About this video
The video examines Maya, a college student who takes home $900 a month, and compares her budgeted and actual spending. Her totals match, but she overspent $10 on groceries and $20 on entertainment and covered the $30 by taking it from her emergency savings. The instructor explains why that is a problem and how she could make it up by cutting other expenses or increasing income.
You'll be able to
- compare budgeted and actual amounts to find where someone overspent.
- explain why a balanced total can still hide a problem.
- suggest ways to make up for money borrowed from savings.
Key words
- Balanced budget
- A budget where total spending equals total income.
- Budgeted amount
- The amount you planned to spend or save in a category.
- Actual amount
- The amount you really spent or saved.
- Emergency savings
- Money set aside for true emergencies, not everyday extras.
- After-tax income
- The money you take home after taxes.
Transcript
- [Instructor] We're told Maya is a college student who works part-time and takes home $900 each month. She creates a budget to manage her expenses and savings. The table below shows her budgeted and actual amounts for one month. So my question here is, taking a look at this table, is she actually spending at her budget for that month?
And is there anything here that you would be worried about if you were Maya or if you were advising Maya? Pause this video and think about that. All right, so let's see. She's budgeted, if we just look at the total budget, she's budgeted spending $900 and she's actually spent $900.
So it looks like it's a balanced budget, but let's see how she was able to balance that budget. See rent, she expected to pay 500, she paid 500. Utilities, she expected 80. She paid 80. Groceries, she expected 120, or she budgeted 120, but she spent $130. So this is, she spent $10 above budget, so she must have gotten that $10 from someplace else.
See transportation, at budget, entertainment. She also spent $20 more than she had budgeted. So a combination $30 in higher expenses, and it looks like she had to take it out of her emergency savings. So this right over here is a little shady. This is not a good thing to do.
You might be able to do it every now and then. But remember, this thing says emergency, it's probably not an issue of, Hey, I really need to go to that movie, that's an emergency. or I really need to buy that extra, well, maybe there is some price increases, or maybe it's something that she didn't need and it was a bit of an indulgence.
And so it isn't good if you budget a certain amount to save every month and you are overspending it because then you're not gonna be able to save as much as you need for all of your planning. Maybe you're saving for an emergency, you're saving to put as a down payment on a house or a car or for a retirement.
And so you can't keep doing this month after month. So ideally, Maya here would make it up in future months, saying, okay, and in the next month I should save $100 in order to make up this savings that hopefully she's not just depleting, but she's essentially borrowed from the savings in this month, but she should pay it back in her mind.
She should said, okay, next month I might budget 70, but I'll actually put in 100 or maybe even just budget 100 and put in 100 or as much as she can. And in order to do that, she only has a few options. She would either have to cut expenses someplace else. Maybe she spends $10 less on grocery and $20 less on entertainment in the next month.
Or she needs to figure out some way to increase her total income that she brings, after tax income that she brings, so that she can put more to her savings.
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