Money Management: Part 2

Homework (Passport page 22)

How’s It Going?

Budgeting Process Organize Data Periodic and Goal Spending Build Budget Evaluate and Adjust Plan Tracking Data Collection

Building the Budget Spending Plan Monthly Expenses (Tracker) Periodic Goals

Refining YOUR Budget Determining what works for you Comparing actual to budget spending Considering guideline budgets Deciding what to adjust Finding creative ways to save on everyday items Understanding net worth Tackling debt

What Do You Know? (Pre-Test page 4)

Evaluating the Budget Same Income and Expenses More Income than Expenses –May have overestimated income –May indicate there are some expenses not captured in your budget More Expenses than Income –May have underestimated income –May need to adjust the spending plan to reduce expenses or increase income

Zero Dollar Budget Have every dollar spent on paper before the month begins Plan expenses for the coming month Rollover unspent money to the following months Pay yourself first Make a plan for extra money

The Right System For You Envelope Method Calendar Method Register Method Receipts Method Budget Spreadsheet Personal Finance Software

Financial Pitfalls Overcoming Temptations –Revisit Temptations List on Passport p. 15 –Track Spending to monitor progress –Work together with family members –Be realistic –Allow yourself some limited guilty pleasure

Financial Pitfalls Cont’d If you use a credit card to cover $1,000 of periodic expenses and repay the minimum payment at 24% interest: – Monthly payment: $40 – Number of months in debt: 83 months (6 years and 11 months) – Total payments: $1,775 – Interest paid: $775 If you charged $1,000 per year in periodic expenses over 3 years and repaid only the minimum, you would need 10 years and 6 months to repay the balance and would repay more than $1,575 in interest.

Variable Income Salary + Commission –Needs = Salary –Wants = Commission Irregular Pay –Budget using lowest paycheck allocating to needs –Excess goes to wants Overtime –Accelerate savings, goals or debt reduction Prioritizing Wants and Needs Essential Savings absolute MUST

Adjusting Income Short-Term Extra Work –Overtime –Part-time supplemental Review W-4 Sell Assets –Yard sales/Online sales Develop Hobbies –Turn a craft or hobby into income Long-Term Develop career path

Comparing Actual vs. Budget CategoryActualBudgetActual Percentage Income3, % Savings % Housing1,1001, % Auto % Debt % Groceries % Entertainment4501.4% Medical25.78% Misc %

Using a Guideline Budget CategoryPercentHOH- Guideline Difference Income100% 0 Savings0.625%5%-4.375% Housing34.4%35%-.6% Auto14%12%2% Debt3.75%5%-1.25% Groceries10.6%12%-1.4% Entertainment1.4%5%-3.6% Medical.78%5%-4.22% Misc5.6%4%1.6%

Financial Decision Tree CATEGORYCONTROLLABLENOT CONTROLLABLE Savings HousingUtility Expense/Landline Rent Auto Debt Entertainment Clothing Medical Investments Education Childcare Charitable

Savings Periodic −set aside monthly amounts to fund periodic expenses Emergency –truly dire occurrences like job loss or a serious accident Retirement –IRAs, 401(k), etc. Goal Savings –S.M.A.R.T. Goals

Ways to Save Food: –Limit eating out to special occasions –Make a grocery list –Use coupons –Join membership clubs/discount stores –Buy generic or in bulk if you use large quantities –Bag lunch –Drink water when eating out –Your Ideas?

Ways to Save – Cont’d Clothing Transportation Shelter Utilities Entertainment

Net Worth Assets Cash Accounts Investments House Car Personal Property Liabilities Debts Credit Cards Auto Loan Mortgage Assets (OWN) – Liabilities (OWE) = Net Worth

Financial Statements Spending Plan Net Worth Short Term Long Term

Priorities for Spending Credit Cards Debt Past Current Needs Discretionary Taxes/Charity Present Savings Periodic Spending Investing Future

Dealing with Debt Debt impacts current spending Debt delays savings goals Make a plan to reduce debt –Evaluate debt –Prioritize debt –Create repayment plan –Celebrate success

Impact of Minimum Payments Minimum Payment (% of Balance) Length of Time Required to Pay off Debt Finance Charges If the amount of debt is $2,000 at 19.8%APR then… 2%32 years, 3 months$6, %8 years, 7 months$1, %6 years, 9 months$ If the amount of debt is $2,000 at 12%APR then… 2%14 years$1, %7 years$ %5 years, 9 months$461.24

Snowball Method CreditorsAmount Owed Minimum Payment Department Store$87$20 Medical Clinic$132$55 Furniture Store$487$20 Online Retailer$864$25 Credit Card$3798$100 Pay off one debt by paying more than minimum Apply payment from debt #1 to next debt as additional payment. As debts pay off, continue to apply payments to next debt. to create your snowballwww.powerpay.org

Key Elements Keep it realistic Include spending allowances Use guidelines Refer to your budget before spending money

What Have You Learned? (Post-Test page 24)

Homework (Passport page 32)

Questions?