G1 The Essentials of Take Charge of Your Finances Spending plan Essentials

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 2 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Having a plan  Financial planning is a process individuals engage in to achieve long-term financial success while having a quality standard of daily living  A spending plan is a paper or electronic document used to record both planned and actual income through expenditures over a period of time Step 1: Track Current Income and Expenses Step 2: Creating Personalized Income and Expense Categories Step 3: Allocate Money to Each Category Step 4: Implement and Control Step 5: Evaluate and Make Adjustments Spending Plan Development Process

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 3 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Each individual has a unique spending plan  Based upon the following elements: Value A fundamental belief about what is desirable, worthwhile, and important to an individual Need An essential item required for life Want Something unnecessary, but desired What do you value? How do these values affect your spending? What are your perceptions of needs versus wants? How do these perceptions influence spending?

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 4 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Financial Goals  Financial goals are the foundation of a financial plan Goal- the end result of something a person intends to acquire, achieve, do, reach, or accomplish in the near or distant future Financial goals- specific objectives to be accomplished through financial planning How do values, need, wants, and goals relate to spending plans?

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 5 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Components of a Spending Plan  Income, Expenses, Net Gain/Loss  Gumball machine represents components of the financial planning process  Income is money earned Gumballs going into the machine Wages from a job, allowance, gifts What are your sources of income?

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 6 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Components of a Spending Plan  Expense is money spent  Money going out of the gumball machine Fixed expenses may have a fixed amount due each month and are contractual Flexible expenses can vary each month in the amount owed and are not contractual What are two fixed expenses and two flexible expenses you currently have?

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 7 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Spending plan activity- Decide if each item is income, a fixed expense, or a flexible expense Rent Fixed expense Wages Income

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 8 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Spending plan activity Groceries Flexible expense Internet bill Fixed expense

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 9 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Spending plan activity Tips Income Utilities Fixed expense

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 10 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Spending plan activity Gift from family Income Savings Fixed expense

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 11 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Spending plan activity Eating out/Snacks Flexible expense Why is it important to distinguish between income, fixed expenses, and flexible expenses?

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 12 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Step 1: Track Current Income and Expenses Step 2: Creating Personalized Income and Expense Categories Step 3: Allocate Money to Each Category Step 4: Implement and Control Step 5: Evaluate and Make Adjustments How to Develop and Maintain a Spending Plan  Steps 1-3 help develop a spending plan  Steps 4-5 help maintain a spending plan  Once a spending plan is developed it should be continually evaluated and adjusted to meet personal needs and adapt to life changes Spending Plan Development Process

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 13 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Step 1: Track Current Income and Expenses Necessary to creating a realistic spending plan Specific period of time Usually concurrent with payday How much money am I earning? Income How much money am I spending? Expenses

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 14 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Taxes  Compulsory charges imposed on citizens by local, state, and federal governments  Provide public goods and services  Income taxes are taken out of gross income Total amount of money earned during a pay period (salary or hourly wage x hours worked) Gross Income Taxes Retirement Health Benefits Payroll Deductions Take home pay (the amount of the paycheck) Used when calculating spending plan expense categories Net Income What are two items or services you use that are paid for by taxes?

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 15 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Typical Spending Plan Expenses What variables may cause these percentages to be different? A reference Provides guidance Based upon net income

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 16 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Costs Associated with Housing Monthly payment – A fee charged each month to live in a home Utilities – Includes electricity, water, and garbage fees Home or renters insurance – Purchased to protect the home and possessions inside from loss Taxes – Paid by the owner of the home Maintenance – Includes paying for the upkeep of a home

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 17 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Costs Associated with Transportation Monthly payment – Made if a loan is taken out to purchase a vehicle License and registration – Required by law to own a vehicle Insurance – Required by law to protect the vehicle and individuals if involved in an accident Maintenance – Costs to keep automobiles running smoothly Fuel – To operate the vehicle Public transportation fees – Including bus, metro pass, taxis or parking fees

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 18 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Costs Associated with Food Eating at home Groceries Eating out RestaurantsFast FoodSnacksBeverages

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 19 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Types of Insurance  Home/renters and auto are included in their major expenditure categories  Insurance also includes the following: Health – pays a portion of health care expenses if one is sick or injured Disability – provides financial support if an individual is injured and cannot work Life – provides financial support to an individual’s beneficiaries upon death

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 20 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Savings and Other Expenses  Savings and investing % of net income Save at least 6 months worth of expenses for emergencies Continue to invest  Other Expenses Any additional needs and wants  Clothing  Personal Care  Entertainment Determine which of these expenses relate to your spending plan on the spending plan template.

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 21 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Step 2: Create Personalized Income and Expense Categories Reference tracking from Step One To determine personalized income and expense categories for your spending plan

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 22 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Step 3: Allocate money to each category Reference tracking from Step One to fill in “Planned Amount” column for each category Use categories created in Step Two Refer to goals and determine if any changes in spending needs to be made A spending plan is now developed!

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 23 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Spending Plan Creation Each individual/family uses a different method to create a spending plan Paper and pencil Online software such as Quicken Electronic programs such as Microsoft Excel and Word Must be something that an individual can manage effectively

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 24 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Components of a Spending Plan: Net Gain or Net Loss?  Net gain - there is remaining money to either save, spend or invest  Net loss an individual is spending more money that he/she is earning  A spending plan should have income and expenses matching one another (reach zero)

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 25 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Step 4: Implement and control  Implement: Put plan into action!  Control: Fill in the “Actual Amount” column Continued monitoring of spending allows an individual to know if they are spending too much in a category Helps avoid credit and savings use Utilize control systems

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 26 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Control Systems  Envelope systems – individuals place the actual budget amount of cash from a paycheck into a specific envelope system for the expense  Check register system – This helps consumers to track all expenditures in a checkbook register which has been divided into spending plan categories  Electronic spending plan systems – Multiple types of software are available for consumers to use to help keep track of their financial records Which control system do you think would work best for you and why?

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 27 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Step 5: Evaluate and make adjustments  Assess if spending plan is working Are goals being met? Are the dollar amount allocations in each category accurate? Is money being saved or invested? Is credit being used? If so, then the spending plan needs to be adjusted (by increasing income or decreasing expenses)  Make changes to spending plan if necessary  Begin the process again! Why is evaluating and adjusting a spending plan important?

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 28 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Why is it important to create a spending plan? Income (money in) Wealth (money remaining) Flexible Expenses (money out) Fixed Expenses (money out)  To help set and reach financial goals  An effective spending plan creates wealth  Wealth- a measurement of how much a person or household owns once all debts have been paid

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 29 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Summary  A spending plan is a financial planning tool that records planned and actual income through expenditures over a period of time  Everyone has a different spending plan because of unique values, needs, wants and goals  A spending plan includes three sections: income, expense, and net gain or loss.  A spending plan should be continually evaluated and adjusted

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 30 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona G G1 Summary  Steps to develop a spending plan: Step 1: Track current income and expenses Step 2: Create personalized income and expense categories Step 3: Allocate money to each category Step 4: Implement and Control Step 5: Evaluate and Make Adjustments  An effectively managed spending plan allows an individual to begin creating wealth for long-term security