Managing Your Personal Finances in Tough Times Susan K. Morris Accredited Financial Counselor Extension Educator Family and Consumer Sciences

2 “A bereavement process is usually necessary for healing in all situations of loss.” Ann Kaiser Stearns, Ph.D., Author, Living Through Job Loss

3 DON’T PANIC! GET THE FACTS

4 Planning for Financial Recovery* Rebuilding strength Clarifying finances Gaining income Controlling destiny * Ronald W. Wall, Ph.D., Author, Financial Counseling in Practice

5

6 $$$ Tip #1 CHART YOUR COURSE

7 Financial Questions $Have I signed up for unemployment benefits? $How much is my benefit? How long? $What & when are my/our monthly income sources? $What are my/our monthly expenses? $Do I/we have a monthly budget or spending plan? $Have I/we tried to reduce any of the monthly payments? $How can I/we cut our monthly expenses? $Where can I/we get additional income? $Will I/we be willing to seek financial counseling?

Your Financial Destination $$ To Get Where You Want To Be … You Have To Know Where You Are Now

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

Wealth-building strategies Change these dreams to specific goals: Save $40 a month and use it to pay off debt. I will play Bingo every other week and I’ll put the extra $40 toward debt payments to pay it off by October Drive a car that is 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 Dec

11 $$$ Smart Money Tip #2#2 ORGANIZE FINANCIAL RECORDS

12 Set Up a Business Center A desk and file cabinet or just a simple cardboard box will do.

How long to keep records

In the case of identity theft, an ounce of prevention is worth a pound of cure... Clearing your good name from identity theft may take two to three years!

15 $$$ Smart Money Tip #3 KNOW HOW YOU ARE DOING

Calculating Your Net Worth Assets - Liabilities = Net Worth

18 Try to increase wealth each year  Pay off debt  Save more  Decrease expenses Create Wealth

19 $$$ Smart Money Tip #4 BE A MONEY DETECTIVE

Set Spending Levels Keep a record for 2 to 3 months

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

22 Money Traps Can Catch You!  Eating out  Cigarettes  Vending machines  Soda, beer, wine, alcohol, coffee  Video rentals  Personal products  ATM withdrawals  Lottery tickets  Others??

23 Communication Costs  cell phone  beeper/pager  cable  internet service  call waiting  caller ID  2nd phone line

Spending Plan (Budget) Process 1. Estimate available income 2. Define major expenses 3. Set spending levels 4. Develop spending plan 5. Watch over and control expenditures 6. Review periodically

A Budget Will Help You...  Live within your income  Spend your money wisely  Reach personal goals

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

Define Expenses 1.Fixed Expenses 2.Flexible Expenses 3.Periodic Expenses

Fixed Expenses - Examples  Rent  Mortgage  Insurance  Installment loans (e.g., car payment)  Child care  Alimony, child support  Savings  Allowances

Flexible Expenses - Examples  Groceries-Eating Out  Utilities  Clothing  Charity-Church  Charge Accounts  Transportation  Medical Expenses  Personal Care  Recreation, pets entertainment

Periodic Expenses - Examples  Car insurance  Estimated taxes  Car repairs  Routine medical or dental exams  Homeowner’s or rental insurance payments  Homeowner’s association fee  Others??

Make Your Spending Plan Useful A spending plan or budget is… $ Your spending guide $ Personal and unique $ Realistic $ Flexible

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:

Why Spending Plans Don’t Work vValue Conflicts vUnrealistic goals vEmotional money use vLack of planning

There’s NEVER enough MONEY ! PRIORITIZE COMPROMISE

35 $$$ Smart Money Tip #5 BE CREDIT SMART

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

Correcting a Credit Report Contact company that reported the error Ask company to correct error, in writing, with each credit bureau Photocopy pertinent documents Write credit bureau, explain error and enclose documentation Send certified mail with return receipt

What Is A Credit Score?

