Managing Your

Personal Finances in

Tough TimesSusan K. Morris

Accredited Financial Counselor

Extension EducatorFamily and Consumer

Sciences

2

“A bereavement process is usually

necessary for healing in all situations of

loss.”

Ann Kaiser Stearns, Ph.D., Author, Living Through Job Loss

3

DON’T PANIC! GET THE FACTS

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Planning for Financial Recovery*

Rebuilding strength

Clarifying finances

Gaining income

Controlling destiny

* Ronald W. Wall, Ph.D., Author, Financial Counseling in Practice

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Adjusting to Reduced IncomeStages to Recovery--Monthly Picture

Monthly income assumes additional $833 from spouse's income

PeriodHourly Income

Monthly Income

Monthly Expense

Monthly Surplus

Expense as % of Income

Previous 16 3649 3503 146 96

Present 4.25 1581 2372 -791 150

Step 1 6.5 1977 2190 -213 111

Step 2 8.5 2329 2283 42 98

Step 3 12 2945 2857 88 97

Recovery 15 3473 3334 139 96

* Ronald W. Wall, Ph.D., Author, Financial Counseling in Practice

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$$$ Tip #1

CHART YOUR COURSE

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Financial Questions$ Have I signed up for

unemployment benefits?$ How much is my benefit?

How long?$ What & when are my/our

monthly income sources?$ What are my/our

monthly expenses?$ Do I/we have a monthly

budget or spending plan?

$ Have I/we tried to reduce any of the monthly payments?

$ How can I/we cut our monthly expenses?

$ Where can I/we get additional income?

$ Will I/we be willing to seek financial counseling?

Your FinancialDestinati

on$$

To Get Where You WantTo Be …You Have To Know Where You Are Now

Set S.M.A.R.T. Financial Goals!

•SSpecific

•MMeasurable

•AAgreeable

•RRealistic

•TTime-bound

Wealth-building strategies

Change these dreams to specific goals:

Save $40 a month and use it to pay off debt. I will play Bingo every other week and I’ll put the extra $40 toward debt payments to pay it off by October 2010.

Drive a car that is paid for.

By packing (not buying) lunch 2 days/wk, I will pay an extra $50/month on my car payment so my car will be paid off by Dec. 2009.

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$$$ Smart Money Tip #2

ORGANIZE FINANCIAL RECORDS

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Set Up a Business Center

A desk and file cabinet

or just a simple cardboard box will do.

How long to keep records

Permanently As long as needed Until disposed of Personal records Warranties

(until expired)

Appliance books

Education, employment records

I nstallment contracts (5 years af ter paid)

Vehicle titles, bill of sale

List of important

papers and their location

I nsurance policies (until expired)

List of safe deposit box contents

Tax records with supporting data

(3-10 years)

Tax f orms with W-2 attached

In the case of identity theft, an

ounce of prevention is

worth a poundof cure. . .

Clearing your good name from identity

theft may take two to three years!

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$$$ Smart Money Tip #3

KNOW HOW YOU ARE DOING

Calculating Your Net Worth

Assets -

Liabilities= Net Worth

www.mdsaves.org

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Try to increase wealth each year

Pay off debt Save more Decrease

expenses

Create Wealth

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$$$ Smart Money Tip #4

BE A MONEY DETECTIVE

Set Spending Levels

Set Spending Levels

Keep a record for

2 to 3 months

How does money slip through your fingers?

Try to identify the “leaks”!

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Money Traps Can Catch You!

Eating out

Cigarettes

Vending machines

Soda, beer, wine, alcohol, coffee

Video rentals

Personal products

ATM withdrawals

Lottery tickets

Others??

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Communication Costscell phonebeeper/pagercableinternet servicecall waitingcaller ID2nd phone line

Spending Plan (Budget) Process

1. Estimate available income2. Define major expenses3. Set spending levels4. Develop spending plan5. Watch over and control

expenditures6. Review periodically

A Budget Will Help You...

