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End of Week 1
Questions?
1. Does your personal credit rating affect your ability to get a business loan?Answer from Corning Credit Union:Every financial institution underwrites business loan requests differently, but in general it is best practice to pull a personal credit bureau for each guarantor of a business loan. It is just one factor used in the loan decision, however, as compared with consumer lending where the credit score is typically the overriding factor.
© 2012 Matthew S. Whiting
Wk 1
2
Where we left off in week 1 –Introduced the 10 step plan
1. Balance the budget2. Establish short-term emergency fund3. Pay off consumer debt4. Establish long-term emergency fund5. Develop “large purchase” savings plan6. Pay off mortgage7. Save for retirement8. Save for college9. Invest the surplus10. Share the surplus
Week2
Week3
Week4
Week5
Week6
Wk 2
© 2012 Matthew S. Whiting
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Each step prepares for the next
Wk 1
© 2012 Matthew S. Whiting
Balance the budgetEstablish short-term emergency fund
Pay off consumer debtEstablish long-term emergency fundCreate large purchase savings plan
Pay off mortgageSave for retirement
Save for collegeInvest the surplusShare the surplus
The steps don’t have to be strictly in sequence……but the exceptions are few
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The Plan
1. Balance the budget2. Establish short-term emergency fund3. Pay off consumer debt4. Establish long-term emergency fund5. Develop “large purchase” savings plan6. Pay off mortgage7. Save for retirement8. Save for college9. Invest the surplus10. Share the surplus
Wk 2
© 2012 Matthew S. Whiting
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1. Balance the Budget
Document the “as is”Balance sheet
Assets – Liabilities = Net Worth Net Worth may be a negative value (in debt!)
Income statement Income – Expenses = Surplus Surplus may also be a negative value (loss)
Develop the “to be” (aka budget) Determine the path from “as is” to “to be”
© 2012 Matthew S. Whiting
Wk 2
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Balance Sheet
List all assets House Cars Savings & checking accounts Investments High-value personal property (diamonds, gold, etc.)
List all liabilities Mortgage and loans (cars, college, etc.) Credit card balances Anything else you owe to anyone
© 2012 Matthew S. Whiting
Wk 2
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Income Statement List all sources of income
Wages/Salary Interest and dividends Bonuses Rental income Alimony, child support
Record all expenses for at least a month Taxes Tithe Housing (mortgage, insurance, maintenance, repairs) Auto (loans, insurance, gas, maintenance, repairs) Clothing Medical Insurance (medical, dental, disability, life) Entertainment & Recreation Debt (credit card payments, etc., other than home or cars) Miscellaneous Savings (retirement, short-term)
http://savingyourfuture.org/handouts/SpendingLog.pdf© 2012 Matthew S. Whiting
Wk 2
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Develop the Budget
Many guides are available on the internet I recommend the Crown Financial guides,
though they are now somewhat out of date They can be viewed at the links below A sample is shown on the next page
http://www.crown.org/pamphlets/pdfs/PGI03(Singles).pdf http://www.crown.org/pamphlets/pdfs/PGI02(FamilyofTwo).pdf http://www.crown.org/pamphlets/pdfs/PGI01(FamilyofFour).pdf http://www.crown.org/pamphlets/pdfs/PGI06(FamilyofSix).pdf
© 2012 Matthew S. Whiting
Wk 2
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Example Budget Allocation
Income assumption from: http://www.ers.usda.gov/Data/Unemployment/RDList2.asp?ST=PA
Burkett WorldGross Household Income 100.0% $3,417 $3,417 100.0%
Tithe 10.0% $342 $0 0.0%Taxes 15.8% $540 $540 15.8%
Net Spendable Income 74.2% $2,535Housing 32.0% $811 $1,196 35.0%Food 13.0% $330 $342 10.0%Auto 13.0% $330 $547 16.0%Insurance 5.0% $127 $137 4.0%Debts 5.0% $127 $137 4.0%Entertainment/Recreation 6.0% $152 $171 5.0%Clothing 5.0% $127 $137 4.0%Savings 5.0% $127 $0Medical/Dental 4.0% $101 $103 3.0%Miscellaneous 7.0% $177 $109 3.2%Investments 5.0% $127 $0School/Child Care $0 $0
Surplus Income/Deficit 100.0% $0 $0
© 2012 Matthew S. Whiting
Wk 2
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Determine the Action Plan
Compare monthly expense record against budget targets
This shows clearly the problem areas The next step is to evaluate each expense category
and look for reduction opportunities or find a way to increase income or both
This may require some drastic decisions… Selling a house and renting or buying smaller Keeping cars longer or selling a car Cutting back on discretionary purchases Increasing income via overtime, job change
© 2012 Matthew S. Whiting
Wk 2
12
Necessity of this step
Without at least a balanced budget, no further progress is possible
All subsequent steps require at least some surplus funds above those required for subsistence
Therefore, once the budget is balanced, it is imperative that some small surplus be created to allow progression to step 2 – Short-term Emergency Fund
© 2012 Matthew S. Whiting
Wk 2
13
The Plan
1. Balance the budget2. Establish short-term emergency fund3. Pay off consumer debt4. Establish long-term emergency fund5. Develop “large purchase” savings plan6. Pay off mortgage7. Save for retirement8. Save for college9. Invest the surplus10. Share the surplus
© 2012 Matthew S. Whiting
Wk 2
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2. Establish short-term emergency fund
Once the budget is in balance; need to keep it that way!
Three ways to handle money emergencies Cash Credit (can very expensive) Live without it (not always possible)
Cost of credit example: $500 car repair By cash – cost is $500 By credit card – cost could easily be $525 as shown on
the next slide.© 2012 Matthew S. Whiting
Wk 2
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Emergency fund recommendations
Need a modest savings that will cover most minor emergencies such as: car break-down, appliance break-down, minor medical, etc.
Suggest $1,000 give or take per circumstances – built up from the monthly surplus of income over expenses
Should be readily available (liquid) Savings account Money market account Not many good options in today’s economy
© 2012 Matthew S. Whiting
Wk 2
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Necessity of this step
The existence of the short-term emergency fund greatly lessens the chance of falling deeper into debt
Once the fund is in place, the money that was being used each month to build the fund can now be deployed to fund step 3 – Pay off Consumer Debt
© 2012 Matthew S. Whiting
Wk 2
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Progress to date
Wk 1
© 2012 Matthew S. Whiting
Balanced the budgetEstablished a short-term emergency fund
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