 – Low Risk  – Medium Low Risk  – Medium Risk  – Medium High Risk  620 and Below – High Risk or Sub-Prime  500 & Below – Forget About It FICO Credit Score Ranges

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, Making a monthly “Power Payment”: $120/month (fixed payment) 33 months $ in interest Total Paid: $3,849.27

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 #6 PAY OFF DEBT

46 If YOU can’t pay... NOTIFY creditor before bill or loan is due. STOP credit purchases until debts are under control. CUT living expenses to a minimum. DEVELOP a debt repayment plan. GET HELP from a credit and debt counseling service.

47 Debt Repayment Plan 4Determine amount owed 4Decide amount you can pay back and when 4Set up plan for paying debts 4Discuss plan with creditors 4Follow the plan/control spending 4Review and revise,when necessary

48 Prioritize Debts First priorities Mortgage or rent Utilities Secured loans Insurance premiums Second priorities Credit cards Unsecured debts to finance companies Third priorities Doctor, dentist, and hospital bills Family members and friends Notify all creditors of intention to pay.

49 Help is Available * Check the Yellow Pages for Credit and Debt Counseling Services in your area. * Caution: watch borrowing from family or from friends!

Try PowerPay© Make a commitment to stop borrowing or charging until current debts are paid When one debt is paid, that monthly payment is rolled over to the next debt Total monthly payment remains the same; only the distribution of payments changes Save interest by paying debts sooner!

51 $$$ Smart Money Tip #7 MAINTAIN ADEQUATE INSURANCE

52 C.O.B.R.A.* Health Insurance *Consolidated Omnibus Budget Reconciliation Act of A life saver when separating from... When separating from work—you may have insurance you had as a group for a period of time--must pay entire amount Check with your employer regarding the 2009 COBRA Continuation Coverage Assistance Under The American Recovery And Reinvestment Act

 Buy insurance - don’t let someone SELL it to you  Buy appropriate insurance  Buy adequate coverage Some Insurance Guidelines:  Keep essential coverage in force until a new policy starts  Update beneficiary designations

54 $$$ Smart Money Tip #8 SAVE & INVEST WISELY

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

Prerequisites to Investments  Prepare financial statements  Set financial goals  Establish a spending plan  Organize financial records  Establish a positive credit history  Maintain adequate insurance coverage

57 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 Increased Risk

58 Live Below Your Means and Invest the Difference  Spend less than you earn  Distinguish needs from wants  “Step Down Principle” (i.e., set different spending levels for the same item)  Buy cars “new-used”  “Toys & trinkets” = lost wealth  Use payroll deduction for savings and/or investments so money is not spent

59 Invest Regularly by Dollar-Cost Averaging  Takes the emotion out of investing: forces you to buy during market dips  Make regular deposits at regular intervals, regardless of market levels  Buy more shares when market is down  Buy fewer shares when market is high  Invest what you can afford (e.g., $25 per month)

60 $$$ Smart Money Tip #9 PROTECT RETIREMENT SAVINGS

Do your own “Ball Park E$timate” for retirement planning

$$$ Smart Money Tip #10 CREATE A PLAN FOR YOUR ESTATE

Your Estate Plan Will and/or trust(s) Guardianships for minor children or other dependents Powers of Attorney (general, financial, healthcare) Healthcare Advance Directives Personal property inventory with named recipients

64 $$$ Smart Money Tip #11 Make an Action Plan

Managing Your Personal Finances List of Things To Do Find Out Where You Are Net Worth Set Goals & Budget Your Money 70% Living 20% Debt 10% Savings Establish Firm $$$ Foundation Emergency Fund Adequate Insurance Use Credit Effectively Power Pay Consumer Friendly Cards/Loans Pay Down Debt Plan and Save for Retirement Plan for the “What If’s” (Estate Plan)

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Managing Your Personal Finances Susan K. Morris Accredited Financial Counselor Extension Educator Family and Consumer Sciences