A Budget: What is it?,A Budget: What is it?,A budget is a financial document used to project future income and expenses. The budgeting process may be carried out by individuals or by companies to estimate whether the person/company can continue to operate with its projected income and expenses. A Budget is a tool to help you understand where your money goes A Budget allows you to decide how much and when you spend your income. A Budget allows you to make and reach your financial goals A Budget is the cornerstone of a solid financial future.,A Budget: What is it?,“Budgets are all about financial freedom. Without a plan for saving and spending, youll never make the most of your income no matter how much money you earn.”,“Budgets are very empowering.”,“Budgets create financial security.”,“Budgeting doesnt lead you away from something it leads you towards a financial goal.”,“A budget can help you reach a financial goal because it controls how much you spend and how much you save.”,“Budgets can help eliminate many money surprises because youve planned ahead and know what to expect.”,“A good budget can help keep your spending on track and even uncover some hidden cash flow problems that might free up even more money to put toward your other financial goals.”,A Budget: What is it?,What do I need to prepare a budget? Income details List of expenses, including debt payments,What are the types of Expenses? Fixed expenses: Remain the same each month Variable expenses: Vary from month to month Periodic expenses: Occur only once or twice a year.,A Budget: What is it?,Creating a Budget,Identify your monthly income Identify your monthly expenses,Rule of Thumb: If your monthly income is greater than your monthly expenses then you are able to save $ MI ME = $avings If your monthly expenses are greater than your monthly income then you are going into debt. ME MI = Debt,A Budget: What is it?,Setting Financial Goals,“People dont plan to fail; they fail to plan”,Think first: Budget each pay packet. What needs to be paid first? Remember: When it is gone; it is gone! Dont be tempted by credit/debit cards! Rethink: Is this expense absolutely necessary? Is it a need or a want?,A Budget: What is it?,Setting Financial Goals,“Goal setting is a terrific motivator!”,Short Term Goals: 12 months or less Mid Term Goals: Within 1-3 years Long Term Goals: Within 3-5 years,Examples: Build an Emergency Fund Get your debt under control Save for a deposit on a car or home Save more for retirement Save for a holiday. Save for anything you want,A Budget: What is it?,Keep in mind,“ S M A R T ”,S = SPECIFIC = what is it you want to achieve and why,M = MEASURABLE = amount to be saved each month/interval,A = ATTAINABLE = when is the due date for the goal,R = REALISTIC = have you given enough time to save,T = TRACKABLE = specific time frame,A Budget: What is it?,Simple Interest*,“Interest Rate”: the stated rate of interest paid each year,Principal amount to be saved: $1,000 Interest Rate 6% per annum/year: 6% of $1,000i.e. 6/100 .06 x 1,000 = $60 per annum Value after two years:$120 interest + Principal $1,000 = $1,120 Value after five years:$300 interest + Principal $1,000 = $1,300 Value after ten years:$600 interest + Principal $1,000 = $1,600 Value after 12 years: $720 interest + Principal $1,000 = $1,720 Note*: Simple Interest does not take into consideration bank fees, changes in interest rate or any other matter that may influence the interest gained. “Simple Interest” calculation is to give you a general idea where the value of your initial “Principal amount” will be in a set time frame.,A Budget: What is it?,Rule of 72,is a simplified way to determine how long an investment will take to double, given a fixed annual rate of interest.,Formula: How many years to double is: 72/fixed annual rate of interest=Years to double your money It works like this: Take 72 divided by the interest rate you will earn on your money. The answer equals the number of years it will take your funds to double in value. Example 4%pa:72/4(%)= 18 (years to double your money) Example 10%pa: 72/10(%) = 7.2 (years to double your money),Choice of Rule: The value 72 is a convenient choice of numerator, since it has many small divisors: 1, 2, 3, 4, 6, 8, 9, and 12. It provides a good approximation for annual compounding, and for compounding at typical rates (from 6% to 10%). The approximations are less accurate at higher interest rates. For continuous compounding, 69 gives accurate results for any rate. This is because In(2) is about 69.3%. Since daily compounding is close enough to continuous compounding, for most purposes 69, 69.3 or 70 are better than 72 for daily compounding. For lower annual rates than those above, 69.3 would also be more accurate than 72.,A Budget: What is it?,Compound Interest,Compound interest is paid on the original principal and on the accumulated past interest.,Formula to find interest for fixed term deposit: A = P(1 + r)t A =