Spending Your Way to Success $$ Creating a Spending and Savings Plan and Sticking to It

1. Spending Your Way to Success$$Creating a Spending and Savings Plan and Sticking to It Marilyn K. Albertson, M.S., CFCS Utah State University Extension Associate Professor, Family & Consumer Sciences Salt Lake County

2. Understanding How Emotional History Affects Financial Habits • Review past experiences- what kind of experiences have you had with money as a child? • How has that affected the way you spend money now?

3. What are your values? • Family • Fame • Fortune • Security • Freedom • Education • Recreation • Career • Acceptance • Stability • Power • Peace • Entertainment • Risk

4. Financial LiteracyPoll question #1 • Educational Training: • The U.S. Bureau of Labor Statistics reveals that the fastest growing jobs will require what level of educational training? • Possible Answer: • An associate’s degree or higher • Post secondary vocational training • No more than a high school diploma • Work experience

5. Financial LiteracyPoll question #1 Answer • Educational Training: • The U.S. Bureau of Labor Statistics reveals that the fastest growing jobs will require what level of educational training? • An associate’s degree or higher • Post secondary vocational training • No more than a high school diploma • Work experience

6. What do you need to achieve financial success? • Assess Needs • Set Goals • Plan Spending to Meet Goals • Take Action • Evaluate

7. Your LiFE, Your Money • DVD by PBS • Check out from USU Extension in Salt Lake

8. Financial LiteracyPoll question #2 • What are the first three steps of economic decision-making? • Draw a conclusion, construct a model, and make a generalization • Indentify assumptions, make a policy, evaluate the policy • Gather facts, form a theory, and conduct a simulation • Define the problem, list alternatives and state criteria

9. Financial LiteracyPoll question #2 Answer • What are the first three steps of economic decision-making? • Draw a conclusion, construct a model, and make a generalization • Indentify assumptions, make a policy, evaluate the policy • Gather facts, form a theory, and conduct a simulation • Define the problem, list alternatives and state criteria

10. The steps of Economic Decision-making • Define the problem • Identify possible alternatives • Develop criteria and a ranking system • Evaluate alternatives against the criteria • Make a decision

11. Did You Know? “Almost 60 % of millionaires use a budget to manage their money.” - The Millionaire Next Door: The Surprising Secrets of America’s Wealthy

12. How do you get started making a budget or spending plan? • 1. Identify your goals • 2. Know how much money is coming in • 3. Know how much money is going out • 4. Make a plan to meet your expenses and save for your goals

13. Rich people plan for four generations. Poor people plan for Saturday night.Gloria Steinem • Goal setting: Those who set and record financial goals have more chance of reaching their goals than those who don’t take the time to chart their path.

14. Identify Goals – What you want out of life. WHATARE YOUR GOALS?

15. What do you want out of life. SMART - Specific, Measurable, Attainable, Realistic, Time Sensitive

16. Goal Activity • You need to save $1200 for an Emergency Fund (Goal 1 yr) • How would you find the money?

17. Step Down Principle Save a LITTLE to reach your BIG goals 1 Day $3.57 1 Week $25.00 1 Month $100.00 3 Months $300.00 6 Months $600.00 1 Year $1200.00 Eat lunch out $5.00 Make own lunch $1.43 Save $3.57

18. What is a Budget or Spending Plan? Organized listing of your: • Income (Wages, Salary, Gifts, Other Income) • Expenses (Utilities, Groceries, Taxes, Debt Payments, etc.)

19. Know how much money you have coming in (Income) • Income – net or gross • Keep all income records up-to-date (Your income may vary!)

20. Financial LiteracyPoll question #3 • What is the difference between gross and net pay? • Net pay is gross pay minus saving • Gross pay is net pay minus saving • Gross pay is net pay minus deductions • Net pay is gross pay minus deductions

21. Financial LiteracyPoll question #3 Answer • What is the difference between gross and net pay? • Net pay is gross pay minus saving • Gross pay is net pay minus saving • Gross pay is net pay minus deductions • Net pay is gross pay minus deductions

22. Understanding Gross and Net Income • Gross Income is the total amount you receive before there are any deductions taken out. • Net Income is the gross pay minus deductions such as taxes, insurance, social security, etc.

