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Cities for Financial Empowerment Fund
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Financial Empowerment Center
Counselor Training Curriculum
Topic 1: Money Management & Budgeting
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Questions to Think About
• How do financial decisions impact our standard
of living and the ability to build wealth?
• What processes and steps are needed to assess
the current financial situation?
• What are the different types of financial goals?
How do you set them?
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Failure to Control Finances =
Inability to Control Life
• Any unanticipated event can turn life upside
down; no options in an emergency
• No ability to plan
• Future is not secure
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What Prevents Us From Building Wealth?
• Setting priorities
• Distinguish wants from needs
• Ensure 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
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What Prevents Us From Building Wealth?
• Attitudes about money
• Unrealistic expectations or no expectations
• Not connecting the dots
• Income and expenses are interrelated
• Wealth is built penny by penny, nickel by nickel…
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Evaluate Attitudes & Views About Money
• Money generally looked upon as a “problem”
• Experiences reinforce negative associations with
money
• Money controls your life
• Control of money usually associated with making
“sacrifices”
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Change Attitudes About Money
• Reframe your view of money – Use new
vocabulary
• Money is a tool – Not a problem
• Taking control of money to meet goals and
achieve desired quality of life
• It’s not about sacrifices; it’s about choices
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Sources of Knowledge about Handling Money?
• Lessons learned from role models – e.g., family
• Trial and error
• Reading
• Financial advisors
• Few receive formal training
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Steps Toward Controlling Your Finances
1. Assess current financial situation
2. Create a budget
3. Create a spending plan
4. Create a savings plan
5. Integrate budget, spending and savings plans
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Step 1: Assess The Current Financial Situation
Identify Income (all sources)
• Regular fixed sources of income, e.g.
salary/wages
• Other sources of income – odd jobs, investment
income, interest
• Public and private benefits, e.g. food stamps
© January 23, 2013
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Kapoor, Dlabay & Hughes 10th Edition, Personal Finance, McGraw-Hill. Hardcover ISBN#
9780073530697, pages 42 - 53
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Step 1 continued:
Assess The Current Financial Situation
Identify Expenses – What is currently being spent,
and/or must be paid?
• Regular fixed expenses – Don’t change from
month to month, e.g. rent, mortgage
• Regular variable expenses – Occurs monthly, but
amounts may vary, e.g. utility payments based
on usage
• Flexible expenses – Not regularly recurring, e.g.
clothing purchases
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Kapoor, Dlabay & Hughes 10th Edition, Personal Finance, McGraw-Hill. Hardcover
ISBN# 9780073530697, page 92
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Compare Expenses and Income
Create Income and Expense Statement (may be same
form used for budget)
Periodic – weekly or monthly
• Positive cash flow – Income exceeds expenses
• Breakeven point – Income equals expenses
• Negative cash flow – Expenses exceed income
• Implications of cash flow for budgeting and planning
• Create a method to track expenditures
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Step 2: Create a Budget
What is a Budget?
• A plan for applying income to expenses
• Sets limits
• Creates discipline
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Importance of Budgeting
• Increases realism of assessments, so adjustments
can be made
• Increases awareness of personal financial priorities
• Identifies areas where overspending may occur and
raises consciousness of expenditures
• Identifies areas where reduction of expenditures
can result in additional cash flow
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Resources
Job 1
Calculate
Household Income
Job 2
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
$
-
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
$
-
Other
Social Security/SSI/SSD
$
-
Income
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
$
-
$
-
DHS WorkAdvantage
$
-
Free/Reduced Lunch
$
-
Child Care Assistance
$
-
Total Value of In-Kind Benefits
$
-
Size of your refund (+) or obligation (-) last year?
$
-
In-Kind
Benefits Section 8
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Taxes
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Calculate Household 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
$
-
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Thresholds
Household
Expenses
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Cities for Financial Empowerment Fund
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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: CheckCasher (including fees)
$
-
Savings account deposits
$
-
Total Other Expenses
$
-
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Household Expenses
Debt
$ (Monthly) Balance Bal % Debt
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
$
-
$
-
Payments/Debt:Monthly Income
©©April
20, 2011,
January 13, 2013 New York City
January
23, 2013
Department
of Consumer
Affairs.
Cities for Financial
Empowerment
Fund
AllAllrights
reserved.
rights
reserved.
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Summary
Do the Math
$
%
Total Take-Home Income
Resource Expenses
Core Expenses
Other Expenses
Monthly Debt Service (at current rate)
Total Expenses
+ Money Left Over / - Spending Over Resources
1. Match income against expenses
2. 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!
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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 saving and investment?
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Analyzing a Budget
If expenses exceed income, you are 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 and 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
1. Review Current Income and
Expense Statement
2. Reduce expenditures
anywhere possible
3. 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.
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Step 3:
Create Spending Plan – Different from a Budget
• After budget stabilizes financial situation (know
upper limits for expenditures)
• Allows for flexibility while still living within means –
proactive application of funds
• Tied to goals
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Step 4: Create Savings & Investment Plan
• Allocate portions of income to savings and/or
investments
• Allows for flexibility
• Tied to goals
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Step 5: Integrate
• Budget
• Spending plan
• Savings and Investment Plan
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SMART Goal Setting
• Specific – “I will save $1,000,” not “I will save more money.”
