Personal Finance 07 Feb 2009

Warnings & Apologies -I am not a certified financial anything -I will probably say something offensive -What follows is highly opinionated -My recommendations and feelings are partially based on my personality and situation

Recommendations -Use this talk as a starting point, or a refresher -Find a system that works for you, and your personality -Be realistic that finances involve both logic and emotion -Dont be discouraged -Do something

What We Will Talk About -Personal Finance -Budgeting -Strategies

What We Will Not Talk About -Investing -Taxes

What Is Personal Finance? -The process of treating your assets and liabilities as if you were a business -Any good business has a good budget

Key #1 I dont know HOW Im doing, so I have to know WHAT Im doing.

Steps of Personal Finance -Assessing -Forecasting/Dreaming -Budgeting -Tracking/Revaluating

Questions: Assessing -How much income do I have? -How much debt am I liable for? -What are my monthly expenses? -What are my discretionary expenses?

Questions: Forecasting/Dreaming -What does my future hold? -How do I want to spend my money? -What about school, marriage or buying a house? -When will I go on vacation or buy a car? -Is my job status likely to change? -Might there be little mes on the way?

Questions: Budgeting -How much do I want to spend on each category? -How much money can I/do I want to save? -How quickly can I pay down my debts?

Questions: Tracking -How do I close the loop and keep on top of my finances? -What system works for me? -Are my spending and saving habits sustainable?

Key #2 Any budgeting system you choose will fail if dont close the loop, because everything feeds back.

Starting A Budget: The Basics -Add up your income and look for fluctuation -Add up your debts and become aware of their rates and terms -Gather your bills and expenses -Calculate your approximate tax burden

Form a Preliminary Budget -Look at your present expenses to establish categories -Use your current expenses to estimate a projected budget -What bills are monthly, and what are yearly? -Start plugging in and guessing numbers

National Averages

Sample Budget 1

Flesh Out Your Budget -Account for maintenance and irregular costs -Try to predict future expenses -Nail down your bills -Do you have positive cash flow?

Sample Budget 2

Key #3 You want to have positive cash flow.

Problem

Key #4 Plan beyond your month-to-month expenses.

Plan For Things That Are Hard To Plan For -Home Owners: pipes break, refrigerators die, roofs leak windows crack -Car Owners: 30k, 60k, 90k checks, unexpected repairs, tires, eventual replacement -Parents: My condolences

ACK! What DO I DO? -Carefully consider your expenses, both necessities and discretionary items -Be honest about what your needs and wants are -Be realistic about your situation

Key #5 In light of your long term financial health, be willing to make hard decisions.

Opinions, Pt. 1 -There is good debt and bad debt -Good debt is sometimes bad and bad debt is never good -Consumer debt on credit cards is enemy number one -You NEED to have an emergency fund -You must work towards having liquid savings

Opinions, Pt. 2 -Largely ignore how your peers spend money -Debt, especially at high interest rates closes windows -If you have credit card debt, institute a debt snowball or other method to pay it off

Opinions, Pt. 3 -Think long and hard about your standard of living -If you grew up in a favorable situation, it may be hard to realize you need to downgrade

Opinions, Pt 4 -Please, please, please try to save at least 10% of your net income -If youre not in a position to save, do your best not to dig a hole -Learn to prioritize to a greater extent

Opinions, Pt. 5 -We have many more things to buy than ever before (ipods, HDTVs, microwaves) -There arent too many things we used to buy that we dont now -Avoid lifestyle stores and purchases -The internet is designed to separate you and your money

Where To Cut Expenses? -Try big items like food first -Eliminate splurge spending -Stop eating out -Be careful with spending on clothes, luxury items and hobbies -Ask how many hours of work does it take me to pay for this?

Track Your Budget -Paper -Spreadsheet -Software -Websites

Track Your Budget

Key #6 A good budget/personal finance program is systematic.

Tools -Websites like Mint or Quicken -Online banking -Books -Blogs like Get Rich Slowly

Well, thats great, tell me, HOW DO I STICK TO MY BUDGET?!?!?!?

Sticking To The Budget -Cash only, no credit cards -Envelope method -Credit only -Direct deposit accounts -Self waiting periods -Internalizing Costs

Month-To-Month -Dont pat yourself on the back for a month of low expenses -Make sure you remember to mentally amortize your yearly bills, and projected expenses -Track, track, track

Goals -Asses your situation -Think about the present and the future -Collect your financial data -Make a budget -Select a method for tracking spending -Pick a strategy that fits -Keep on keeping on

Questions?