23. Sample Paystub

24. Gross Pay

25. Net Pay Net Pay

26. Know where your money goes (Expenses) Track your expenses. There are three kinds of expenses: • Fixed • Variable • Periodic or Non-Monthly Occasional

27. Track your Spending • Record everything you spend for at least one month. • List the expenditures in categories ( rent, transportation, food, recreation, etc.)

28. Where should Your money go? • Your personal Spending Log – Track spending for a week and see how your spending matches your goals.

29. Financial LiteracyPoll question #4 • Using a debit card to purchase a good is most similar to using a: • Loan • Check • Credit card • Money market account

30. Financial LiteracyPoll question #4 Answer • Using a debit card to purchase a good is most similar to using a: • Loan • Check • Credit card • Money market account

31. Ask Yourself these questions • Were there expenditures that were surprises? • Did you discover habits that you didn’t realize you had? • Are there areas where you can cut back on your spending?

32. Fixed Expenses • Due every month • Amount stays the same each month • Easy to predict what they will be • Difficult to reduce Example: Rent, Mortgage, Car Payment

33. Variable Expenses • Usually paid each month • Amounts go up and down • Often seasonal Example: Utility Bill, Groceries, Recreation

34. Periodic or occasional expenses • Some you know about: • Holidays • Insurance Premiums • Birthdays • Subscriptions • Dental & Medical Checkups • Taxes • Vacations

35. Periodic or occasional expenses • Some will be surprises • Car repairs • Appliance repair or replacement • Illness or accident

36. Occasional expenses you know about... • Make a list of all you have coming in the next 12 months • Determine how much you will spend for each expense

37. occasional expenses you know about... • Add up the total amount needed for the year • Divide by 12 • Save this amount monthly to be available when you need it

38. Plan for Occasional Expenses $ 4,340 divided by 12 months = $361.66 to save each month

39. expenses you can’t predict... • Establish an emergency savings fund • Set a goal to increase emergency savings to: • 3 months living expenses (2 earners) • 6 months living expenses (1earner)

40. Financial LiteracyPoll question #5 • Pay yourself first means that? • All bills get paid before any saving • Money is set aside for savings before spending • Fixed expenses are paid before flexible expenses • Credit cards pay for what you don’t have as income

41. Financial LiteracyPoll question #5Answer • Pay yourself first means that? • All bills get paid before any saving • Money is set aside for savings before spending • Fixed expenses are paid before flexible expenses • Credit cards pay for what you don’t have as income

42. Spending plan

43. Benefits of a Spending Plan • It helps you: • Pay living expenses • Pay off debts • Decide what you can afford • Save toward your financial goals • Have money for the things you want

44. Three R’s to help make wise spending decisions • Reality– consider your income • Responsibility– consider the consequences of your decisions • Restraint– consider cutting back or saving until you can pay cash

45. get organized to handle your money? Ways to Keep Track of Your Budget: • Financial Information Binder • Envelope system • Checkbook register • Computer program • Account book or spreadsheet system • Cash flow calendar

46. Develop a good credit history • Credit worthiness is judged by creditors based on the following three criteria: • Character – do you pay your bills on time? • Collateral – do you have something of value to back up the loan? • Capacity – do you have a source of income or resources to pay back the loan?

47. Financial LiteracyPoll question #6 • Credit worthiness to buy a house or a car is judged by creditors based on the following three criteria: • Marital status, gender, location • Character, collateral, capacity • Length of loan, credibility, commissions • Occupation, connections, income sources

48. Financial LiteracyPoll question #6Answer • Credit worthiness to buy a house or a car is judged by creditors based on the following three criteria: • Marital status, gender, location • Character, collateral, capacity • Length of loan, credibility, commissions • Occupation, connections, income sources

49. Don’t take on more debt than your income can pay off. Buy only items that will outlast the time it takes to pay for them. Use PowerPay to cut the interest and pay down debt. Manage your credit

50. What Are Power Payments? • Debt reduction principle - funds going to debt payment are rolled over as debts are paid • Requires that no new debt be incurred • Total $ of payments towards debt reduction remain constant