Budgeting Basics

Budgeting and Financial Priorities The PICPA Pennsylvania Institute of Certified Public Accountants The PICPA is a professional association of more than 22,000 members working together to improve the profession and serve the public interest.

Budgeting and Financial Priorities Financial Planning Process Identify your values and goals Develop a strategy to achieve those goals Consider you current finances, risk tolerance, and time horizons Analyze all the factors that may arise while you try to meet your goals

Budgeting and Financial Priorities Prioritize Values Imagine you are financially secure and have more than enough money to take care of your needs – now and in the future. – How would you live your life? – What would you do with your money? – Describe a life that is complete and fulfilling. Developed by George Kinder and the Kinder Institute of Life Planning

Budgeting and Financial Priorities Possible First Priorities Insurance Planning – Life, Health, Disability, or Long-term care insurance Estate Planning – Will, Durable Power of Attorney, and more

Budgeting and Financial Priorities Possible Second Priorities Budgeting and Debt Management Creating an Emergency Fund Retirement Planning College Planning

Budgeting and Financial Priorities Goal in Budgeting Income less expenses equals positive cash flow Positive cash flow can be used for: – A financial cushion – Debt repayment – Guilt-free indulgences – Charitable endeavors

Budgeting and Financial Priorities Budgeting Basics Assess yourself: – What is working? – Where can I improve? – Where are you today, and where do you want to be in the future?

Budgeting and Financial Priorities Budgeting Concentrate on Wealth Accumulation – How much you earn has almost no bearing on whether or not you will build wealth and meet your financial goals. – It doesn’t matter how much you make, it matters how much you spend.

Budgeting and Financial Priorities Recurring Fixed Expenses Expenses that generally do not keep us from saving more. They are easily tracked and the amount can usually be predicted. – Not necessarily “mandatory” expenses

Budgeting and Financial Priorities Discretionary Expenses Not as predictable but much more manageable in terms of reducing spending and budgeting guidelines for yourself and your family.

Budgeting and Financial Priorities Unexpected Expenses Why we need a cushion in our budget – Set aside some of your earnings for the unexpected things that come up in life – Set up a separate savings accounting for your emergency fund

Budgeting and Financial Priorities Balancing Debt and Savings Don’t wait until your debt is paid off to start saving! Determine how much potential positive cash flow you have available and allocate between debt repayment and savings

Budgeting and Financial Priorities Emergency Savings In your savings fund you should have at least enough money to cover three months of expenses Keep the savings liquid – Cash savings accounting – Money market – Line of credit

Budgeting and Financial Priorities Saving Priority Examples Long-term goal: retirement accounts, saving for college Short-term goal: vacation, home improvements, car purchase Plan ahead for the next few years

Budgeting and Financial Priorities Savings Tips Pay cash instead of credit—this makes the money you’re spending more tangible Never spend more than $100 (for example) without taking 48 hours to think about it – this will help with impulsive spending

Budgeting and Financial Priorities Take Action Decide how much to allocate to savings and debt repayment goals Set up savings and debt payments automatically – Payroll deductions directly to checking and savings accounts – Automatic banking payments – Automatic transfers

Budgeting and Financial Priorities Take Action Other things won’t get in the way if the plan has been systemized If you wait to save what’s “left over” after spending, nothing will be there Pay yourself (your goals) first every month, before expenses start to add up

Budgeting and Financial Priorities Questions?