Budgets and Budgeting
9th and 10th Grade Informational Reading Texts
A budget is a summary of two things: Your income and your expenses. It can be simple or elaborate. The main purpose of a budget however is to help you make decisions. If you really want those tickets to the concert you've been wanting to go to, how long will it take you to save up for it? A good budget serves the basic purpose of letting you track how much money is coming in and going out. It can also help you figure out if you have any wasteful expenditure and achieve your ultimate financial goals. Why is budgeting so difficult? Budgeting doesn't have to be a painful experience, but for some it is. One of the reasons why people may not stick to a budget goes back to the concept of choices.
To pay for all of those things, they may have to give up some things that they don't want to think about. The daily trip to Starbucks, new music downloads, a NetFlix subscription - all things that may give someone some enjoyment, but come at an opportunity cost. Dialing down further on what a budget is, (and why it can be difficult for some to follow) a person should understand two different types of income. Disposable income is the amount of money you have left when your paycheck makes its way to you and all of the required taxes are taken out. Suppose you have a job that pays you $1500 every two weeks. When all the taxes required at the local, state, and federal levels are taken out, you may end up with $1000 actually making it into your bank account.
That money makes its way to you in the form of a paycheck, and once deposited in your bank account you then have to send some of that money out to pay your mortgage/rent, your car payment, your power bill...all of the necessities. Once all of this has been taken care of, you're left with discretionary income, the amount of money you have left over to invest, save, or spend after paying your bills. For some it is difficult to see that end number. That thing you're hoping for, whether it's a strong savings account, concert tickets, etc. can seem like it's a long ways off - or even impossible. It is for these things however that a budget can be one of the most useful tools in a person's financial life. Imagine for a moment that you're saving up to buy a new television set. This is an economic want that many people experience.
Maybe the one you're hoping to get costs around $1000, and after paying all of your bills each month you are left with $100 to your name. There are several ways you could move forward. If you saved that $100 every month (and luckily encountered no emergencies) you could have that television set in 10 months. That choice however means you have no money left over for your daily trip to your coffee shop. If you've kept a detailed household budget going however, you might see that there are certain things you can cut out to help you get that television faster. Do you really need that NetFlix subscription? Can you shop at a different grocery store to save money? Do you have a savings account with more than the recommended "3 months of living expenses" (more on that in a moment) in it?
If you budgeted $200 a month for groceries and are able to save $90 by shopping elsewhere or buying a cheaper brand, and eliminated your NetFlix subscription you could have just doubled your discretionary income and given yourself a path to obtaining your economic want of a new television faster. Your budget is only one step in the fast paced world of "being a responsible adult." The next thing that many economists suggest is that you should get a savings account going with at least three months worth of your monthly income in the event of an emergency. Others suggest more, anywhere between six and nine months worth is ideal. The reason behind this is simple and unavoidable: There will be situations that arise suddenly that you may not have control over.
It could be that you find yourself temporarily unemployed, have a major home repair, or find yourself with some large out of pocket medical expenses that may not be covered by insurance. Whatever the case may be, saving at least three months worth of income will provide you with a financial cushion upon which you can fall when times get rough.
The digital age has brought many improvements to people living today. Financial transactions which used to take several days to complete can now be done instantaneously. Even more useful is the ability to log in to your bank's website at any time of day or night to see exactly how much money you have there.
For many this is a way to keep your checkbook balanced regularly, but for others this can lead to financial issues if an accurate register of transactions is not actually kept. Balancing your checkbook can be an easy task if you keep up to date regularly, but it can be a nightmare if you don't. This helps you manage your money, keep tabs on your cash flow, and avoid overdraft and the fees that come with having insufficient funds.
To pay for all of those things, they may have to give up some things that they don't want to think about. The daily trip to Starbucks, new music downloads, a NetFlix subscription - all things that may give someone some enjoyment, but come at an opportunity cost. Dialing down further on what a budget is, (and why it can be difficult for some to follow) a person should understand two different types of income. Disposable income is the amount of money you have left when your paycheck makes its way to you and all of the required taxes are taken out. Suppose you have a job that pays you $1500 every two weeks. When all the taxes required at the local, state, and federal levels are taken out, you may end up with $1000 actually making it into your bank account.
That money makes its way to you in the form of a paycheck, and once deposited in your bank account you then have to send some of that money out to pay your mortgage/rent, your car payment, your power bill...all of the necessities. Once all of this has been taken care of, you're left with discretionary income, the amount of money you have left over to invest, save, or spend after paying your bills. For some it is difficult to see that end number. That thing you're hoping for, whether it's a strong savings account, concert tickets, etc. can seem like it's a long ways off - or even impossible. It is for these things however that a budget can be one of the most useful tools in a person's financial life. Imagine for a moment that you're saving up to buy a new television set. This is an economic want that many people experience.
Maybe the one you're hoping to get costs around $1000, and after paying all of your bills each month you are left with $100 to your name. There are several ways you could move forward. If you saved that $100 every month (and luckily encountered no emergencies) you could have that television set in 10 months. That choice however means you have no money left over for your daily trip to your coffee shop. If you've kept a detailed household budget going however, you might see that there are certain things you can cut out to help you get that television faster. Do you really need that NetFlix subscription? Can you shop at a different grocery store to save money? Do you have a savings account with more than the recommended "3 months of living expenses" (more on that in a moment) in it?
If you budgeted $200 a month for groceries and are able to save $90 by shopping elsewhere or buying a cheaper brand, and eliminated your NetFlix subscription you could have just doubled your discretionary income and given yourself a path to obtaining your economic want of a new television faster. Your budget is only one step in the fast paced world of "being a responsible adult." The next thing that many economists suggest is that you should get a savings account going with at least three months worth of your monthly income in the event of an emergency. Others suggest more, anywhere between six and nine months worth is ideal. The reason behind this is simple and unavoidable: There will be situations that arise suddenly that you may not have control over.
It could be that you find yourself temporarily unemployed, have a major home repair, or find yourself with some large out of pocket medical expenses that may not be covered by insurance. Whatever the case may be, saving at least three months worth of income will provide you with a financial cushion upon which you can fall when times get rough.
The digital age has brought many improvements to people living today. Financial transactions which used to take several days to complete can now be done instantaneously. Even more useful is the ability to log in to your bank's website at any time of day or night to see exactly how much money you have there.
For many this is a way to keep your checkbook balanced regularly, but for others this can lead to financial issues if an accurate register of transactions is not actually kept. Balancing your checkbook can be an easy task if you keep up to date regularly, but it can be a nightmare if you don't. This helps you manage your money, keep tabs on your cash flow, and avoid overdraft and the fees that come with having insufficient funds.