© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 1 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman Introduction to Spending Plans Family Economics & Financial Education

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 2 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Spending Plans Outline Financial Planning Types of Financial Statements  Balance Sheet  Income and Expense Statement  Spending Plan Bathtub Analogy Conclusion

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 3 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Financial Planning  A process to achieve financial success  Helps a person avoid financial difficulties and save for the future  An ongoing process; always updated to meet the needs of an individual’s financial activity Financial Goals  Specific objectives to accomplish by financial planning!

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 4 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Financial Planning Each family or individual has their own unique financial plan  These vary with values, needs, wants, and financial goals Value  Belief or practice about what is desirable and important to an individual or family Need  Thought to be a necessity

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 5 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Financial Planning Want  Unnecessary, but desired Values, needs, and wants must be evaluated before a financial plan can be made

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 6 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Wealth Having a large amount of money or valuable possessions Can help a person achieve financial goals

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 7 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Bathtub Analogy Water is money Income is water filling up a bathtub from the top Wealth is amount of money in the bathtub Expense is water draining out of the tub from the bottom

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 8 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Bathtub Analogy Income Water filling up the bathtub Expenses Water draining from the bathtub Wealth Amount of water in the bathtub

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 9 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Bathtub Analogy Goal is to keep water in the bathtub  Enough to maintain desired standard of living during retirement Water level raises and lowers with income and expenses Must have water (or wealth) in the bathtub for financial planning

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 10 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Financial Statements Show financial data and information regarding money Can show financial status of a family or individual There are 3 types: I. Balance sheet II. Income and expense statement III. Spending plan

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 11 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Balance Sheet A balance sheet is also called a net worth statement  Shows assets, liabilities, and net worth on a particular date Assets-everything a person owns with monetary value Liabilities - debts or what is owed to others Net worth - money left when liabilities are subtracted from assets

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 12 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Balance Sheet Shows financial status at one point in time People need to know where they stand before they can create a financial plan

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 13 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Income and Expense Statement Income and expense statements are also called cash-flow statements Lists all monetary actions in a given time period Foundation for the spending plan

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 14 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Income and Expense Definitions Income  Total income received Expenses  Total expenditures made Net gain  A person is making more than they are spending Net Loss  A person is spending more than they are making

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 15 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Income and Expense Statement Why is an income and expense statement important?  Shows if a family or individual lived within their income level over a certain time period  Shows where a person’s money is going  Shows if too much was spent on one expense

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 16 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Spending Plan Future oriented tool Assists in money management Two main components I. Income II. Expenses

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 17 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Spending Plan Income and expense are estimated guidelines for monetary transactions for a specified time period After the time period is over, the spending plan is evaluated and revised for next time period Different from income and expense statement because it is an estimate for the next month’s spending

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 18 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Spending Plan Why is a spending plan important?  Can give a person a strong sense of where money is going  Allows for income and expense tracking  Helps meet financial goals  Helps a person live within their income  Reduces need for credit and gaining debt

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 19 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Comparing Statements Balance Sheet  Current financial standing  Need to create a balance sheet before a family or individual is able to create an income and expense statement Income and Expense Statement  Lists all monetary transactions  Foundation for spending plan Spending Plan  A future estimate of how to manage money based on the income and expense statement

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 20 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 Conclusion Balance sheets, income and expense statements, and spending plans are all forms of financial statements used in financial planning The bathtub analogy shows a persons wealth How full is your bathtub? Every family or individual must plan for the future with financial statements!

© Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 21 Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University—Bozeman 15.3.G1 The End