Topic 1: Money Management and Budgeting
Questions to Think About:
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How do financial decisions impact standard of living and the ability to build
wealth?
What processes and steps are needed to assess current financial situation?
What are the different types of financial goals? How do you set them? These
goals can be ever-changing as the client’s situation changes.
Learning Objectives:
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Understand how sound financial decisions impact future standard of living and
ability to build wealth
Apply problem solving skills and a financial approach to thinking about issues
Identify process and steps needed to assess current financial situation
Understand the purpose of a budget
Demonstrate understanding of creating a budget
Understand the purpose of a spending plan
Demonstrate understanding of creating a spending plan
Understand the purpose of a savings plan
Demonstrate understanding of creating a savings plan
Understand the interface among the budget, spending and savings plan
Identify differences between key terms such as gross pay and net pay
Understand importance and elements of goal setting
o Distinguish among short, moderate and long term goals
Demonstrate understanding of how to set SMART goals
Topic 1 | Money Management & Budgeting |
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Failure to Control Finances = Inability to Control Life
NOTE:
 When presenting on this topic to clients,
it’s important to tell compelling stories
that will connect you to the audience and
will allow the audience to use it to move
forward.
 Set Expectations
 Explain
 Summarize & next steps to take
 Never leave any open-ended questions
What Prevents Building Wealth?




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Not setting priorities
 Distinguish wants from needs
 Insure that needs – basics for our survival are covered: food, shelter,
clothing
 Wants: not needed for survival
 Change mental message! Do not use need when you mean want.
Failure to set goals and plan
 It’s important to set priorities on expenses and which debt to get rid of
first.
Attitudes about money
Unrealistic expectations or no expectations
Not connecting the dots
 Income and expenses are inter-related
 Wealth is built penny by penny, nickel by nickel…
o A few cents or few dollars saved can buy something else
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Steps Toward Controlling Your Finances
1.
2.
3.
4.
5.
Assess current financial situation
Create a budget
Create a spending plan
Create a savings plan
Integrate budget, spending & savings plans
NOTE: When speaking to clients, it’s important to reaffirm their thoughts, confirm that
what is correct, so that they KNOW it’s the right choice/step. Then, clients will be able to
do it on their own. The counselor shouldn’t have to do everything for clients.
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STEP 1: ASSESS THE CURRENT FINANCIAL SITUATION
•
•
Identify Expenses – What is currently being spent, or must be paid?
 Regular fixed expenses – Don’t change from month to month, e.g. rent,
mortgage
 Variable and flexible expenses, e.g. clothing, dry cleaning
 Methods of tracking expenditures
Identify Income – How much is available from all sources (steady income & sporadic
income)
Compare Expenses vs. Income
•
•
•
•
•
Create Income and Expense Statement (may be same as the budget)
 Periodic – e.g. weekly or monthly
Positive cash flow – Income exceeds expenses
Breakeven point – Income equals expenses
Negative cash flow – Expenses exceeds income
 Is there a way to reduce expenses? Clients NEED to cut back on
expenses. However, a lot of times, they have already cut down a lot of
expenses and can’t reduce anything else. This is when benefits screening
is important because additional benefits may free up cash flow.
Implications of cash flow for budget & planning
STEP 2: CREATE A BUDGET
What is a Budget?
•
•
•
A plan for applying income to expenses
 Make sure that NEEDS are covered first
 Needs to be constantly reviewed
Sets limits
Creates discipline
Importance of Budgeting
•
•
•
•
Increases realistic assessments so adjustments can be made
Increases awareness of personal financial priorities
Identifies areas where overspending may occur & raises consciousness
Identifies areas where reduction of expenditures can result in additional cash flow
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CALCULATE HOUSEHOLD INCOME
Resources
A. 1x month
Job 1
Job 2
NOTE: Start thinking
of how to live on
worst-case scenario
Other
Income
In-Kind
Benefits
Taxes
How much do you get paid (after taxes & deductions)?
$
-
How much do you get paid (before taxes)?
$
-
How much (other than taxes) is deducted from pay?
$
-
Tax Per Pay Period
$
-
Average Monthly Gross Salary/Wages
$
-
Average Monthly Net Salary/Wages
$
-
How often do you get paid?
A. 1x month
How much do you get paid (after taxes & deductions)?
$
-
How much do you get paid (before taxes)?
$
-
How much (other than taxes) is deducted from pay?
$
-
Tax Per Pay Period
$
-
Average Monthly Gross Salary/Wages
$
-
Average Monthly Net Salary/Wages
$
-
Social Security/SSI/SSD
$
-
Other Cash Assistance
$
-
Pension/Retirement Income
$
-
Interest Income
$
-
Alimony/Child Support (Incoming)
$
-
Unemployment/Temporary Disability
$
-
Other Benefit Income
$
-
Other Personal Income
$
-
Other Family Income (Spouse)
$
-
Total Value of Other Income
$
-
Food Stamps
$
-
Section 8
$
-
DSHS - TANF and Support Services
$
-
Free/Reduced Lunch
$
-
Child Care Assistance
$
-
Total Value of In-Kind Benefits
$
-
Size of your refund (+) or obligation (-) last year?