• Measurable – You can easily evaluate whether you have
achieved your goal
• Achievable – Requires that you know what steps have to be
taken
• Realistic – Requires that it is possible for you to execute using
tools at your disposal (e.g., automatic transfer to savings,
payroll deductions)
• Time-based – Set a time for achieving goal (e.g., within one
year)
© January 23, 2013
Cities for Financial Empowerment Fund
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Kapoor, Dlabay & Hughes 10th Edition, Personal Finance, McGraw-Hill. Hardcover ISBN#
9780073530697, page 9
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How Do We Take Control of Our Finances?
• Change from seeing money as a problem to seeing it
and using it as a tool
• Budgeting
• Making a spending plan
• Making a savings/investment plan
• Set Smart, Measurable, Achievable, Realistic,
Time-based Goals
• Short Term (less than 1 year)
• Moderate Term (1-3 years)
• Long Term (5-10 + years)
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Setting Goals
• “What You Need” vs. “Want You Want”
• 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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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.
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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.
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The family’s
monthly
expenses
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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
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.
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Goal Setting
SHORT TERM (<1 year)
Examples:
o Pay off VISA Credit Card
o Go on vacation / take a
trip home
YOUR Personal Goals
MODERATE TERM (1-5
years)
Examples:
o Down payment on a
house, condo or coop
apartment
o Pay down long-term
loans
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LONG TERM (5-10+ years)
Examples:
o Second home / vacation
home
o Retirement savings
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Influences on Personal Finances
• Life Situation and Personal Values
• Economic Factors
• Global Influences
• Economic Costs
Kapoor, Dlabay & Hughes 10th Edition, Personal Finance, McGraw-Hill. Hardcover ISBN# 9780073530697, pages 12-16
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Opportunity Costs –Time Value of Money
• Personal Opportunity Costs
• Financial Opportunity Costs
• Interest Calculations
• Future Value of a Single Amount
• Future Value of a Series of Deposits
• Present Value of a Single Amount
• Present Value of a Series of Deposits
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Watch Your Money Grow
Calculating Interest Earned
Principal (P) x Rate (R) x Time (T) = Simple Interest (I)
a) Generally on an annual basis – apportion if period is
less than one year
b) Example:
P = $100
R = 2%
T = 1 yr.
$100 X .02 X 1 = $2.00
Interest = $2.00
To calculate 1 month of interest,
divide $2.00 by 12 months.
$2.00 / 12 = $.16 for one month
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Watch Your Money Grow
Future Value of a Single Amount: Compound Interest
Interest earned on principal over time, plus interest earned
on the interest.
Example:
In 2011, Maria kept a $100 deposit (P) for the full year (T) and
earned a 2% interest (R).
P x T x R = Interest at the end of the year
($100) x (1yr.) x (.02) = $2.00
On January 1, 2012, she would have $102. Assuming she left
$102 on deposit for the entire 2012 year, on January 1, 2013 she
would have a yield of $104.04.
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Watch Your Money Grow
If Maria deposited $50 a month for
6 years earning 6.75%, this would
involve what type of computation?
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Watch Your Money Grow
If a person deposited $50 a month for 6 years
earning 6.75%, this would involve what type of
computation?
Future Value of a Series of Deposits
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Watch Your Money Grow
Present Value of a Single Amount: Discounting
A computation used to determine how much to deposit
now to obtain a desired total in the future.
If Maria wants $1,000 (P) five years (T) from
now and she earns 5% interest (R) on her
savings, how much does she need to deposit?
This would involve what type of computation?
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Watch Your Money Grow
Present Value of a Single Amount: Discounting
If Maria wants $1,000 (P) five years (T) from now and
she earns 5% interest (R) on her savings, how much
does she need to deposit? This would involve what
type of computation?
Using the present value of a single amount
computation, Maria discovered she would
need to deposit $784.
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Watch Your Money Grow
Rule of 72
a) Calculation of time it takes for money to double at a
given rate of return
b) Assumes compounded interest annually
a) Divide 72 by rate of return = time it takes for money
to double
b) For example if Client X earns 10% on her money, it
would double in 7.2 years (72 divided by 10 = 7.2
year)
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Time – The Advantage of Starting NOW
STARTING TO SAVE EARLY – Assume a 3% Return
• The following example shows you what a difference starting
to save early can make.
In this case, we have student “A” beginning to save $1,000
per year beginning at the age of 16. By the time that “A” is
25 years old, she has saved $10,000. If she never puts any
more of her own money into the account, at the rate of 3%
per year, Student “A” will have $38,517.33in her account by
the time she is 50 years old. In other words, for her input of
$10,000, she has gotten a return of $28,517.33.
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Time – The Advantage of Starting NOW
STARTING TO SAVE EARLY – Assume a 3% Return
• Compare what happens to student “B” who does not start to
save until he is 26 years old.
Assuming “B” saves $1,000 per year for 25 years, at the rate
of 3%, by the time “B” is 50 years old, he will have input
$25,000 to have $36,323.01 in the account. His return on his
input of $25,000 is only $11,323.01. In other words, Student
“B” put in two and half times the money that Student “A”
did and yielded less half of the money that Student “A”
yielded.
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Time
The Advantage
of Starting
NOW
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Opportunity Costs –Time Value of Money
Review the case study, Exercise #1.
Bobby has a 401(k) plan which his employer matches
his contributions. The maximum that Bobby can
contribute is 6% of his salary, but because money is
so tight, he contributes only 2%.
What is the financial opportunity cost to Bobby if he
discontinues his 2% contributions ($864 a year) for
the next 5 years, assuming he has an average earning
of 5% over the next 5 years?
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