REPORT #3 POWEROINT, Creating a Complete Financial Plan

#3 Creating a Basic Financial Plan. The Forever Battle between $ Income and $ Outgo.  Overview……..The Most Important part of the class is in Report #3. In this area we will be creating a Basic Financial Plan for you to practice on so that you can create a Financial Plan for yourself.

Basic Financial Plan Step #1  Where are you at Right NOW!!!  To complete that you need to create a Personal Net Worth or Personal Balance sheet.  It consists of you listing all of your ASSETS or what you own, list all of your LIABILITIES or what you own and then subtracting your Assets from your Liabilities to establish your NET WORTH or CAPITAL……  See the next slide for an example……

Slide 4 How Is Wealth Measured? 4-1 Resources and Choices PERSONAL NET WORTH STATEMENT AssetsLiabilities Cash and checking account$ Car loan$1, Savings account500.00Credit card debt Savings bond300.00Total liabilities$1, Baseball card collection Computer, iPod, games Car, current value 3,000.00Net Worth Total assets$4,652.56Assets minus liabilities 3, Total liabilities and net worth $4, Net Worth

Basic Financial Plan Step #1 continued Task 1…for Report # 3……. Create a Personal Net Worth Statement given the following information as of today’s date. 1. You have $2000 in a checking account and $6000 in a savings account. 2. You own $1000 in clothes. 3. You own $3000 in technology equipment like Ipads and Phones. 4. You own $4000 in Miscellaneous Books and Memorabilia. 5. You own a car that has a value as of today of $ You owe the Bank $10000 on a Car that you bought two years ago. 6. What is your NET WORTH AS OF TODAY. JANUARY 1, 20xx

Basic Financial Plan Step #1 continued Task # 2. What would happen to your ASSETS and NET Worth if you deposited into your savings account a gift from your Parents of $1000.

Basic Financial Plan Step #2 After you have determined what you are worth, the Step 2 is to set some PERSONAL FINANCIAL goals… Short-Term Goals o Contingency planning o Vacation planning Medium-Term Goals o Buying a car o Paying for college o Planning a wedding Long-Term Goals o Providing for a family o Buying a house Short-term goals can be achieved within one year. Intermediate-term goals are typically set for things you want to achieve in years. Long-term goals are plans you have that are 5+ years away.

Basic Financial Plan Step #2 continued Task #3. Give two appropriate personal financial goals for each of the goal areas listed below….. a. Short term goals: b. Medium term goals: c. Long Term goals:

Basic Financial Plan Step #3 Once you have determined what your worth is and what your personal financial goals you then need to keep track of the money you have coming in (INCOME) from a job or owning a business, or gifts, etc versus the money you are spending (OUTGO) in order to satisfy all of your needs and wants. A good way to keep track of INCOME VS EXPENSE IS with a Spreadsheet. For this class, if you have not already, you need to become familiar with EXCEL. Shown below is a typical INCOME vs OUTGO spreadsheet >>>>>>

2015 Income Vs OUTGO (expenses) Report Difference Between Income and Outgo $ $ Income January February March 2015 Net INCOME $ 2, $ 1, $ $ 1, Job 1 $ Job 2 $ Gifts $ Investment Income $ Subtract SAVINGS TO BANK 1st $ (300.00) Amount in Savings $ (300.00) 2015 OUTGO2015 OUTGO Expense Categoriess January February March Totals $ 1, $ $ $ 1,500.00Rent $ $ 45.00Cell Phone/Internet Service $ $ Newspaper $ $ Nicor Gas Utility $ $ 20.00Corn Belt Electric $ Water Bill $ $ 54.00Food $ $ 45.00Food $ $ City of Bloomington $ $ Cable TV $ $ 10.00Church or Charity $ $ 50.00Medical $ $ -Medical $ -Medical $ Car Insurance $ $ 15.00Miscellenous Expenses $ $ 14.00Miscellenous Expenses $ $ 13.00Miscellenous Expenses $ 13.00

Basic Financial Plan Step #3 Continued…  Task for #4. Download the Student Income and Outgo Spreadsheet and answer the following questions:  1. What was the Income less Savings for January?  2. What was the amount of OUTGO for January?  3. How Much Money was saved in January?  4. How much money was left over in January?  5. What % of your January Income was donated to Charity?  6. Looking at the Net Worth Statement you completed as of January 1 st in the previous slide, if you had from January $300 from Savings and $44 dollars left over, how much did your Net Worth go Up at the end of January?

Basic Financial Plan Step #3 Continued…  Task 5 Given the following Information, complete February and March in the Spreadsheet you downloaded. If there are mistakes in the spreadsheet, you will need to fix them:  1. Income and Savings for February and March were the same except that it was your birthday in February and you received a gift of $1000. In March, you received no gift money.  2. Your Rent, Cell Phone, Newspaper, Nicor Gas, Corn Belt Electric, Water Bill, City of Bloomington, Cable TV, were all the same.  3. There was no Car Insurance due in February or March  4. You had to have a dental cleaning $75 in February and a Physical ($20) in March for Medical.  5. You spend 125 on Food In February due in part to you hosting a SuperBowl Party.  6. You spent 85 on Food in March  7. You spend in February 45 for Miscellenous Expense, but you took a trip on Spring Break in March that cost you $500.  8. You increased your donations to Charity in each Month by 50%.  Complete the Spreadsheet.  Task 6. What is the value of keeping track of your expenses and income over the course of time?