$
-
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CALCULATE HOUSEHOLD EXPENSES
Essential or Regular Expenses
Thresholds
Core
$
Food: In-Home Meals/Groceries
$
-
Food: Meals Out/Restaurants
$
-
Housing: Rent
$
-
Housing: 1st Mortgage
$
-
Housing: 2nd Mortgage/Home Equity
$
-
Housing: Co-op/Condo Fees
$
-
Housing: Property Taxes
$
-
Utilities: Electric/Gas/Water
$
-
Utilities: Telephone (land line or cell phone)
$
-
Total Core Expenses
$
-
NOTE:
 Immediate gratification is one of the things that keep people in poverty.
 Delayed gratification is what usually allows people to go to pursue education or
training and be successful, etc.
 It’s important to find alternatives to certain things, such as entertainment, so that
they are free.
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FLEXIBLE EXPENSES vs. VARIABLE EXPENSES
Thresholds
Other
$
Clothing: Purchases (Apparel, Shoes, Jewelry…)
$
-
Clothing: Laundry and Dry Cleaning
$
-
Entertainment
$
-
Family Needs: Other Dependent Care
$
-
Family Needs: Tuition and Supplies
$
-
Housing: Maintenance/Cleaning
$
-
Insurance: Homeowner's/Renter's
$
-
Insurance: Life and Disability
$
-
Personal Needs: Products
$
-
Personal Needs: Services
$
-
Utilities: Internet Access
$
-
Utilities: Cable/Satellite TV
$
-
Other: Memberships (gym, etc.), Subscriptions
$
-
Other: Donations, Gifts, Not Listed Above
$
-
Other: Remittances (including fees)
$
-
Other: Money Order (including fees)
$
-
Other: Check Casher (including fees)
$
-
Savings account deposits
$
-
Total Other Expenses
$
-
$
(Monthly)
Debt
Balance
Car Loan
$
-
$
-
Student Loan
$
-
$
-
APRs:
Past Due Taxes
$
-
$
-
0.0%
Credit Card 1 (Highest APR)
$
-
$
-
0.0%
Credit Card 2
$
-
$
-
0.0%
Credit Card 3
$
-
$
-
0.0%
Credit Card 4 (Lowest APR)
$
-
$
-
Other Credit Cards
$
-
$
-
Fringe Debt: Pawn Shops
$
-
$
-
Fringe Debt: RTO Payments
$
-
$
-
Fringe Debt: Payday Loan
$
-
$
-
Medical Debt
$
-
$
-
Other Debt: In Collections
$
-
$
-
All Other Debt
$
-
$
-
Total Debt
$
-
$
-
NOTE: Pay off
debt with higher
rates first.
Payments/Debt: Monthly Income
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DO THE MATH
Summary
$
Total Take-Home Income
$
-
Resource Expenses
$
-
Core Expenses
$
-
Other Expenses
$
-
Monthly Debt Service (at current rate)
Total Expenses
$
-
$
-
+ Money Left Over / - Spending Over Resources
$
-
•
•
•
Match income against
expenses.
For our purposes, “cash
flow” is the amount of
money available after
the bills have been paid.
However, timing is just as important as having enough income because of due dates
for bill payments. For example:
 Bills are due on the 15th of the month
 Paycheck comes on the 17th
 Cash flow may not be adequate even though income is sufficient to
cover monthly expenses because bills are being paid late!
ANALYZING A BUDGET
How Do Income and Expenses Match Up?
•
•
•
If income and expenses are equal – Managing but not making any head way. No
cash flow.
Review Expenses: Any reductions to increase savings or investments, pay down
debt?
If income exceeds expenditures – A good position. Positive cash flow.
Review Expenditures: Are there expenses that can be reduced to increase
savings and investments?
If expenses exceed income, your client is losing ground, especially if using credit
to cover expenses – negative cash flow. Only two options:
1. Increase revenues and/or
2. Decrease expenses
Stop using credit cards - Interest, late fees & transaction fees mean you are paying
more for each item, e.g. an item costing $100, costs you $119 if your interest rate is
19%
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NOW PREPARE A FUTURE BUDGET
•
•
•
Review Current Income & Expense Statement
Reduce expenditures anywhere possible
Prioritize – Decide where available funds will be allocated
 Pay off higher interest bearing debt first, while making minimum payments on
lower interest debt
 More funds into savings, towards retirement, education, etc.
