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How to Save on a Tight Budget

How to Save on a Tight Budget. Kathryn Greiner Director of Credit Education University of Michigan Credit Union 305 E. Eisenhower, #200 Ann Arbor, MI 48108 (734) 662-8200 xt 2741 kathryng@umcu.org. Average Monthly Expenses. Average Monthly Income. Monthly Take Home Pay. $1,465.

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How to Save on a Tight Budget

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  1. How to Save on a Tight Budget Kathryn Greiner Director of Credit Education University of Michigan Credit Union 305 E. Eisenhower, #200 Ann Arbor, MI 48108 (734) 662-8200 xt 2741 kathryng@umcu.org

  2. Average Monthly Expenses Average Monthly Income Monthly Take Home Pay $1,465 Partner’s Take Home Pay -0- Other Income - roommate 320 (include child support, alimony, Social Security, direct deposits for savings Total Monthly Income $1,785 Monthly Income $1,785 Less Monthly Expenses - 1,450 Amount Available for debt $335 Step 1: Budget Analysis, or Where the Money Goes Jane Doe: Single, No Kids, Gross Annual Income: $24,000

  3. Spending Plans • Use the information gathered from the budget analysis and your immediate bills to develop a monthly plan for: • Spending allowance • Bill paying • Saving for: • a) long term goals & retirement • b) emergency fund • c) set aside

  4. 3 Reasons to Save • Long term savings/retirement • Emergency fund • Set aside/short term savings

  5. Long Term Savings • Long term goals: • Retirement • Children’s college fund • House down payment • Start a business

  6. Precautionary Savings • Emergency fund • To be used if you loose your job or can’t work. • 3 to 6 months of take home pay - Initial goals: one month’s rent, then 1 month’s net pay

  7. Short Term Savings • Set Aside fund: • Holiday gifts • Vacations • Home and car repair

  8. Short Term Savings • Set Aside fund: • Special events such as weddings • Car or computer replacement • Insurance or non-monthly and irregular bills

  9. This Month’s Net Income: $1,785 Less This Month’s Bill & Saving Total - 1,352 This Month’s Spending Allowance: = 433 Divide month’s spending allowance by = $108 4 for your weekly spending allowance Monthly Plan for Spending, Bill Paying, & Saving Bills Spending Allowance Savings

  10. Weekly Spending Allowance • Helps end the financial “binge/starve” cycles. • Something to look forward to when you spread spending money throughout the month. • Avoid augmenting income by charging basic living expenses.

  11. Saving Methods 1. Savings withheld from paycheck 2. Saving as a fixed expenditure 3. Saving what is left over after all other expenditures are paid

  12. Set Aside Fund Worksheet Set side each month: $85

  13. Jane Doe takes home $1,465/mo = $732.50 every other week BI-WEEKLY PAYDAY PLAN Payday Check & Amount Who Gets Paid Payment Descending Balance $ 732 1st paycheck +$732 ………………………………………………………………………….. 1,052 renter + 320 ………………………………………………………………………….. Week’s allowance - $108 944 Rent - 550 394 Heat - 20 374 Electric - 40 334 Phone - 35 299 Cable - 22 277 Hudson’s - 20 257 Target - 40 217 Visa - 50 167 Student loan - 35 132 HOLD for next week $ 24 7th Withdraw week’s allowance - 108 14th paycheck + $732 .…………………………………………………………………………. $ 756 Week’s allowance - $108 648 Car loan - 275 373 Car insurance - 65 308 Dentist - 50 258 Mom - 25 233 Savings $125: 1) retirement - 10 223 2) emergency fund - 30 193 3) set aside (travel, gift, rep) - 85 108 HOLD for next week 21st Withdraw week’s allowance - 108 $ 0

  14. Get Money to Save and Invest • Pay yourself first: treat savings and investing as a fixed expense. • Make saving automatic: automatically transfer funds from your checking to savings account. • Save-don’t spend- extra funds.

  15. Get Money to Save and Invest • Make installment payments to your savings when debt is paid off. • Break a habit: put aside the money you would have spent. • Scrimp one month a year to free up money to save toward your goal.

  16. Rule of 72 • Invest $3,000 at a rate of 9% • 72 divided by 9 is

  17. Rule of 72 • Invest $3,000 at a rate of 9% • 72 divided by 9 is 8 years

  18. Rule of 72 • Invest $3,000 at a rate of 9% • 72 divided by 9 is 8 years • So $3,000 invested at 9% doubles to $6,000 in 8 years.

  19. How $3,000 at 9% Grows • In 8 years: $3,000 x 2 = $6,000 • In 16 years: $6,000 x 2 = $12,000 • In 24 years: $12,000 x 2 = $24,000 • In 32 years: $24,000 x 2 = $48,000 • In 40 years: $48,000 x 2 = $96,000 !

  20. For More Ideas… • How To Save on a Tight Budget • http://www.americasaves.org/strategies/tight_budget.asp • 66 Ways to Save Money • http://www.pueblo.gsa.gov/cic_text/money/66ways/index.html • Eight Ways to Save Money Even on a Tight Budget • http://www.associatedcontent.com/article/56969/eight_ways_to_save_money_even_on_a.html

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