View
215
Download
0
Category
Tags:
Preview:
Citation preview
Budgeting 101:
Developing and Maintaining a Personal Budget
Lillian Hallstrand, Director of Stewardship and Vocational Planning
BUDGET!!!!
Learning Objectives In this session, we will set you on a path to:
Identify/Develop your financial goals
Examine how financial values come into play
Discuss basic budgeting terminology and principles
Explore tools to develop your personal budget
Talk about challenges and barriers to budgeting
Discuss ways for you to track your financial health and progress
Trigger Warning Money Management can stir up “stuff” within
us:
Anger
Guilt
Frustration
Sense of Hopelessness
Anxiety/Fear
Avoidance
Why Budget? Budgets are a necessity to take control of personal
spending, saving, and debt.
The loudest voices in finance come from corporations that do not have your best interest in mind.
Living beyond your means is a dangerous practice.
Many individuals don’t realize they are overspending until they are deeply in debt.
Credit cards and easy access to funds make it easier to be mindless about spending.
The absence of a budget is one of the greatest contributors to stress about money matters.
Health and $$ A 2013 study by Northwestern’s Feinberg
School of Medicine showed that young adults (24-32 years old) in debt had higher blood pressure levels and exhibited more depressive symptoms than their debt-free counterparts.
The same study showed the higher the debt-to-asset ratio, the higher perceived stress and depression and worse self-reported general health.
(Sweet, McDade, Adam & Nandi, 2003)
Start From Scratch Whether you have a budget that is giving you
challenges or have never created one – let’s wipe the slate clean!
Have a healthy dose of skepticism toward information available on finances; choose websites, books, and magazines wisely
Empower yourself to become an expert on your personal finances. (No ostriches allowed!)
Financial Decision-Making Whether we are conscious of it or not, our
values determine how we use our money.
Any financial goals you create are an extension of your values.
Financial hardship often comes when we stop paying attention to the connection between our values and our money.
Take a moment and write down 5 of the values that you hold to be central to your identity.
Where to Begin? Your Financial Snapshot: The Net Worth
Statement
Your personal net worth is the difference between all of your assets (things you own) and liabilities (debts you owe).
Your net worth statement is a complete list of all of these items and their current values.
Having concrete knowledge (not a “guesstimate”) of your net worth allows for the best starting point for the budgeting process.
Assets Cash
Equivalents Bank and money
market accounts
CDs
Cash on Hand
Investments
Stocks, bonds, mutual funds
Savings bonds
Stock options
Retirement Funds 401K/Pension
Funds
IRAs
Small-business plans
Assets Real Estate
House
Land
Rental Property
Personal Property Vehicles
Campers/RVs/Boats
Household Goods Furnishings
Jewelry/Furs
Electronics
Money Owed to You Rental Deposits/Utility
Deposits
Other Assets Life Insurance (only with
cash value not term policies)
Liabilities Loans
Mortgages
Home Equity Loans
Vehicle Loans
401(k) Loans
Student Loans
Credit Card Balances
Taxes Owed Real Estate Taxes
Unpaid Income Taxes
Quarterly Estimated Taxes
Other Debts Unpaid Bills Due
Alimony
Child Support
Miscellaneous
Creating a Net Worth Statement
Start by listing everything that you own, even if you still owe money on them, such as house, car, etc. ( ALL ASSETS)
List all items at their current market value today.
Add up all assets and subtract cumulative liabilities.
If number is positive, CONGRATS! You have a positive net worth. Your goals will be focused on building wealth.
If the number is negative, DO NOT DESPAIR. Your journey beginnings with working toward a positive net worth.
Why Financial Goals are Important
“Goals are like the wheels on your car; they keep you moving in the direction you want to go, and you won’t get very far without them.” – Davidoff
Working toward goals brings a sense of accomplishment and diminishes stress.
Financial Stewardship is a theological value.
Name Your Short-Term Financial Goals
Determine what your goals are for the near future start small, for example, for the academic year. Samples:
Not accrue more than $$ in student debt this year
Pay off my car
Save up an emergency fund for unexpected life events
Pick 2-3 and write these goals down…….seriously, do it!
