© Family Economics & Financial Education – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman Developing a Spending Plan Family Economics and Financial Education

© Family Economics & Financial Education – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI 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 – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI 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 – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI 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 – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI 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 – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI Income and Expense Definitions  Income  Total income received  Expenses  Total expenditures made (bills)  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 – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI 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 – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI Spending Plan  Financial Statement  Assists in money management  Estimate of income and expense over time  Important positive uses:  Understanding where money is going  Tracking income and expense  Helps to meet financial goals  Helps people live within their income  Reduces the need for using credit

© Family Economics & Financial Education – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI Spending Plans have two main components  Income  Money Earned  Expense  Money Spent  Fixed Expenses  Flexible Expenses

© Family Economics & Financial Education – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI Income  Income is money earned from:  Tips  Wages or salaries  Withdrawal of money from savings  Interest from savings accounts, or investments  Monetary gifts  Scholarships

© Family Economics & Financial Education – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI Expense  Money Spent  Fixed Expenses  Same amount paid each time, usually has a specific due date  Rent/Mortgage  Difficult to change in short amount of time  Flexible Expenses  Different amount paid each time, usually no specific due date  Clothing  Easier to change in short amount of time

© Family Economics & Financial Education – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI Net Loss & Gain When finished with the spending plan two outcomes are possible:  Net Loss  More expenses than income  An individual needs to increase income or decrease spending  Net Gain  More income than expenses  Ideal situation  Extra money can go into savings, be invested, or spent

© Family Economics & Financial Education – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI Spending Plan Process  Six steps in the spending plan process 1. Set Financial Goals 2. Organize 3. Decide 4. Implement 5. Control 6. Evaluate

© Family Economics & Financial Education – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI Step 1: Set Financial Goals  Financial Goals should be:  smart goal writing example.doc smart goal writing example.doc  Specific: exactly what is to be done with the money;  Measurable: write the exact dollar amount;  Attainable: how will the goal be reached - determined by budget;  Realistic: Do not set the goal for something unattainable or unrealistic;  Time Bound: specifically state when the goal needs to be reached.

© Family Economics & Financial Education – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI An example of a Financial Goal  To save $5,000 for a car down payment, I have to deposit $208 into my savings account each paycheck for 2 years.

© Family Economics & Financial Education – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI Step 2: Organize  Determine the appropriate way of record keeping  Select categories for the spending plan  Select a time period  Usually when paychecks are received  Weekly  Bi-weekly  Monthly

© Family Economics & Financial Education – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI Step 3: Decide  Make realistic decisions and estimates for categories  If expenses exceed income,  Earn more income  Decrease expenses  A combination of both

© Family Economics & Financial Education – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI Step 4: Implement  Put spending plan into effect  Keep accurate records of all income and expense  Income is usually constant  Keeping track of expenses is the most important!

© Family Economics & Financial Education – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI Step 5: Control  Control systems are ways that a person can keep accurate records of spending  Realize potential problems early if spending too much in one area  Control systems occur simultaneously with implementation  A person should keep a credit spreadsheet which logs all credit transactions (charges and payments for each creditor)

© Family Economics & Financial Education – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI Types of Control Systems  Envelope System  Individuals place actual budgeted cash in a labeled envelope for a certain expense  Each time $ is taken out of an envelope, write down amount and place receipt inside  Move money around to meet expenses  Once cash is gone, its gone and there is no more money in that category

© Family Economics & Financial Education – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI Types of Control Systems  Spending Plan System  Track expenses on a sheet by entering amount  Keep daily to know how much is being spent  Check Register System  Tracks all expenditures in a checkbook register  Divided into spending plan categories

© Family Economics & Financial Education – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI Step 6: Evaluate  Determine if previous steps in spending plan process have worked  Compare estimated amounts to actual amounts  Have goals been met?  Were there major balances or deficits?  Make necessary changes to spending plan  A continual process because financial situation is always changing!

© Family Economics & Financial Education – May 2005 – Spending Plan Unit – Developing a Spending Plan Funded by a grant from Take Charge America, Inc. to the Department of Health and Human Development at Montana State University – Bozeman GI THE END!