1. © 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

2. © 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 15.2.GI Introduction  Spending Plans  Income and Expense  Fixed & Flexible Expenses  Net Loss & Gain  Spending Plan Process

3. © 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 15.2.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

4. © 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 15.2.GI Income & Expense  Spending Plans have two main components  Income  Money Earned  Expense  Money Spent  Fixed Expenses  Flexible Expenses

5. © 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 15.2.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

6. © 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 15.2.GI Expense  Money Spent Consisting of 2 Areas:  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

7. © 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 15.2.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

8. © 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 15.2.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

9. © 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 15.2.GI Step 1: Set Financial Goals (SMART)  Financial Goals should be:  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.

10. © 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 15.2.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.

11. © 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 15.2.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

12. © 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 15.2.GI Step 3: Decide  Make realistic decisions and estimates for categories  If expenses exceed income,  Earn more income  Decrease expenses  A combination of both

13. © 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 15.2.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!

14. © 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 15.2.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)

15. © 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 15.2.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

16. © 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 15.2.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  Can be done on a calendar, as $ spent  Check Register System  Tracks all expenditures in a checkbook register  Divided into spending plan categories

17. © 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 15.2.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!

18. © 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 15.2.GI THE END!