Basic Financial Plan Step #4 Creating A Budget  A budget is a future plan for Income and Outgo. Some items can be planned for and others cannot A budget is a spending and saving plan. It is based on determined and estimated income and expenses. Use spreadsheet software to prepare a budget.

Slide 14 How Do You Prepare a Budget? 4-2 Basics of Budgeting Step 1: Estimate income Step 2: Plan savings Step 3: Estimate expenses o Variable expenses o Fixed expenses o Charitable giving Step 4: Balance the budget

Slide 15 Personal Budget 4-2 Basics of Budgeting IncomeWeeklyMonthlyYearly Work (part-time)$30.00$120.00$1, Allowance for household chores Lunch money allowance Savings account interest Total income $55.50$222.00$2, Savings Deposit to savings account$ 5.50$ $ Expenses Gifts$ 5.00$ 20.00$ Clothes and shoes Loan payment to parents Lunches Entertainment/miscellaneous Total expenses$50.00$200.00$2, Total savings and expenses $55.50 $222.00$2,664.00

Basic Financial Plan Step #4 Creating A Budget  Task 7. From the Income and Outgo Report you completed for January - March  List the fixed expenses.  List what expenses are variable.  List the expenses that could in your opinion change the most and why.  List some ways to increase your Income.

Basic Financial Plan Step #4 Creating A Budget  Task 8. From the Income and Outgo Report you completed for January - March  How would you budget your money going forward? Create a budget going forward based on the information you have on in the completed spreadsheet. It should not include anything weekly like the example I gave you.

What Then Is Financial Planning? Financial planning is a process of looking at your current financial situation and thinking about your future. A financial plan has personal and financial goals along with steps and a timeline. Review and update your financial plan periodically.

What Is Financial Planning? Step 1: Gather financial information Step 2: Analyze information Step 3: Set goals o Personal and financial Step 4: Develop a timeline and benchmarks Step 5: Implement and evaluate the plan

Slide 20 Financial Plan (One Goal) 4-3 Personal Financial Planning FINANCIAL PLAN Net worth on April 1, 20--: $ Personal GoalFinancial GoalBenchmarksTimeline Live in my own house in the country. Buy a house in the country. 1.Save money for a down payment ($12,000) 5 years Set aside $200 per month Once per month Open a separate account for money saved April 8 (next week) Talk to a mortgage broker to get prepared Make an appointment for April 15 2.Get a job that provides enough income to make monthly payments 2 years

Slide 21 Where Can You Get Good Financial Advice? 4-3 Personal Financial Planning Financial planners Financial experts Newspapers and magazines Seminars and workshops Financial websites

REPORT # 3 is IMPORTANT! IT IS WHYYOU ARE IN THIS CLASS!  Task #9……What is the importance of each of the following?  A Personal Net Worth Statement  A Income and Expense Report  A Budget  Having a Financial Plan  Task #10…..Why have you or have you not had a financial plan in the past? Should you have one going forward from today. START NOW and remember to always SAVE FIRST!  Good video on the value of saving…..   ALL THE REPORTS WILL NOT BE AS LONG AS THIS ONE….. it is the most important one this class!!

FUN STUFF  This Financial Stuff can be tedious and boring…in your weekly reports I will include a Quote to live by, dumb jokes, and what I call Wakki Wordies. For every Wakki Wordi you can solve, you will earn 1 bonus point!! Here they are. TASK 11, 12, and 13.

 Quote to Live BY:  Everyone tries to define this thing called Character. It’s not hard. Character is doing what’s right when nobody’s looking.

JOKE OF THE REPORT!!!!!!!!!!! (These are my best!!) Sitting on the side of the highway waiting to catch speeding drivers, a State Police Officer sees a car puttering along at 22 MPH. He thinks to himself, "This driver is just as dangerous as a speeder!" So he turns on his lights and pulls the driver over. Approaching the car, he notices that there are five old ladies-two in the front seat and three in the back-wide eyed and white as ghosts. The driver, obviously confused, says to him, "Officer, I don't understand, I was doing exactly the speed limit! What seems to be the problem?" "Ma'am," the officer replies, "you weren't speeding, but you should know that driving slower than the speed limit can also be a danger to other drivers." "Slower than the speed limit? No sir, I was doing the speed limit exactly...Twenty- two miles an hour!" the old woman says a bit proudly. The State Police officer, trying to contain a chuckle explains to her that "22" was the route number, not the speed limit. A bit embarrassed, the woman grinned and thanked the officer for pointing out her error. "But before I let you go, Ma'am, I have to ask... Is everyone in this car OK? These women seem awfully shaken and they haven't muttered a single peep this whole time," the officer asks. "Oh, they'll be all right in a minute officer. We just got off Route 119."

END OF REPORT #3