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Spending Your Way to Success $$ Creating a Spending and Savings Plan and Sticking to It. Marilyn K. Albertson, M.S., CFCS Utah State University Extension Associate Professor, Family & Consumer Sciences Salt Lake County. Understanding How Emotional History Affects Financial Habits. - PowerPoint PPT Presentation
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SPENDING YOUR WAY TO SUCCESS$$
CREATING A SPENDING AND SAVINGS PLAN AND STICKING TO IT
Marilyn K. Albertson, M.S., CFCSUtah State University Extension Associate
Professor, Family & Consumer SciencesSalt Lake County
UNDERSTANDING HOW EMOTIONAL HISTORY AFFECTS FINANCIAL HABITS
Review past experiences- what kind of experiences have you had with money as a child?
How has that affected the way you spend money now?
WHAT ARE YOUR VALUES? Family Fame Fortune Security Freedom Education Recreation
Career Acceptance Stability Power Peace Entertainment Risk
FINANCIAL LITERACYPOLL QUESTION #1 Educational
Training:
The U.S. Bureau of Labor Statistics reveals that the fastest growing jobs will require what level of educational training?
Possible Answer:1. An associate’s
degree or higher2. Post secondary
vocational training
3. No more than a high school diploma
4. Work experience
FINANCIAL LITERACYPOLL QUESTION #1 ANSWER Educational
Training:
The U.S. Bureau of Labor Statistics reveals that the fastest growing jobs will require what level of educational training?
1. An associate’s degree or higher
2. Post secondary vocational training
3. No more than a high school diploma
4. Work experience
WHAT DO YOU NEED TO ACHIEVE FINANCIAL SUCCESS?
1.Assess Needs2.Set Goals3.Plan Spending to
Meet Goals4.Take Action5.Evaluate
YOUR LIFE, YOUR MONEY DVD by PBS Check out from USU Extension in Salt
Lake
FINANCIAL LITERACYPOLL QUESTION #2
What are the first three steps of economic decision-making?
Draw a conclusion, construct a model, and make a generalization
Indentify assumptions, make a policy, evaluate the policy
Gather facts, form a theory, and conduct a simulation
Define the problem, list alternatives and state criteria
FINANCIAL LITERACYPOLL QUESTION #2 ANSWER
What are the first three steps of economic decision-making?
Draw a conclusion, construct a model, and make a generalization
Indentify assumptions, make a policy, evaluate the policy
Gather facts, form a theory, and conduct a simulation
Define the problem, list alternatives and state criteria
THE STEPS OF ECONOMIC DECISION-MAKING1. Define the problem2. Identify possible
alternatives3. Develop criteria and a
ranking system4. Evaluate alternatives against
the criteria5. Make a decision
DID YOU KNOW?
“Almost 60 % of millionaires use a budget to manage their money.”
- The Millionaire Next Door: The Surprising Secrets of America’s Wealthy
HOW DO YOU GET STARTED MAKING A BUDGET OR SPENDING PLAN?
1. Identify your goals 2. Know how much money is coming
in 3. Know how much money is going
out 4. Make a plan to meet your
expenses and save for your goals
RICH PEOPLE PLAN FOR FOUR GENERATIONS. POOR PEOPLE PLAN FOR SATURDAY NIGHT.
GLORIA STEINEM
Goal setting:Those who set and record financial goals have more chance of reaching their goals than those who don’t take the time to chart their path.
WHAT ARE YOUR GOALS?
Goal Need, Want or Hope
Date to accomplish
$$ Needed
Identify Goals – What you want out of life.
WHAT DO YOU WANT OUT OF LIFE.
Goal Need, Want or
Hope
Timeframe $$ Needed
What Do I Need to do?
Emergency fund
Need 1 year $1,200 Put $100 in savings monthly
Pay off credit cards(18% interest rate)
Need 2 years $2,400 Make $119.82 payment each month. Put away credit cards
SMART - Specific, Measurable, Attainable, Realistic, Time Sensitive
GOAL ACTIVITY
You need to save $1200 for an Emergency Fund (Goal
1 yr)How would you find the money?
STEP DOWN PRINCIPLE Save a LITTLE to reach your BIG goals
Eat lunch out $5.00
Make own lunch $1.43
Save $3.57
1 Day $3.571 Week $25.001 Month $100.003 Months $300.006 Months $600.001 Year $1200.00
WHAT IS A BUDGET OR SPENDING PLAN?
Organized listing of your:Income(Wages, Salary, Gifts, Other Income)
Expenses(Utilities, Groceries, Taxes, Debt Payments, etc.)
KNOW HOW MUCH MONEY YOU
HAVE COMING IN (INCOME) Income – net or gross
Keep all income records up-to-date
(Your income may vary!)
FINANCIAL LITERACYPOLL QUESTION #3
What is the difference between gross and net pay?
1. Net pay is gross pay minus saving
2. Gross pay is net pay minus saving
3. Gross pay is net pay minus deductions
4. Net pay is gross pay minus deductions
FINANCIAL LITERACYPOLL QUESTION #3 ANSWER
What is the difference between gross and net pay?
