Money Management: Part 2

1. Money Management: Part 2

2. Homework (Passport page 22)

3. How’s It Going?

4. Budgeting Process

5. Building the Budget

6. Refining YOUR Budget • Determining what works for you • Comparing actual to budget spending • Considering guideline budgets • Deciding what to adjust • Finding creative ways to save on everyday items • Understanding net worth • Tackling debt

7. What Do You Know?(Pre-Test page 4)

8. Evaluating the Budget • Same Income and Expenses • More Income than Expenses • May have overestimated income • May indicate there are some expenses not captured in your budget • More Expenses than Income • May have underestimated income • May need to adjust the spending plan to reduce expenses or increase income

9. Zero Dollar Budget • Have every dollar spent on paper before the month begins • Plan expenses for the coming month • Rollover unspent money to the following months • Pay yourself first • Make a plan for extra money

10. The Right System For You • Envelope Method • Calendar Method • Register Method • Receipts Method • Budget Spreadsheet • Personal Finance Software

11. Financial Pitfalls • Overcoming Temptations • Revisit Temptations List on Passport p. 15 • Track Spending to monitor progress • Work together with family members • Be realistic • Allow yourself some limited guilty pleasure

12. Financial Pitfalls Cont’d • If you use a credit card to cover $1,000 of periodic expenses and repay the minimum payment at 24% interest: • Monthly payment: $40 • Number of months in debt: 83 months (6 years and 11 months) • Total payments: $1,775 • Interest paid: $775 • If you charged $1,000 per year in periodic expenses over 3 years and repaid only the minimum, you would need 10 years and 6 months to repay the balance and would repay more than $1,575 in interest.

13. Variable Income • Salary + Commission • Needs = Salary • Wants = Commission • Irregular Pay • Budget using lowest paycheck allocating to needs • Excess goes to wants • Overtime • Accelerate savings, goals or debt reduction • Prioritizing Wants and Needs Essential • Savings absolute MUST

14. Adjusting Income Short-Term • Extra Work • Overtime • Part-time supplemental • Review W-4 • Sell Assets • Yard sales/Online sales • Develop Hobbies • Turn a craft or hobby into income Long-Term • Develop career path

15. Comparing Actual vs. Budget

16. Using a Guideline Budget

17. Financial Decision Tree

18. Savings Periodic • set aside monthly amounts to fund periodic expenses Emergency • truly dire occurrences like job loss or a serious accident Retirement • IRAs, 401(k), etc. Goal Savings • S.M.A.R.T. Goals

19. Ways to Save • Food: • Limit eating out to special occasions • Make a grocery list • Use coupons • Join membership clubs/discount stores • Buy generic or in bulk if you use large quantities • Bag lunch • Drink water when eating out • Your Ideas?

20. Ways to Save – Cont’d • Clothing • Transportation • Shelter • Utilities • Entertainment

21. Net Worth Assets Cash Accounts Investments House Car Personal Property Liabilities Debts Credit Cards Auto Loan Mortgage Assets (OWN) – Liabilities (OWE) = Net Worth

22. Financial Statements Spending Plan Net Worth Short Term Long Term

23. Priorities for Spending

24. Dealing with Debt • Debt impacts current spending • Debt delays savings goals • Make a plan to reduce debt • Evaluate debt • Prioritize debt • Create repayment plan • Celebrate success

25. Impact of Minimum Payments

26. Snowball Method • Pay off one debt by paying more than minimum • Apply payment from debt #1 to next debt as additional payment. • As debts pay off, continue to apply payments to next debt. • www.powerpay.org to create your snowball

27. Key Elements • Keep it realistic • Include spending allowances • Use guidelines • Refer to your budget before spending money

28. What Have You Learned? (Post-Test page 24)

29. Homework (Passport page 32)

30. Questions?