Developing a Spending Plan for Life

Susan K. Morris, AFC Extension Educator, Retired (Emerita) University of Maryland Cooperative Extension Montgomery County

Today’s Topics Credit Debt Repayment Resources Goal Setting SMART Goals Financial Record Organization Tracking Expenses Spending Plans

Financial Foundation Goals Emergency Fund Budget Financial Records Credit Record Life Disability Health Property Liability Financial PlanInsurance Insured Savings, Savings Bonds, Money Market Funds, Certificates of Deposits Life Insurance Investments Government Securities High Quality Corporate Stocks, Bonds and Mutual Funds Real Estate Aggressive Growth, Junk Bonds, Stocks and Mutual Funds Futures Contracts Collectibles Pyramid of Investment Risk See Page 11 Increased Risk

Emergency Fund GoalsBudget Financial Plan Financial Statements Financial Records Credit Record LifeHealth Insurance Disability Property Financial Foundation Liability

$$$ Smart Money Tip #1 CHART YOUR COURSE

Set S.M.A.R.T. Financial Goals! SS pecific MM easurable AA greeable RR ealistic TT ime-bound See Page 4

“I wish I wasn’t drowning in debt!” We will eat out only once a month and I’ll put the extra $100 toward debt payments so that my credit cards are paid off by Dec “I wish I could drive a car that’s paid for.” By packing (not buying) lunch 2 days/wk, I will pay an extra $50/month on my car payment so my car will be paid off by Sept Changing dreams to specific SMART goals

ORGANIZE FINANCIAL RECORDS $$$ Smart Money Tip # 2

How long to keep records

Options for Keeping Records One that works for you Best way? One that works for you…  Simple handwritten records  Computer software programs…  MS Money  Quicken / Quicken Deluxe  Kiplinger’s Your Family Records Organizer  Other software…

$$$ Smart Money Tip #3 BE A MONEY DETECTIVE

Track Expenses! Track expenses at least 2-3 months to reveal your “Money Personality” See Pages 6-7

How does money slip through your fingers? Try to identify the “leaks”!

Money Leaks Can Catch You!  Restaurant dining  Fast food  Cigarettes  School expenses  Vending machines  Soda, beer, wine, alcohol, coffee  Other leaks??  DVD/Game rentals  Cell phone, pager  Cable TV, Internet  Personal care products  ATM withdrawals

Spending Plan (Budget) Process Spending Plan (Budget) Process A spending plan is a roadmap for your money 1.Estimate available income 2.Define major expenses (fixed, flexible, periodic) 3.Set spending levels based on past records (receipts, checkbook, etc) 4.Develop spending plan 5.Monitor and control expenditures 6.Review periodically See Pages 8-9

Estimate Income wages, salaries cash gifts, inheritances child support, alimony tax refunds farm income interest dividends Social Security pension, profit sharing benefits profit from sale of assets public assistance rental income commissions, tips, bonuses

Define Expenses Fixed Flexible Periodic

Fixed Expenses  Due on specific dates, in specific amounts  Less control  Examples: taxes, mortgage or rent, car payment, utility budget plans Flexible Fixed Flexible Periodic

Flexible Expenses  Living expenses that vary from month to month  More control over amounts spent  Examples: telephone, food, clothing, entertainment, transportation, gifts Fixed Flexible Periodic

Periodic Expenses  Occur occasionally during the year  Catch you off-guard  Examples: automobile insurance premiums, car or appliance repairs or replacement, tag renewals Fixed Flexible Periodic

Periodic Expense A car insurance premium of $400 is due in 6 months. How much should be saved each month, to pay the premium? $400  6 months=$66.67/month

Set Spending Levels Based on receipts, tracked expenses, checkbook register…

Use 70% of take- home pay for living expenses. Use 20% to repay debt. Save 10% for you and your future. A Guideline To Remember:

How Did We Do? BudgetedActualOver, Under, OK Food-$400Food-$475Food - Over $75 Rent-$975Rent-$975Rent - OK Gas- $100Gas- $ 85 Gas - Under $15 __________________________________________ Total $1,475Total $1,535Total Over $60 What can we do?

$$$ Smart Money Tip #4 BE CREDIT SMART See Pages 19-24

The Three Major Credit Bureaus

What do Credit Bureaus do? Collect data:  Personal information  Employment history  Credit use and repayment history Provide information to:  Creditors  Employers  Insurers  Landlords

Start Here

What Is A Credit Score?

Credit Score Ranges  : Excellent  : Great  : Good  : OK  : Below Average  : Poor  Below 500: Very Poor

Boosting Your Credit Score  Pay your bills on time!  Keep balances low on credit cards.  Pay off debt rather than moving it between credit cards.  Apply for and open new credit accounts ONLY when you need them.  Check your credit regularly for accuracy and correct any errors.  If you have missed payments, get current and stay current. Source: Your Credit Scores, Consumer Federation of America and Fair Isaac Corporation

$$$ Smart Money Tip #5 PAY OFF DEBT

The Minimum Payment Trap Credit card: Pay Minimum per Month: Balance of $3000 4% of balance (starts at $120/mo.) 19.0% interest 134 months $1, in interest Total Paid: $4, Pay More each month: 4% of balance + $15/mo. 53 months $1, in interest Total Paid: $4,358.74

Regaining Control  Communicate with your creditors  Stop credit use  Create realistic spending plan  Develop a debt repayment plan  Know when and where to ask for help

Resources Maryland Cooperative Extension Fact Sheets: Glossary – See Pages Resource Guide – See Pages 33-35

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