your money go into envelopes representing different budget categories. Once you run out of funds in one envelope, you cannot spend any more money in that category. The remaining funds can be kept in the same envelope, transferred into a different envelope, or put towards savings. ● INFLATION ○ Inflation is the process by which the price of goods and services rise while your income stays the same. ○ Nominal v. Real Wages: ■ Nominal Wages: A nominal wage is one’s wage not accounting for inflation. ■ Real Wages: A real wage is one’s wage adjusted for inflation. ○ Purchasing Power: If your income stays the same but inflation rises, you lose purchasing power.