STEP 3: CREATE SPENDING PLAN – DIFFERENT FROM A BUDGET
•
•
•
After budget stabilizes financial situation
 When you break even and need to decide what the extra money (if there
is any) will be allocated to
Allows for flexibility while still living within means
Tied to goals
STEP 4: CREATE SAVINGS & INVESTMENT PLAN
•
•
•
Allocate portions of income to savings and/or investments
Allows for flexibility
Tied to goals
STEP 5: INTEGRATE
•
•
•
Budget
Spending plan
Savings & Investment Plan
Budgeting for Business Owners
1. Create a budget for household and figure out how much money needs to be brought
home monthly  Pay Yourself
2. Create a budget for the business and figure out how much will cover the expenses 
Employee salaries, taxes, and other fringe expenses (social security match, etc.)
3. Add both budgets and the amount is the minimum that needs to be brought in each
month to break even  How much do you need to sell to make that amount of money?
4. Figure out where to get the best deals on what to buy for the business
5. Upgrade equipment, etc. with extra money
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SETTING GOALS
•
•
•
“What You Need” vs. “Want You Want”
• Needs  Usually tied to budget
• Wants  Usually tied to spending plan and savings plan
Timelines
 Short Term – One year or less
 Moderate Term – One to three years
 Long Term – Five to ten years from now
Starting on a Realistic Plan
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


Will allow you to
measure and keep
pace of how you’re
doing and what you
need to do if changes
need to be made.
“If I can put away
$2.00 a day, I know
that I can reach the
goal.”
“Given that I have the
money, do I have the
time to actually do
it?”
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Topic 1 Exercise #1
Directions:
Review the case study presented. Work individually for the first few minutes to determine
a strategy as to how you would approach this case as a counselor. Then, discuss the
strategies within the group. Couple up and apply these strategies – one student as the
client and the other as the counselor. One volunteer from each group will present to the
rest of the class the group’s approach to counseling the client in the case study and why
the approach would work.
Case Study
Marta (age 34) and Bobby (age 37) are married with 2 children, a girl, Elena (age 7) and a boy,
Martin (age 10). They live in a rented apartment in Seattle. Marta’s mother, Cecilia (age 59)
emigrated from her native country a few years ago, and lives with Marta and Bobby. Cecilia is
attending English language classes, and has no income.
Bobby currently works at a local office and earns a salary of $43,200/year or $830.77/week. He
has medical insurance coverage, for which he contributes $120 per month. He also has a
401(k) plan which his employer matches Bobby’s contributions. The maximum that Bobby can
contribute is 6% of his salary, but because money is so tight, he contributes only 2%.
Marta worked part-time last year, so she could be home when her children got home from
school. But at the end of last year, she lost her job and has been home, unable to find new
work. The family currently has no other source of income except the 1.5% annual interest
earned on Marta’s savings account. She currently has $500, which earned her $7.50 a year.
The family’s monthly expenses are as follows:
Rent
Car Payment
Car Insurance
Gas & Electric
Cable TV/Internet
Cell Phone (Family Plan)
Monthly Public Transportation Card
Food & Groceries
Laundry and Dry Cleaning
Clothing
Physicians ($500 annual deductible)
Prescriptions (no insurance coverage)
Dentists (no insurance coverage)
Gifts – holidays, birthdays
Gas for car
Miscellaneous
Federal Income Tax Withholdings (M w/5 exemptions)
Medical Insurance
Pension
Credit Card Minimum Payments
Total Monthly Expenses
$ 1350.00
350.00
60.00
140.00
109.00
90.00
107.00
800.00
25.00
150.00
42.00
15.00
40.00
85.00
120.00
100.00
116.00
120.00
66.48
185.00
$4,070.48
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Topic 1 Exercise #2
Goal Setting
Setting financial goals require that you be specific; that it is measurable, something that is
achievable, realistic, and that you set a specific timeline (SMART).
For example, a statement such as, “I want to save more money,” does not spell out what you
would like to accomplish. A statement such as, “I will save $1,000 within one year from now,” is
a specific and measurable goal with a timeline. Whether this is achievable and realistic will
require you to assess the situation and to outline how you will achieve this goal. For example,
you might say, “I can save $1,000 within a year by saving $2.98 per day if I bringing my lunch
from home, thereby spending $3.00 less each day.” This is realistic because you know that by
making your own sandwiches you will spend $3.00 less per day.
What are your personal goals? Write them down along with steps that you will take to achieve
that goal, and spell out how you know it is realistic.
Share your short-term, moderate or long-term goals with your group for discussion on whether
the statements meet the “SMART” criteria, and how they might be improved.
SHORT TERM (<1 year)
YOUR Personal Goals
Examples:
o Pay off VISA Credit Card
o Go on vacation / take a trip home
MODERATE TERM (1-5 years)
Examples:
o Down payment on a house, condo or
coop apartment
o Pay down long-term loans
LONG TERM (5-10+ years)
Examples:
o Second home / vacation home
o Retirement savings
© January 23, 2013
Cities for Financial Empowerment Fund
All rights reserved.
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