Spending Your Way to Success $$ Creating a Spending and Savings Plan and Sticking to It

transcript

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

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

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!)

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

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

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)

Using a debit card to purchase a good is most similar to using a:

1. Loan2. Check3. Credit card4. Money market

account

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)

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

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?

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

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

Debt 2

Debt 1

Debt 3

Debt 2

Debt 1

Debt 3$$$

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

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

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

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

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

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

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

marilyn.albertson@usu.edu

Spending Your Way to Success $$ Creating a Spending and Savings Plan and Sticking to It

Documents