Net pay is gross pay minus saving
Gross pay is net pay minus saving
Gross pay is net pay minus deductions
Net pay is gross pay minus deductions
UNDERSTANDING GROSS AND NET INCOME Gross Income is the
total amount you receive before there are any deductions taken out.
Net Income is the gross pay minus deductions such as taxes, insurance, social security, etc.
SAMPLE PAYSTUB
Gross Pay
Net Pay
Net Pay
KNOW WHERE YOUR MONEY GOES (EXPENSES)
Track your expenses.
There are three kinds of expenses:
FixedVariable Periodic or Non-Monthly Occasional
TRACK YOUR SPENDING
Record everything you spend for at least one month.
List the expenditures in categories ( rent, transportation, food, recreation, etc.)
WHERE SHOULD YOUR MONEY GO? Your personal Spending Log – Track spending for a
week and see how your spending matches your goals.
Week of____
Income + $ (A) Spending - $ (B)
SundayMondayTuesdayWednesdayThursdayFriday SaturdayDifference(A minus B)
$
FINANCIAL LITERACYPOLL QUESTION #4
Using a debit card to purchase a good is most similar to using a:
1. Loan2. Check3. Credit card4. Money market
account
FINANCIAL LITERACYPOLL QUESTION #4 ANSWER
Using a debit card to purchase a good is most similar to using a:
1. Loan2. Check3. Credit card4. Money market
account
ASK YOURSELF THESE QUESTIONS
Were there expenditures that were surprises?
Did you discover habits that you didn’t realize you had?
Are there areas where you can cut back on your spending?
FIXED EXPENSES Due every month Amount stays the
same each month Easy to predict
what they will be Difficult to reduce Example:
Rent, Mortgage, Car Payment
VARIABLE EXPENSES Usually paid each
month Amounts go up
and down Often seasonal
Example: Utility Bill, Groceries, Recreation
PERIODIC OR OCCASIONAL EXPENSES Some you know about:
• Holidays• Insurance Premiums• Birthdays• Subscriptions• Dental & Medical Checkups• Taxes• Vacations
PERIODIC OR OCCASIONAL EXPENSES Some will be surprises•Car repairs• Appliance repair or replacement
• Illness or accident
OCCASIONAL EXPENSES YOU KNOW ABOUT...
Make a list of all you have coming in the next 12 months
Determine how much you will spend for each expense
OCCASIONAL EXPENSES YOU KNOW ABOUT...
Add up the total amount needed for the year
Divide by 12 Save this amount monthly to be available when you need it
PLAN FOR OCCASIONAL EXPENSESJanuaryBirthdays $200
FebruaryCar insurance$900
MarchCar registration $150
AprilAnniversary $50
MayVacation$1500
JuneBirthday $25
JulyHoliday party$75
AugustSchool fees/clothes$550
SeptemberDentist $80
OctoberCar service$45
NovemberThanksgiving$40
DecemberHolidays $500$ 4,340 divided by 12 months =
$361.66 to save each month
EXPENSES YOU CAN’T PREDICT... Establish an emergency savings fund
Set a goal to increase emergency savings to:3 months living expenses
(2 earners)6 months living expenses (1earner)
FINANCIAL LITERACYPOLL QUESTION #5
Pay yourself first means that?
1. All bills get paid before any saving
2. Money is set aside for savings before spending
3. Fixed expenses are paid before flexible expenses
4. Credit cards pay for what you don’t have as income
FINANCIAL LITERACYPOLL QUESTION #5 ANSWER
Pay yourself first means that?
1. All bills get paid before any saving
2. Money is set aside for savings before spending
3. Fixed expenses are paid before flexible expenses
4. Credit cards pay for what you don’t have as income
SPENDING PLANCategory Monthly
Amt Planned
Amount Spent
Category Monthly Amount Planned
Amount Spent
Savings $200 $200 Transportation/Auto loan
$700 $685
Savings AcctEmergency
$100 $100 Gas/oil $350 $275
Retirement
$300 $300 Auto Repair $100 $85
Other Auto Ins. $100 $100Housing $1500 Recreation/
Entertainment
$100 $50
Periodic Exp. Savings
$350 $232.50 Food/Eating out
$ 500 $555
Gas/Electricity
$200 $230 Telephone / cell phone
$100 $110
BENEFITS OF A SPENDING PLAN It helps you:
Pay living expensesPay off debtsDecide what you can affordSave toward your financial goals
Have money for the things you want
THREE R’S TO HELP MAKE WISE SPENDING DECISIONS
Reality – consider your income
Responsibility – consider the consequences of your decisions
Restraint – consider cutting back or saving until you can pay cash
GET ORGANIZED TO HANDLE YOUR MONEY?