Live within your income

Spend your money wisely

Reach personal goals

Estimate Income wages, salaries cash gifts,

inheritances child support,

alimony commissions, tips,

bonuses interest, dividends Social Security

pension, profit sharing

profits from sale of assets

public assistance rental income tax refunds farm income

Define Expenses

1. Fixed Expenses

2. Flexible Expenses

3. Periodic Expenses

Fixed Expenses - Examples

Rent

Mortgage

Insurance

Installment loans (e.g., car payment)

Child care

Alimony, child support

Savings

Allowances

Flexible Expenses - Examples

Groceries-Eating Out

Utilities

Clothing

Charity-Church

Charge Accounts

Transportation

Medical Expenses

Personal Care

Recreation, pets entertainment

Periodic Expenses - Examples

Car insurance

Estimated taxes

Car repairs

Routine medical or dental exams

Homeowner’s or rental insurance payments

Homeowner’s association fee

Others??

Make YourSpending Plan Useful

A spending plan or budget is…

$ Your spending guide

$ Personal and unique

$ Realistic

$ Flexible

Use 70% of take-home pay for living expenses.

Use 20% to repay debt.

Save 10% for you and your future.

A Guideline To

Remember:

Why Spending Plans Don’t Work

Value Conflicts

Unrealistic goals

Emotional money

use

Lack of planning

There’s NEVER enough MONEY !

PRIORITIZE

COMPROMISE

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$$$ Smart Money Tip #5

BE CREDIT SMART

The Three MajorCredit Bureaus

What do Credit Bureaus do?

Collect data:Personal

informationEmployment historyCredit use and

repayment history

Provide information to:CreditorsEmployers InsurersLandlords

Start Here

Correcting a Credit Report

Contact company that reported the error

Ask company to correct error, in writing, with each credit bureau

Photocopy pertinent documents

Write credit bureau, explain error and enclose documentation

Send certified mail with return receipt

What Is A Credit Score?

10%

10%

15%

30%

35%

Requests for newcredit

Types of credit inuse

Length of credithistory

Amounts Owed

Payment History

780-850 – Low Risk740-780 – Medium Low Risk690-740 – Medium Risk620-690 – Medium High Risk620 and Below – High Risk or Sub-Prime500 & Below – Forget About It

FICO Credit Score Ranges

www.myfico.com

The Minimum Payment Trap

Credit card: Pay Minimum per Month: Balance of $3000 4% of balance (starts at $120/mo.) 19.0% interest 134 months

$1,872.49 in interest Total Paid: $4,872.49

Pay More each month: 4% of balance + $15/mo.

53 months $1,358.74 in interest Total Paid: $4,358.74

Making a monthly “Power Payment”:

$120/month (fixed payment) 33 months $849.27 in interest Total Paid: $3,849.27

Boosting Your Credit Score

Pay your bills on time! Keep balances low on credit cards. Pay off debt rather than moving it between

credit cards. Apply for and open new credit accounts

ONLY when you need them. Check your credit regularly for accuracy

and correct any errors. If you have missed payments, get current

and stay current.

Source: Your Credit Scores, Consumer Federation of America and Fair Isaac Corporation

$$$ Smart Money Tip #6

PAY OFF

DEBT

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If YOU can’t pay...NOTIFY creditor before bill or loan is

due.

STOP credit purchases until debts are

under control.

CUT living expenses to a minimum.

DEVELOP a debt repayment plan.GET HELP from a credit and debt

counseling service.

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Debt Repayment PlanDetermine amount owed

Decide amount you can pay back and when

Set up plan for paying debts

Discuss plan with creditors

Follow the plan/control spending

Review and revise,when necessary

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Prioritize Debts• First priorities

• Mortgage or

rent

• Utilities

• Secured loans

• Insurance

premiums

• Second priorities• Credit cards• Unsecured

debts to finance companies

• Third priorities• Doctor, dentist,

and hospital bills

• Family members and friendsNotify all creditors of intention to

pay.

