BUDGETING Your Best Tool For Financial Success
According to The Millionaire Next Door Who Really Are the Millionaires?
THE MILLIONAIRES Most millionaires are college graduates. True. Four of five millionaires are college graduates. Eighteen percent have Master ’ s degrees, eight percent law degrees, six per- cent medical degrees, and six percent Ph.D.s.
THE MILLIONAIRES A majority of millionaires work fewer than 40 hours/week. False. About 2/3 of millionaires work hours a week.
THE MILLIONAIRES Most millionaires inherited their wealth from family. False. Only 19 percent of millionaires received any income or wealth of any kind from a trust fund or an estate. Fewer than 10 percent of millionaires inherited 10 percent or more of their wealth.
THE MILLIONAIRES Most millionaires purchase used cars. True.. Only 23 percent of millionaires drive a current- year (new) car.
THE MILLIONAIRES Most millionaires work in sports, entertainment, or as CEOs of big companies False. About three out of four millionaires are self employed and consider them-selves to be entrepreneurs. Most of the others are professionals, such as doctors, accountants, and lawyers
THE MILLIONAIRES Many poor people become millionaires by winning the lottery. False. The chances of winning are about one in 12 million. The average person who plays the lottery every day would have to live about 33,000 years to win once. In contrast, you have a one in 1.9 million chance of being struck by lightning.
Sources Lee, Dwight R., and Richard B. McKenzie. Getting Rich in America. Harper Business, Stanley, Thomas J., and William D. Danko. The Millionaire Next Door. Pocket Books, 1996.
Rules for Improving Your Financial Life Get a good education Work long, hard, & smart Learn money-management skills Spend less than you could spend
Rules for Improving Your Financial Life Save early and often Invest for the long term Gather information before making decisions
What is a Budget? A spending and savings plan based on an estimate of income and expenses Purpose: Meet short and long term goals control To have control !!!!
Budgeting Process Identify Current Income & Spending Set Goals & Create Budget Track spending & make adjustments
Identify Current Income Gross Income: Income before taxes are takeout Net Income: Income after taxes are take out – take home pay Other Income: Gifts and other income earned
Identify Current Spending Record your spending habits Review past bank statements, check register, receipts, tax forms, bills Divide spending into categories such as… Food Entertainment Rent Car fixed vs. flexible needs vs. wants Label fixed vs. flexible and needs vs. wants
Fixed vs. Flexible Expenses Fixed Expenses Those that you have already promised to pay on certain dates and in certain amounts Flexible Expenses Those that vary in amount and usually in frequency Which is harder to change? Which should be changed first ?
Fixed vs. Flexible Expenses Rent Cell Phone School Loan Insurance Car Loan Gym Membership Savings Clothing Food Entertainment Car Maintenance Gas Gifts Heat/Water/Power FixedFlexible
Create Goals – Savings Plan Short-term Goals Emergency Funds Large purchase (vacations, TV) Long-Term Goals (three years or more) Home (down-payment) Education Retirement Saving and investing must be treated as a fixed expense. Pay yourself first – at least 10%
Simple Budget Format… Monthly Budget Net Income Other Income Total Fixed Exp Total Flexible Exp Total Saving & Investing Total Ending Balance
Creating the Budget Analyze your spending habits to see where you need to make changes Identify trouble spots where your spending is higher than average for other similar demographics. Set budget to meet your goals
Tracking Budget Track expenses monthly to ensure budget is being followed Excel or other software works great Adjust budget if needed Be realistic It may take multiple revisions to achieve a budget you can stick to.
Lastly Its all about opportunity costs “I can have this, but it will cost me this.” Reevaluate often to: Your goals will change as your life changes