1. Credit Advisors Foundation Copyright 2007 Budgeting Workshop

2. Credit Advisors Foundation Copyright 2007 About Budgeting Objectives for… After completing this lesson you should be able to: Prepare a thoughtful budget Understand the components and percentages necessary to create a reasonable budget Recognize the importance of budgeting

3. Credit Advisors Foundation Copyright 2007 Let’s Get to Work

4. Credit Advisors Foundation Copyright 2007 Income Income can come from a variety of sources.  Paychecks  Rental income  Investment dividends  Child support or alimony For an accurate budget include all of your household income sources.

5. Credit Advisors Foundation Copyright 2007 Income Add all sources of income Total them all for a one year period Since most expenses are billed monthly: Divide your overall total by 12 This is a monthly average income to use in your budget calculations.

6. Credit Advisors Foundation Copyright 2007 IncomeGrossNetMonthly Salary/Wages $ 45,000.00 $ 29,250.00 Partner Salary/Wages $ 60,000.00 $ 39,000.00 Child Support/Alimony $ - Investment Income $ 120.00 Other Income $ - Total Household Income $ 105,120.00 $ 68,370.00 $ 5,697.50

7. Credit Advisors Foundation Copyright 2007 Understanding expenses Fixed expenses remain the same from month to month such as rent or mortgage, car or truck payment, or possibly level-pay utilities

8. Credit Advisors Foundation Copyright 2007 Fixed Expenses Budget Actual Difference Savings $ 50.00 Mortgage or Rent $ 1,300.00 Car Payment $ 450.00 Car Payment $ 500.00 Other Loan $ 200.00 Pledged Contributions $ 50.00 Life Insurance $ 20.00 Other: Total Fixed Expenses $ 2,570.00

9. Credit Advisors Foundation Copyright 2007 Understanding expenses Variable expenses are not as predictable as fixed expenses. Examples: your electric bill in the summer, gasoline costs, or entertainment.

10. Credit Advisors Foundation Copyright 2007 Variable Expenses Budget Actual Difference Utilities $ 300.00 Home Maintenance $ 200.00 Food $ 500.00 Fuel $ 280.00 Clothing & Upkeep $ 100.00 Health Care $ 40.00 Recreation/Entertainment $ 72.00 Other Goals $ 300.00 Total Variable Expenses $ 1,792.00

11. Credit Advisors Foundation Copyright 2007 Understanding expenses Periodic expenses are those expenses that are not monthly. They may be quarterly, semi-annual or even annual. Examples include some insurance, real estate taxes, car licensing, etc.

12. Credit Advisors Foundation Copyright 2007 Periodic Expenses Budget Actual Difference Home Insurance $ 75.00 Real Estate Taxes $ 210.00 Car Insurance $ 160.00 Car Licensing $ 900.00 Other $ 75.00 Total Periodic Expenses $ 1,420.00

13. Credit Advisors Foundation Copyright 2007 Expenses The first time it is always tough to remember everything Budgeting is an art. Let the calculations begin!

14. Credit Advisors Foundation Copyright 2007 Why do we separate our expenses? Fixed expenses give us the least amount of flexibility. We can control variable expenses but only to a point. We have the most flexibility with periodic expenses but they often have the worst bite!

15. Credit Advisors Foundation Copyright 2007 Determine your total monthly income & subtract your total monthly expenses. Are there funds left over? Or are you in the red? Total Monthly Income -Total Monthly Expenses Disposable Income

16. Credit Advisors Foundation Copyright 2007 Total Variable Expenses $ 2,570.00 Total Fixed Expenses $ 1,792.00 Total Periodic Expenses $ 1,420.00 Total Expenses for Month $ 5,782.00 Summary Total Income $ 5,697.50 Total Expenses $ 5,782.00 Remainder $ (94.50)

17. Credit Advisors Foundation Copyright 2007 What’s going on ? Many people find their budget in the black but their lives in the red!

18. Credit Advisors Foundation Copyright 2007 Black or Red…all budgets can use adjustments and analysis

19. Credit Advisors Foundation Copyright 2007 Budget Adjustments During budget development certain areas will become obvious focus points where adjustments can & should be made.