Ways to Keep Track of Your Budget:Financial Information BinderEnvelope systemCheckbook registerComputer programAccount book or spreadsheet
systemCash flow calendar
DEVELOP A GOOD CREDIT HISTORY
Credit worthiness is judged by creditors based on the following three criteria:Character – do you pay your bills on
time?Collateral – do you have something of
value to back up the loan?Capacity – do you have a source of
income or resources to pay back the loan?
FINANCIAL LITERACYPOLL QUESTION #6
Credit worthiness to buy a house or a car is judged by creditors based on the following three criteria:
1. Marital status, gender, location
2. Character, collateral, capacity
3. Length of loan, credibility, commissions
4. Occupation, connections, income sources
FINANCIAL LITERACYPOLL QUESTION #6 ANSWER
Credit worthiness to buy a house or a car is judged by creditors based on the following three criteria:
1. Marital status, gender, location
2. Character, collateral, capacity
3. Length of loan, credibility, commissions
4. Occupation, connections, income sources
MANAGE YOUR CREDIT Don’t take on more debt than your income can pay off.
Buy only items that will outlast the time it takes to pay for them.
Use PowerPay to cut the interest and pay down debt.
WHAT ARE POWER PAYMENTS? Debt reduction principle - funds
going to debt payment are rolled over as debts are paid
Requires that no new debt be incurred
Total $ of payments towards debt reduction remain constant
POWER PAYMENT PRINCIPLE
Debt 2
Debt 1
Debt 3
$ $ $
POWER PAYMENT PRINCIPLE
Debt 2
Debt 1
Debt 3
$$ $
POWER PAYMENT PRINCIPLE
Debt 2
Debt 1
Debt 3$$$
FINANCIAL LITERACYPOLL QUESTION #7
Which strategy is most likely to improve most people’s financial situation over a lifetime?
1. Using credit to spend more that a person earns
2. Making financial decisions quickly based on intuition
3. Saving early in life when a person begins earning an income
4. Gaining work experience early instead of continuing school
FINANCIAL LITERACYPOLL QUESTION #7 ANSWER
Which strategy is most likely to improve most people’s financial situation over a lifetime?
1. Using credit to spend more that a person earns
2. Making financial decisions quickly based on intuition
3. Saving early in life when a person begins earning an income
4. Gaining work experience early instead of continuing school
SAVING YOUR MONEY
2 – 12
Develop a habit of REGULAR savings. “Pay yourself first” means that money is set aside for savings before spending.
THREE types of savings:• Emergency • Short term • Long term
FINANCIAL LITERACYPOLL QUESTION #8
Beginning to save while you are young is recommended by financial experts because it:
1. Is easier to save when you first begin earning income
2. Is hard to save later in life when you have more income to spend
3. Allows you to lock in higher interest rates when you buy on credit
4. Lets compound interest work in your favor by earning interest on interest
FINANCIAL LITERACYPOLL QUESTION #8 ANSWER
Beginning to save while you are young is recommended by financial experts because it:
1. Is easier to save when you first begin earning income
2. Is hard to save later in life when you have more income to spend
3. Allows you to lock in higher interest rates when you buy on credit
4. Lets compound interest work in your favor by earning interest on interest
SAVING EARLY LETS COMPOUND INTEREST WORK FOR YOU
Online Compound Interest CalculatorFound at econedlink – educatorshttp://www.econedlink.org/interactives/index.php?iid=2&type=educator
FINANCIAL LITERACYPOLL QUESTION #9
What are the three most important criteria to consider when investing?
1. Size, insurance, taxes
2. Leverage, margins, credit
3. Risk, rate of return, liquidity
4. Collateral, access to accounts, dividends
FINANCIAL LITERACYPOLL QUESTION #9 ANSWER
What are the three most important criteria to consider when investing?
1. Size, insurance, taxes
2. Leverage, margins, credit
3. Risk, rate of return, liquidity
4. Collateral, access to accounts, dividends
FINANCIAL LITERACYPOLL QUESTION #10
A company calls you and offers an investment opportunity with very high returns. All you have to do is recruit some of your friends who will also invest and soon your checks will start rolling in. This is a description of what type of investment fraud?1. Identity theft2. A loan scam3. Credit repair scam4. A pyramid scheme
FINANCIAL LITERACYPOLL QUESTION #10 ANSWER
A company calls you and offers an investment opportunity with very high returns. All you have to do is recruit some of your friends who will also invest and soon your checks will start rolling in. This is a description of what type of investment fraud?1. Identity theft2. A loan scam3. Credit repair scam4. A pyramid scheme
WAYS TO STICK TO YOUR SPENDING PLAN… Ask yourself these
questions: Do I really need this? Is this purchase really
helping me reach my goals?
What will happen if I don’t buy it?
Can I use something else instead?
MANAGING YOUR MONEYAnnual income, twenty pounds; annual
expenditure nineteen pounds: result, happiness.
Annual income, twenty pounds; annual expenditure twenty-one pounds: result,
misery.Charles
Dickens
THANK YOU FOR PARTICIPATING IN THIS CLASS!
For more information please feel free to
contact me at:801-468-3177