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Personal Finance
07 Feb 2009
Warnings & Apologies
-I am not a certified financial anything
-I will probably say something offensive
-What follows is highly opinionated
-My recommendations and feelings are partially based on my personality and situation
Recommendations
-Use this talk as a starting point , or a refresher
-Find a system that works for you, and your personality
-Be realistic that finances involve both logic and emotion
-Don’t be discouraged
-Do something
What We Will Talk About
-Personal Finance
-Budgeting
-Strategies
What We Will Not Talk About
-Investing
-Taxes
What Is Personal Finance?
-The process of treating your assets and liabilities as if you were a business
-Any good business has a good budget
Key #1
I don’t know HOW I’m doing, so I have to know WHAT I’m doing.
Steps of Personal Finance
-Assessing
-Forecasting/Dreaming
-Budgeting
-Tracking/Revaluating
Questions: Assessing
-How much income do I have?
-How much debt am I liable for?
-What are my monthly expenses?
-What are my discretionary expenses?
Questions: Forecasting/Dreaming
-What does my future hold?
-How do I want to spend my money?
-What about school, marriage or buying a house?
-When will I go on vacation or buy a car?
-Is my job status likely to change?
-Might there be little me’s on the way?
Questions: Budgeting
-How much do I want to spend on each category?
-How much money can I/do I want to save?
-How quickly can I pay down my debts?
Questions: Tracking
-How do I close the loop and keep on top of my finances?
-What system works for me?
-Are my spending and saving habits sustainable?
Key #2
Any budgeting system you choose will fail if don’t close the loop, because everything
feeds back.
Starting A Budget: The Basics
-Add up your income and look for fluctuation
-Add up your debts and become aware of their rates and terms
-Gather your bills and expenses
-Calculate your approximate tax burden
Form a Preliminary Budget
-Look at your present expenses to establish categories
-Use your current expenses to estimate a projected budget
-What bills are monthly, and what are yearly?
-Start plugging in and guessing numbers
National AveragesYear 2005 Per Month
Income Before Taxes 58,712 $4,893
Average Age (reference) 48.6Persons 2.5Earners 1.3Vehicles 2Percent Homeowner 67
Annual Expenditure 46,409 $3,867Food 5,931 $494 Food At Home 3,297 $275 Away From Home 2,634 $220Housing 15,167 $1,264 Shelter 8,805 $734 Utilities 3,183 $265 Operations 801 $67 Supplies 611 $51 Furnishings 1,767 $147Apparel and Services 1,886 $157Transportation 8,344 $695 Vehicle Purchase 3,544 $295 Gas And Oil 2,013 $168 Other 2,339 $195 Public Transportation 448 $37Healthcare 2,664 $222Entertainment 2,388 $199Personal Care 541 $45Education 940 $78Insurance, Pensions, SS 5,204 $434
National Averages
Year 2005
Food 12.8% At home 7.1% Away from home 5.7%Housing 32.7%Clothes 4.1%Transportation 18.0% Vehicles 7.6% Gas 4.3% Other 6.1%Healthcare 5.7%Entertainment 5.1%Personal Care 1.2%Education 2.0%Insurance/Pensions 11.2%
Sample Budget 1Income
Net Yearly Net MonthlyJane 29000.00 2416.67John 24000.00 2000.00Total 53000.00 4416.67
ExpensesMortgage/Tax/HI 16800 1400Student Loans 6240 520Food 5640 470Tithing 5280 440Car Payment 5160 430Gas 2520 210Car Insurance 2400 200Interest Payments 1440 120Utilities 1440 120Media/Communication 1200 100Fun/Other 4800 400
Yearly MonthlyTotal 52920 4410.00
Yearly MonthlyYearly Monthly
Savings 80.00 6.67
Flesh Out Your Budget
-Account for maintenance and irregular costs
-Try to predict future expenses
-Nail down your bills
-Do you have positive cash flow?
Sample Budget 2
IncomeNet Yearly Net Monthly
Jane 29000.00 2416.67John 24000.00 2000.00Total 53000.00 4416.67
ExpensesMonthly ExpensesMortgage 1400Student Loans 520Food 470Tithing 440Car Payment 430Gas 210Car Insurance 200Interest Payments 100Phones 100Cable 60Natural Gas 40Internet 35Water/Sewage/Trash 35Electricity 20Living/Fun 600
Yearly MonthlyTotal 55920 4660
Yearly ExpensesCar Maintenance 800Hobbies 1000House Work 500Vacationing 2500Health Care 500
Yearly MonthlyTotal 5300 441.67
Yearly MonthlyTotal Expenses 61220 5101.67
Yearly MonthlySavings -8220.00 -685.00
Key #3
You want to have positive cash flow.
Problem
Key #4
Plan beyond your month-to-month expenses.
Plan For Things That Are Hard To Plan For
-Home Owners: pipes break, refrigerators die, roofs leak windows crack
-Car Owners: 30k, 60k, 90k checks, unexpected repairs, tires, eventual replacement
-Parents: My condolences
ACK! What DO I DO?
-Carefully consider your expenses, both necessities and discretionary items
-Be honest about what your needs and wants are
-Be realistic about your situation
Key #5
In light of your long term financial health, be willing to make hard decisions.
Opinions, Pt. 1
-There is good debt and bad debt
-Good debt is sometimes bad and bad debt is never good
-Consumer debt on credit cards is enemy number one
-You NEED to have an emergency fund
-You must work towards having liquid savings
Opinions, Pt. 2
-Largely ignore how your peers spend money
-Debt, especially at high interest rates closes windows
-If you have credit card debt, institute a debt snowball or other method to pay it off
Opinions, Pt. 3
-Think long and hard about your standard of living
-If you grew up in a favorable situation, it may be hard to realize you need to downgrade
Opinions, Pt 4
-Please, please, please try to save at least 10% of your net income
-If you’re not in a position to save, do your best not to dig a hole
-Learn to prioritize to a greater extent
Opinions, Pt. 5
-We have many more things to buy than ever before (ipods, HDTVs, microwaves)
-There aren’t too many things we used to buy that we don’t now
-Avoid “lifestyle” stores and purchases
-The internet is designed to separate you and your money
Where To Cut Expenses?
-Try big items like food first
-Eliminate splurge spending
-Stop eating out
-Be careful with spending on clothes, luxury items and hobbies
-Ask “how many hours of work does it take me to pay for this?”
Track Your Budget
-Paper
-Spreadsheet
-Software
-Websites
Track Your Budget
Track Your Budget
Key #6
A good budget/personal finance program is systematic.
Tools
-Websites like Mint or Quicken
-Online banking
-Books
-Blogs like “Get Rich Slowly”
Well, that’s great, tell me,
HOW DO I STICK TO MY
BUDGET?!?!?!?
Sticking To The Budget
-Cash only, no credit cards
-Envelope method
-Credit only
-Direct deposit accounts
-Self waiting periods
-Internalizing Costs
Month-To-Month
-Don’t pat yourself on the back for a month of low expenses
-Make sure you remember to mentally amortize your yearly bills, and projected expenses
-Track, track, track
Goals
-Asses your situation
-Think about the present and the future
-Collect your financial data
-Make a budget
-Select a method for tracking spending
-Pick a strategy that fits
-Keep on keeping on
Questions?
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