Money Management: Part 1

Homework

(Passport page 18)

How’s It Going?

Money Management• Tracking our Spending• Setting Goals• Creating a Budget

What Do You Know?

(Pre-Test page 4)

Let’s Talk About

You

Did You Know?• 61% of U.S. households don't have a budget.• More than 11 million Americans have no idea how much they

spend on food, housing and entertainment and don’t keep track of overall spending.

• 24% of U.S. households report not paying all their bills on time.

• 1 in 3 adults (34%) carry credit card debt from month-to-month. 15% or 35 million people carry $2,500 or more of credit card debt monthly.

• 32% of U.S. adults do not save any portion of their income for retirement, and 34% have no emergency savings.

Source: April 2014 Consumer Financial Literacy Survey by Harris Interactive, Inc

Budgeting Process

Tracking Your Spending• Write down where your money goes ~ every

dime, every dollar.• Consider the automatic spending that you may

have in place (payroll withholdings, EFT payments, child support, etc.).

• Track it for a minimum of two weeks ~ preferably for a month.

• Where are your temptations? What needs to be controlled?

• Is it a want or a need?

Separating Wants and NeedsWants NeedsHome phone (landline)Cell phone(s)

Cable or satellite televisionHigh-speed internet accessGym membership or other membershipsEating out at restaurantsA second or third vehicle for kids to drive

Vacation tripsNew clothing for every style and seasonPurchasing music, books or other hobby itemsGoing to concerts, movies or other events

Being able to buy lunch instead of “brown bagging” it

Types of Expenses

• Fixed• Variable• Periodic

• Discretionary• Non-discretionary

Organize DataTRACKER $$X-Mart: apples, socks, paper

$ 23.59

Car Payment $259.34Convenience Store: gas and coffee

$35.97

Electricity $ 159.75Rent $950Restaurant: lunch

$8.23

CATEGORY $$Groceries $ 5.39

Eating Out $ 9.66

Auto $ 293.88

Misc $7.25

Housing $1,109.75

Clothing 10.95

Spending Tracker By Category  Week 1 Week 2 Week 3 Week 4 Total

Housing 850 120 75 1045Groceries 250 20 100 370Auto 50 300 100 50 500Debt 100 100Entertainment 30 10 70 10 120Clothing 50 50Savings 100 100 200Medical 120 45 120 285Miscellaneous 35 20 55Investments 50 50 100Education/Childcare Charitable  30 30 30 30 120

Budgeting for Periodic• Identify the cost and the timeframe for the

expense:– Example: Each June, I pay $360 in personal property

taxes.– Quarterly, I pay $180 for car insurance.

• Break the cost into monthly costs:Personal Property $360 for 12 months = $30 per monthInsurance$180 for 3 months = $60 per month

Planning for the Periodic  Frequency

# of Months Amount Monthly

Property Tax Annual 12 $360 $30Insurance Quarterly 3 $180 $60Furniture/Appliances Every 3 years 36 $720 $20Home Repairs Annual 12 $600 $50

Car Maintenance/Repair2 times per

yr. 6 $300 $50Membership/Dues Annual 12 $60 $5Holidays/Birthdays Annual 12 $1200 $100Subscriptions Annual 12 $60 $5Vacation Annual 12 $1200 $100Weddings/Events Annual 12 $120 $10

Tuition/Books/School 3 times per

yr. 4 $400 $100Clothing Quarterly 3 $120 $40

Planning for the Periodic  Expense Budget Spent SavedJanuary School/Clothing 570 520 50February Insurance 570 180 390March Car Maintenance 570 300 270April Taxes/Clothing/School 570 800 -230May Insurance/Graduation 570 480 90June Personal Property/Birthday 570 460 110July Clothing/Vacation 570 1,320 -750August Insurance/Back to School 570 580 -10Septembe

r Car Maintenance/Dues 570 360 210October Clothing/School 570 520 50November Insurance 570 180 390December Holidays 570 1,200 -630

Setting Goals

• Short-Term Goals: less than one year

• Long-Term Goals: more than one year

• S.M.A.R.T. Goals

S.M.A.R.T. Goals• Specific: State exactly what is to be done

• Measurable: Include how the goal can be measured

• Actionable: Determine steps to reach the goal

• Realistic: Do not set goals for something unrealistic

• Time-Bound: State when the goal will be met

S.M.A.R.T. Financial Goals• Goal: I want to buy a new car

• S.M.A.R.T. goal:

– Specific: I want to save money for a down payment on a new car.

– Measurable: I need to save $2,000 for the down payment.

– Actionable: I will save $50 from every paycheck ($100 a month).

– Realistic: I usually spend $200 a month on dining out and coffee drinks, so I’ll cut that spending in half and put the rest towards my down payment.

– Time-Bound: I want to have the $2,000 saved in two years.

Budgeting for Goals• Identify the cost and the timeframe for

the goal:– Example: I want to save $3,000 over the next

two years for a down payment on a new car.• Break the cost into annual costs

– $3,000 for 2 years = $1,500 per year• Divide annual cost by 12 to get monthly

amount needed:– $1,500/12 = $125 monthly

Prioritizing Goals• Rank Goals in order of importance.

– What is your number one priority?– Engage the entire family.

• Prioritizing Goals helps when evaluating spending choices.

• When there are conflicts among goals, highest priority wins.

Strategies for GoalsWhen conflicts arise for achieving goals: 1.Evaluate: What is really most important?2.Can one goal be adapted (modified) to allow both to be achieved?3.Can I generate income or reduce expenses to make both goals possible?

Problem SolvingGoal: Have $1,000 saved for holidays so that you can purchase gifts and visit family members in another state.

Conflict: You also need $800 to purchase books for the January semester of college. You are working to complete your degree.

It is currently September, and you don’t think you will have enough money for both. What are your options?

Creating YOUR Budget• Your spending trackers.

– Remember, you’ll need at least two weeks worth of data, but more is even better.

• Historical data from paystubs, bank and credit card statements.

• Your S.M.A.R.T. goals and other priorities (paying off debt, vacation, etc.). – Be sure to record how much money you’ll

need for these.• Your income and expenses ~ fixed, variable and

periodic.

Tracking/Collecting DataWHERE DID $$$ GO?

HISTORICAL RECORDS

WHERE SHOULD $$$ GO?

FUTURE PLANNINGSpending Tracker Emergency Savings

Bank Statements Periodic Expense PlannerCredit Card Statements S.M.A.R.T Goals

Computer/Online: Quicken/Mint/etc.

Debt Repayment

What Have You Learned?(Post-Test page 18)

Homework(Passport page 22)

Questions?