Money Management: Part 2
Homework
(Passport page 22)
How’s It
Going?
Budgeting Process
Tracking
Organize
Data
Data
Collection
Evaluate
and
Adjust
Plan
Periodic
and Goal
Spending
Build
Budget
Building the Budget
Monthly Expenses (Tracker)
Periodic
Goals
Spending
Plan
Refining YOUR Budget
• Determining what works for you
• Comparing actual to budget spending
• Considering guideline budgets
• Deciding what to adjust
• Finding creative ways to save on everyday items
• Understanding net worth
• Tackling debt
What Do You Know?
(Pre-Test page 4)
Evaluating the Budget
• Same Income and Expenses
• More Income than Expenses
– May have overestimated income
– May indicate there are some expenses not
captured in your budget
• More Expenses than Income
– May have underestimated income
– May need to adjust the spending plan to
reduce expenses or increase income
Zero Dollar Budget
• Have every dollar spent on paper before the
month begins
• Plan expenses for the coming month
• Rollover unspent money to the following months
• Pay yourself first
• Make a plan for extra money
The Right System For You
•
•
•
•
•
•
Envelope Method
Calendar Method
Register Method
Receipts Method
Budget Spreadsheet
Personal Finance Software
Financial Pitfalls
• Overcoming Temptations
– Revisit Temptations List on Passport p. 15
– Track Spending to monitor progress
– Work together with family members
– Be realistic
– Allow yourself some limited guilty pleasure
Financial Pitfalls Cont’d
• If you use a credit card to cover $1,000 of periodic expenses
and repay the minimum payment at 24% interest:
– Monthly payment: $40
– Number of months in debt: 83 months (6 years and 11 months)
– Total payments: $1,775
– Interest paid: $775
• If you charged $1,000 per year in periodic expenses over 3
years and repaid only the minimum, you would need 10
years and 6 months to repay the balance and would repay
more than $1,575 in interest.
Variable Income
• Salary + Commission
– Needs = Salary
– Wants = Commission
• Irregular Pay
– Budget using lowest paycheck allocating to
needs
– Excess goes to wants
• Overtime
– Accelerate savings, goals or debt reduction
• Prioritizing Wants and Needs Essential
• Savings absolute MUST
Adjusting Income
Short-Term
•Extra Work
– Overtime
– Part-time supplemental
•Review W-4
•Sell Assets
– Yard sales/Online sales
•Develop Hobbies
– Turn a craft or hobby into income
Long-Term
•Develop career path
Comparing Actual vs. Budget
Category
Actual
Budget
Actual
Percentage
Income
3,200
3,200
100%
Savings
20
100
.625%
Housing
1,100
1,050
34.4%
Auto
450
463
14%
Debt
120
75
3.75%
Groceries
340
250
10.6%
Entertainment
45
0
1.4%
Medical
25
25
.78%
Misc.
180
40
5.6%
Using a Guideline Budget
Category
Percent
HOHGuideline
Difference
Income
100%
100%
0
Savings
0.625%
5%
-4.375%
Housing
34.4%
35%
-.6%
Auto
14%
12%
2%
Debt
3.75%
5%
-1.25%
Groceries
10.6%
12%
-1.4%
Entertainment
1.4%
5%
-3.6%
Medical
.78%
5%
-4.22%
Misc
5.6%
4%
1.6%
Financial Decision Tree
CATEGORY
CONTROLLABLE
NOT CONTROLLABLE
Utility
Expense/Landline
Rent
Savings
Housing
Auto
Debt
Entertainment
Clothing
Medical
Investments
Education
Childcare
Charitable
Savings
Periodic
− set aside monthly amounts to fund periodic
expenses
Emergency
– truly dire occurrences like job loss or a serious
accident
Retirement
– IRAs, 401(k), etc.
Goal Savings
– S.M.A.R.T. Goals
Ways to Save
• Food:
– Limit eating out to special occasions
– Make a grocery list
– Use coupons
– Join membership clubs/discount stores
– Buy generic or in bulk if you use large quantities
– Bag lunch
– Drink water when eating out
– Your Ideas?
Ways to Save – Cont’d
• Clothing
• Transportation
• Shelter
• Utilities
• Entertainment
Net Worth
Assets
Cash Accounts
Investments
House
Car
Personal Property
Liabilities
Debts
Credit Cards
Auto Loan
Mortgage
Assets (OWN) – Liabilities (OWE) = Net Worth
Financial Statements
Spending Plan
Short Term
Net Worth
Long Term
Priorities for Spending
Past
Present
Future
• Credit Cards
• Debt
• Current Needs
• Discretionary
• Taxes/Charity
• Savings
• Periodic Spending
• Investing
Dealing with Debt
• Debt impacts current spending
• Debt delays savings goals
• Make a plan to reduce debt
– Evaluate debt
– Prioritize debt
– Create repayment plan
– Celebrate success
Impact of Minimum Payments
Minimum Payment
(% of Balance)
Length of Time
Finance
Required to
Charges
Pay off Debt
If the amount of debt is $2,000 at 19.8%APR then…
2%
32 years, 3 months
$6,740.34
4%
8 years, 7 months
$1,253.33
5%
6 years, 9 months
$904.33
If the amount of debt is $2,000 at 12%APR then…
2%
4%
5%
14 years
7 years
5 years, 9 months
$1,544.87
$600.22
$461.24
Snowball Method
Creditors
Amount
Owed
Minimum
Payment
Department Store
$87
$20
Medical Clinic
$132
$55
Furniture Store
$487
$20
Online Retailer
$864
$25
Credit Card
$3798
$100
• Pay off one debt by paying more than minimum
• Apply payment from debt #1 to next debt as additional
payment.
• As debts pay off, continue to apply payments to next debt.
• www.powerpay.org to create your snowball
Key Elements
• Keep it realistic
• Include spending allowances
• Use guidelines
• Refer to your budget before spending
money
What Have You
Learned?
(Post-Test page 24)
Homework
(Passport page 32)
Questions?