Page 555 - Introduction to Business

CHAPTER 15 Personal Financial Planning 529

EXHIBIT 15.5
Estimated Expenses as a Percentage of Net Income

Single with Single with Married with Married with
Expenses No Children Children Children No Children
Housing 20 22 25 23
Loan payments 10 5 5 7
Food 9 12 12 12
Recreation 10 7 5 10
Child care 0 6 5 0
Auto or transit 6 7 7 5
Utilities and phone 5 6 6 5
Clothing 5 4 4 4
Savings 5 5 5 5
Pension 5 5 5 5
Health 3 4 4 5
Education 5 3 3 3
Gifts and contributions 10 10 10 10
Vacation 5 2 2 4
Insurance 1 1 1 1
Other 1 1 1 1

cash budget shows a net cash inflow, calculate how long it will take to accumulate
your savings cushion. Consider any decreases in expenses that might allow you to
achieve your savings cushion faster.
To determine monthly figures for cash inflow and cash outflow, divide amounts
on the projected annual cash budget by 12. Keep accurate records of cash inflows
and cash outflows to determine if your monthly cash budget is working. If your
budget is not matching up with your actual cash inflows and outflows, then you
should consider making appropriate adjustments to your budget.
To achieve financial success, you must control your cash inflows and outflows.
Financial planning experts can help you determine how to manage your finances,
but financial planning experts can never totally replace the need for your personal
involvement in the financial planning process. Furthermore, outside experts have
less at stake if your financial plans fail. And even if the expert’s advice is perfect, ulti-
mately it is up to you to see that those plans are implemented. If your recreation
expenses are budgeted at $100 per month, then you must limit your spending to
that amount.

The Envelope Budget
An envelope budget is a very simple but effective budgeting system. You take envelope budget A budgeting system in
envelopes and write the name of each of your expenditures on them, such as your which money is placed in envelopes
labeled as rent, car payment, food, and
car payment, house payment, food, and recreation. At the beginning of each month,
so on
when you receive your paycheck, you write checks for each of the envelopes.
You mail the house payment and car payment checks to the lenders. You also
mail the checks for the utility and telephone bills. The other checks are cashed
when payments are required and the cash is used to buy gas, food, and necessities.
Any cash left over after the first purchase is replaced in the appropriate envelope.

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