Display them in a location where you will be reminded of them often.
Developing Your Budget
Once you have your net worth statement and have created some financial goals, you are ready to create your budget.
Your Budget = your tool for attaining your goals
The term “budget” can bring negative imagery to mind (penny-pinching, stress, etc.). Choose your ‘tude!
A budget is a spending plan. Nothing more.
Controlling spending makes saving effortless.
Signs of a Good Budget
It should be Realistic
Has some flexibility to meet the changing demands of life
Allows progress toward your goals
Should be simple enough that you can manage it in the time you allot
Should reflect the your financial values
Customizing Your Budget
List and add all your sources of income for one month (MONEY IN): Wages from job/s
Student Loans (a monthly total)
Child support/alimony
Rental income
Interest income/Dividend income
Child support and/or Alimony Income
Other sources of income (family support?)
Customizing Your Budget Next, list all of your expenses for one month
(MONEY OUT): Savings (list me first) Mortgage or Rent Utilities Auto Expense/Other Transportation Tuition Groceries/Eating Out Insurance (auto, medical, home) Medical Expenses (out-of-pocket) Entertainment/Recreation School Supplies (Computer, Books, etc) Child Care Credit Card Payments Clothing/Shoes Gifts and Donations (Tithes) Household/Personal Care Products Miscellaneous
Pete the Planner The following are recommended guidelines for the most
common financial categories in budgets: Rent/Mortgage – 25%
Utilities/Phone – 10%
Transportation – 15%
Groceries/Dining Out – 12%
Savings – 10%
Entertainment – 5%
Medical 5%
Gifts/Donations – 10%
Clothing/Shoes – 5%
Misc. – 3%
These are guidelines, not universal laws, but try not to stray too far from these figures.
Setting Your Budget Figures
Set a realistic spending goal for each category
First, figure out where you money is going now – how much to each category and use that as a guide
Track the small expenditures – trips to Starbucks, iTunes downloads, snacks from across 21st Ave.
Keep it Simple-Go Digital! Mint.com – use it!! (Basic edition is free)
Links to all bank accounts, mortgage, credit cards, and more…
Creates a net worth statement
Notifies you of upcoming bills and recent transactions
Allows you to enter receipts immediately via the phone app
Helps you set a budget and gives real-time updates on where you are with regards to your goals
Displays everything in pretty and easy to understand charts and graphs
Monitor Progress Monitor your progress each month
Celebrate each victory
Plug any “spending leaks” Impulse buys
Grocery indulgences
Over-purchasing (phone plans, cable TV, anything that you are paying for and don’t really use/need)
Top 10 Personal Finance Tips
From “The Everything Personal Finance in Your 20s and 30s Book,” by Howard Davidoff, JD, CPA, LLM”
1. Make the effort to educate yourself about personal finance. Read financial magazines and good financial books and use well-known, reputable sites on the Internet.
2. Budget! Operating without a budget is like driving a car without a steering wheel. You don’t have control over where you are headed.
3. Save the pennies and dollars will save themselves. Lots of small amounts add up to big savings.
Top 10 Personal Finance Tips
4. Pay cash. If you can’t afford to pay cash, maybe you can’t afford to buy.
5. Always think about opportunity costs. You may not be paying for something directly, but giving up the opportunity to make money is a real cost.
6. If possible, take savings out of your paycheck before you see it. After a while you will get used to spending on the lower amount, while your savings grow.
7. Be a smart shopper. Don’t buy cheap items that won’t last and don’t pay for bells and whistles that you don’t need or won’t use.
Top 10 Personal Finance Tips
8. Know how to recognize the warning signs of too much debt, and if you see yourself headed for trouble, act quickly, before you ruin your credit score.
9. Don’t go without some type of medical insurance, even if you can only afford a policy with a very high deductible. If you become ill or are injured in an accident, the medical bills could ruin you financially.
10.Remember, most millionaires are just average people who practiced sound financial principles like those in this book. You could be one of them.
Discussion
Recommended