This video from What’s Up in Finance? introduces Eddie Romero, a college student with an apartment, a nice car and a band. Eddie is struggling financially, and he wants to figure out how to save enough money to pay for a four-year university. Eddie meets with a financial planner named Louis Barajas to learn how to manage his budget to cover his current expenses and save for the future.
Moving Out Transcript (Document)
A budget is a way to keep track of your income and expenses so you can pay for life's necessities and at the same time plan for the future. In its simplest form, a budget is a list of all expenses and income expected over a specified period of time. Individuals and families have budgets, as do companies and governments. Budgeting is key to responsible money management.
The primary components of a budget are income, which is the amount of money you earn in a given period, and expenses, which are the things you have to pay for in that same period of time. Income is the money you earn through your work and your investments. Your expenses will vary depending on your age, but most adults pay for food, housing, utilities such as heat and electricity, telephone, transportation, clothing, entertainment, and, if they have children, childcare and education expenses.
Budgets are important because they can help ensure that you have enough income to cover all of your expenses. Budgeting requires keeping track of your earnings and your spending. If you are keeping a budget for the first time, you can figure out your expenses by writing down everything you spend money on for a month, including bills. Then, organize your expenses into categories such as food, housing, clothing, transportation, and entertainment. This will show where you spend your money.
With a budget in place, you'll know if your expenses are higher than your income. A budget can be used as a tool for figuring out where to cut back on spending so you aren’t accumulating debt by spending more money than you have. If you have something important to save for, like a house for your family or a car to get you to work, you can use your budget as a tool for saving. By looking at your income and expenses you can determine how to cut back on expenses, bring in more income, or both. Budgeting is a great way to be financially responsible, and an important planning mechanism for fulfilling your financial goals.
KWAME JACKSON: Eddie Romero has just moved out of his parents’ house and into his first apartment. He has big dreams — and some big expenses -- and he’s trying to make it all work out.
ROMERO: My name’s Eddie, my passion is music, I started playing when I was twelve years old. Music and art is fun for me and it takes me to another place. If I could do anything in the world I’d want to be a musician, travel the world, share my music, but if that doesn’t work out that’s why I’m going to college right now, that’s why I’m going to school for advertising. I love doing graphic design, I love the multimedia stuff, so it’s not like I’m losing out on anything.
I’m working to pay for junior college right now, but I know I gotta save some money to get into a four year university. I just moved into a new apartment. I moved out mostly because I wanted to have my own freedom. I thought moving out was going to be a lot easier than it was, but there are so many expenses, it’s unbelievable. Like I have to pay gas.
GRAPHIC TITLE: Gas -$85 per month.
ROMERO: You need to maintain your car, to get the oil changed. Brakes.
GRAPHIC TITLE: Oil Change -$35.
ROMERO: There is food which is very important.
GRAPHIC TITLE: Food -$100 per month.
ROMERO: Because I love to eat. All right, so this is my new place.
GRAPHIC TITLE: Rent -$750 per month.
ROMERO: I just go it about two months ago. This is where me and my friends like to hang out and watch football games, watch some TV, just kick back.
GRAPHIC TITLE: Cable -$50 per month.
ROMERO: Over here we’ve got the barbecue, cook some steaks on there. I recycle, it’s gas money. That will give me ten dollars right there, towards gas.
GRAPHIC TITLE: Recycling +$10 per month.
ROMERO: In the fridge we’ve got some frozen meats - buy it, freeze it, eat it whenever you want. Down here, my mom sends me a lot of food. Thanks, Mom.
GRAPHIC TITLE: Mom Priceless
ROMERO: I thought for sure that I was going to have enough money, I was going to be able to do all of the things that I was doing when I was living at home, but it’s not like that at all. I have to work more, I have to bring work home. I mean, I thought about getting a credit card, but I was like yeah right, I’m just going to end up spending money that I don’t even have.
TITLE: Credit card debt is a major reason why students have to drop out of college.
ROMERO: I’m just scraping by, I don’t have any savings. I need a budget, I need a plan.
LOUIS BARAJAS, Financial Planner and Author: Now you said you wanted to do a budget because you just moved out of your parents’ home.
GRAPHIC: Financial Planner Starting Salary: $20,000 Education: High School Diploma, (college preferred). Work Week 50 hours.
BARAJAS: And you’re kind of short on cash and you don’t have a lot of money but you also wanted to save some money for things that were important to you.
Financial planners focus on helping people talk about their dreams, their life plans, their goals, things that are really important to them.
So the components to a budget are just the income that you earn, less the expenses. Now name some expenses that you currently have.
ROMERO: Rent, um gym membership.
BARAJAS: Okay, what else, what other expenses do you have? What do you do on the weekends?
ROMERO: Go to shows.
BARAJAS: Okay now, are you keeping track of how much you spend on that stuff per month?
ROMERO: Not really.
BARAJAS: So one of the things that we are going to do is, we are going to create a budget and for the next thirty days we are going to keep track of every expense that you have that comes out of your pocket, because we want to see where you’re really spending your money. I guarantee you that after we meet later on, you are going to find at least a couple hundred bucks a month that you could put together and invest for something more important that is going to change your life, okay?
ROMERO: Sounds good.
BARAJAS: What would give me true joy is seeing the transformation of clients, when I show them how to use their money to live a better life, a better quality of life, they walk out of here different people.
ROMERO: I think what Louis was getting at was trying to get my mind to see the bigger picture. Not just what I want to see. I was surprised to see that I was spending so much money on music and concerts and just even hanging out with friends.
GRAPHIC TITLE: Music - $50 per month, Concerts - $70, Hangin’ - $120
ROMERO: I decided to put just a certain amount of money into my student credit card so that I could only spend…
GRAPHIC TITLE: Pre-paid credit card, No interest payments or debt
ROMERO: …as much as I put in. And I know I won’t save enough for my degree, but at least I won’t have to borrow as much as people who don’t save up at all.
ROMERO: Life is more than just about creating a budget, it’s about everything you do now is to get to that greater goal that you want to get at. I’m not saving just to get by and go out, I think I’m saving now so I could fulfill my dreams.
Title: Eddie now spends less than $50 a month on entertainment. He saves about $180 per month.
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