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Help is Available

Check the Yellow Pages for

Credit and Debt Counseling Services in your area.

Caution: watch borrowing from family or from

friends!

Try PowerPay©

Make a commitment to stop borrowing or charging until current debts are paid

When one debt is paid, that monthly payment is rolled over to the next debt

Total monthly payment remains the same; only the distribution of payments changes

Save interest by paying debts sooner!

https://powerpay.org/

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$$$ Smart Money Tip #7

MAINTAIN ADEQUATE INSURANCE

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C.O.B.R.A.* Health Insurance

*Consolidated Omnibus Budget Reconciliation Act of 1985.

A life saver when separating from...

When separating from work—you may have insurance you had as a group for a period of time--

must pay entire amount

Check with your employer regarding the 2009 COBRA

Continuation Coverage Assistance Under The American Recovery And Reinvestment Act

Buy insurance - don’t let someone SELL it to you

Buy appropriate insurance

Buy adequate coverage

Some Insurance Guidelines:

Keep essential coverage in force until a new policy starts

Update beneficiary designations

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$$$ Smart Money Tip #8

SAVE & INVEST WISELY

Emergency Fund

Goals Budget

Financial Plan

Financial Statement

s

Financial Records

Credit Record

Life Health

Insurance

Disability

Property

Financial Foundation

Liability

Prerequisites toInvestments

Prepare financial statements Set financial goals Establish a spending plan Organize financial records Establish a positive credit history Maintain adequate

insurance coverage

57Financial Foundation

Goals

Emergency Fund

Budget

Financial Records

Credit Record

Life

Disability

Health

Property Liability

Financial Plan Insurance

Insured Savings, Savings Bonds, Money Market Funds, Certificates of Deposits

Life Insurance Investments Government Securities

High Quality Corporate Stocks, Bonds and Mutual Funds

Real Estate

Aggressive Growth, Junk Bonds, Stocks and Mutual

Funds

Futures Contracts Collectibl

es

Pyramid of Investment Risk

Incr

ease

d Ris

k

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Live Below Your Means and Invest the

Difference

Spend less than you earnDistinguish needs from wants “Step Down Principle” (i.e., set different

spending levels for the same item)Buy cars “new-used” “Toys & trinkets” = lost wealthUse payroll deduction for savings and/or

investments so money is not spent

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Invest Regularly by Dollar-Cost

Averaging Takes the emotion out of investing:

forces you to buy during market dips Make regular deposits at regular

intervals, regardless of market levels Buy more shares when market is down Buy fewer shares when market is high

Invest what you can afford (e.g., $25 per month)

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$$$ Smart Money Tip #9

PROTECT RETIREMENT

SAVINGS

Do your own Do your own ““Ball Park E$timate” Ball Park E$timate”

for retirement for retirement planningplanning

http://www.choosetosave.org/http://www.choosetosave.org/ballpark/ballpark/

$$$ Smart Money Tip #10

CREATE A PLAN FOR

YOUR ESTATE

Your Estate Plan

Will and/or trust(s)Guardianships for minor children or other dependentsPowers of Attorney (general, financial, healthcare)Healthcare Advance DirectivesPersonal property inventory with named recipients

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$$$ Smart Money Tip #11

Make an Action

Plan

Managing Your Personal FinancesList of Things To Do

Find Out Where You AreNet Worth

Set Goals & Budget Your Money70% Living20% Debt

10% SavingsEstablish Firm $$$ Foundation

Emergency FundAdequate Insurance

Use Credit EffectivelyPower Pay

Consumer Friendly Cards/LoansPay Down Debt

Plan and Save for RetirementPlan for the “What If’s” (Estate Plan)

Now. . .

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Managing Your

Personal Finances

Susan K. MorrisAccredited Financial

CounselorExtension Educator

Family and Consumer Sciences