20. Credit Advisors Foundation Copyright 2007 Budget Adjustments Take a moment & review your list of expenses. Don’t forget to look at income. Are there options for over-time, week-end work, etc. Identify categories where adjustments could be made.

21. Credit Advisors Foundation Copyright 2007 An important part of developing a budget is recognizing the difference between Wants big screen TV vacation jewelry Needs food shelter clothing

22. Credit Advisors Foundation Copyright 2007 Understand how you spend money so you will be aware of influences to your budget by Become aware of your common spending habits.

23. Credit Advisors Foundation Copyright 2007 Monitor your spending habits to find black holes in your budget where money disappears Keep a log for 30 days of everything you spend Divide by type - food, clothing, & entertainment Find patterns in your spending where wants are being lived as needs.

24. Credit Advisors Foundation Copyright 2007 Analyze Black Hole Expenses When added to your budget, are you going over in particular categories? Were you aware of how much you were spending? Determine the time value of your purchases. Total price/net hourly wage = time value

25. Credit Advisors Foundation Copyright 2007 Take it to the Next Level Experts say…. Suggested Expense Percentages Housing 27% Mortgage/Rent Insurance Taxes Utilities Food 16% Transportation 12% Car Loan Gas Tokens Maintenance Insurance Licensing Clothing 7% Medical 6% Recreation 5% Other 17% Savings 10%

26. Credit Advisors Foundation Copyright 2007 Are you in the Black? Even Just a Little?

27. Credit Advisors Foundation Copyright 2007 Reality Budgeting is not fun. It is about denying yourself and limiting yourself UNLESS…..

28. Credit Advisors Foundation Copyright 2007 Goals You realize that budgeting is the process to help you achieve your biggest goals!

29. Credit Advisors Foundation Copyright 2007 By making plans to achieve your dreams you learn how to form your budget around… Successful financial management builds on a foundation of goals. Setting the goal to have a lump sum of money by a specific time allows you to plan beyond everyday expenses with your budget.

30. Credit Advisors Foundation Copyright 2007 How to set Goals: S pecific The more specific you are the more likely your success. Using SMART as a guideline will create a specific goal design M easurable Your goal must be tangible. Determine the end result. A chievable Begin with small or moderate goals to establish a pattern of success. Believe you can! R ealistic Review your target, timeframe, income & expenses. There’s nothing wrong with a challenge but stay honest about your level of dedication and determination. T imely A goal needs a deadline for you to work towards.

31. Credit Advisors Foundation Copyright 2007 Short term goals Whether a goal is short or long term is not determined by it’s importance or value… but by the time it will take to reach the desired target. A short term goal involves a timeframe of about one year or less.

32. Credit Advisors Foundation Copyright 2007 Examples of short term goals include: $900 over the next 8 months for a summer vacation $500 over 5 months for holiday gift-giving $350 in the next 4 months for a new 27’ TV

33. Credit Advisors Foundation Copyright 2007 Long term goals A long term goal would require more time for it to be successfully achieved. You may choose to budget the same amount as a short term goal but allow for a longer length of time to reach the targeted total.

34. Credit Advisors Foundation Copyright 2007 Examples of long term goals include: $2,000 over the next two years as a down payment for a new car $10,000 over five years for a down payment on a home $18,000 over the next 15 years for your child’s college tuition This is where budgeting becomes FUN!!

35. Credit Advisors Foundation Copyright 2007 Goals: The Gift that Keeps on Giving. Many goods actually become cheaper over time. PIF – The real cost of goods. Goals change! Success feeds on itself. If I can do this…

36. Credit Advisors Foundation Copyright 2007 Additional Tips Involve every member of your household! Do not pre-maturely quit! Keep your eye on the ball – it’s not the budget but the goal!

37. Credit Advisors Foundation Copyright 2007 Monitoring A big part of maintaining your budget in the future involves continually monitoring your income and expenses in relation to your short and long term goals.

38. Credit Advisors Foundation Copyright 2007 Remember… Some people go over their budgets very carefully each month. Others just go over them. Which will you be?

39. Credit Advisors Foundation Copyright 2007 Thanks for Coming!