Michael a teacher who is trying to manage his money more eff

Michael, a teacher who is trying to manage his money more effectively as he goes back to college for his Master\'s Degree in Education.

Do you have a personal financial budget? If so, what are the elements of that budget? If not, why not?

Solution

A personal budget for a person or a household is a financial plan which identifies and allocates the income accruing in future towards expenses, debt repayments and savings (if any).

The creation of a personal budget involves the following steps:

1. Identification of personal goals, including financial goals

2. Identification of present and future sources of money

3. Identification of the pattern of expenditure and of all the heads of personal expenditure

4. Aggregating both the sources of income and the expenditures

5.In case of deficits, postponing certain expenses beyond the period of budget i.e. making the necessary adjustments or identifying the sources, like temporary borrowings to bridge the budgetary deficit. If there is a deficit, and the deficit is bridged by borrowings, the budget should have a plan for repayment of these borrowings.

Michael has already identified his goal of going back to college for a Master’s degree in Education. He has been working as a teacher so that he is expected to have certain savings. If he undertakes a part-time Master’s degree program, then he can continue as a teacher. However, in case Michael pursues a full time Master’s degree program, he will have to leave his job. In either case, Michael has to pay the educational expenses. In addition, there will be other personal expenses. It is advisable for Michael to have a personal financial budget if he wants to manage his money more effectively. Thus, he should make an estimate of all possible periodic expenses ( cash outflows) and identify the possible sources (cash inflows) for meeting these expenses. The budget may be broken up into small periods as per Michael’s convenience. Michael may also identify certain standby arrangements in case some of the identified cash inflows do not materialize or certain unidentified expenses materialize.