Spending Plans“Take Charge of Your Finances” Advanced Level

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 2Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Where’s My Dough?

What expenses do you have?

How much do you spend on

each expense?

Play dough = income

Divide your play dough to

show how much is spent

on each expense

Write a personal

financial goal

Based upon your current

spending, is it realistic to

achieve your goal?

Adjust your play dough to

reach your goal

You have begun to develop a spending

plan!

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 3Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

What is a Spending Plan?

Document used to record both planned and actual

income and expenses over a period of time

A budget

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 4Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Money Management Tools

Statement of Financial Position

Income & Expense Statement

Spending Plan

What is my financial position

today?

What is my future money

management plan?

How have I managed my

money in the past?

Make changes

Determine what changes to make

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 5Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

A forward-looking Income and Expense Statement

May use the same template for both the Income and

Expense Statement and the Spending Plan

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 6Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Why is a Spending Plan an important part of financial planning?

Analyze the opportunity costs of your trade-offs

to maximize financial well-

being

Helps set and reach goals

Help manage your money in a positive manner

Increase net worth

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 7Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Congratulations! You have been hired as a financial

advisor for John and Tia Brown

• Developed a Statement of Financial Position and Income and Expense Statement

• Identified the following goals:

• Develop a spending plan for the Brown family

Increase the amount of their

emergency savings fund

Spend less money on

clothing every month

Pay more on their monthly car loan payment to pay

the loan off faster

Spend less money dining out at restaurants

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 8Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Spending Plan Development Process

Step 1 - Track Current Income and

Expense

Step 2 - Personalize Your

Spending Plan

Step 3 - Allocate

Money to Each Category

Step 4 - Implement and

Control

Step 5 - Evaluate and Make

AdjustmentsDevelop the spending plan

Maintain the spending plan

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 9Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Track Current Income and ExpensesStep 1 - Track

Current Income and Expense

Step 2 - Personalize Your

Spending Plan

Step 3 - Allocate

Money to Each Category

Step 4 - Implement and

Control

Step 5 - Evaluate and Make

Adjustments

Ensures spending plan is realistic

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 10Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

The Brown FamilyStep One: Track Current Income and Expenses

Kept all receipts for the month of January to create an Income and Expense Statement

Review John and Tia’s January Income and Expense Statement for a realistic view of their income and expenses

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 11Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Personalize Your Spending PlanStep 1 - Track

Current Income and Expense

Step 2 - Personalize Your

Spending Plan

Step 3 - Allocate

Money to Each Category

Step 4 - Implement and

Control

Step 5 - Evaluate and Make

Adjustments

How will you develop a

spending plan?

What is the intended time period for your

spending plan?

What categories will your spending

plan include?

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 12Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

How will you develop a spending plan?

How would you develop a

spending plan?

Paper and pencil

Spreadsheet

Money management computer software

Applications

1.15.2.G1

© Family Economics & Financial Education –May 2011– Insurance Unit – Types of Insurance– Slide 13Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

What is the intended time period for your spending plan?

What categories will your spending plan include?

•Usually concurrent with pay period

•Reference tracking from the Income and Expense Statement

•Do any categories need added, changed, or removed?

What time period would you choose for your spending

plan?

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 14Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

The Brown FamilyStep Two: Personalize Your Spending Plan

• Requested a spending plan for the month of February

• Requested the same document and categories as the Income and Expense Statement

• Find the column on the Income and Expense Statement where the Spending plan will be created

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 15Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Allocate Money to Each Category

Reference tracking from Step One

Determine what changes to make

Step 1 - Track Current Income and

Expense

Step 2 - Personalize Your

Spending Plan

Step 3 - Allocate

Money to Each Category

Step 4 - Implement and

Control

Step 5 - Evaluate and Make

Adjustments

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 16Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

When allocating money consider:

Contractual Non-contractual

Trade-offs and opportunity

costsGoals Contractual

expenses

Required to pay expense for a specific amount of time - not easy to reduce or eliminate

Easy to reduce or eliminate

Rent, Internet, Cell phone Food, entertainment

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 17Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Spending Plan Guide

What variables may cause these percentages to be different?

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 18Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Net Gain or Net Loss?

Net Gain? Net Loss?• Add more

money to savings or another expense

• Increase income

• Decrease expenses

• Both

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 19Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

The Brown FamilyStep Three: Allocate Money to Each Category

• Indicated a * next to expenses that are either contractual or they are unwilling to decrease

• Remember goals• Consider trade-offs• Must have a net gain or a zero

balance

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 20Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

The Brown FamilyStep Three: Allocate Money to Each Category

• Develop a spending plan for the family

• Explain each change made• Re-write goals into SMART

goals using their new spending plan

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 21Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Implement and Control

Step 1 - Track Current Income and

Expense

Step 2 - Personalize Your

Spending Plan

Step 3 - Allocate

Money to Each Category

Step 4 - Implement and

Control

Step 5 - Evaluate and Make

Adjustments

Use a control system to stay on track

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 22Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Control Systems Which control system would

help you stick to your spending

plan?Internet-based spending plan program

Depository institution programs

Check register system

Envelope system

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 23Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

The Brown FamilyStep Four: Implement and Control

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 24Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Evaluate and Make Adjustments

Step 1 - Track Current Income and

Expense

Step 2 - Personalize Your

Spending Plan

Step 3 - Allocate

Money to Each Category

Step 4 - Implement and

Control

Step 5 - Evaluate and Make

Adjustments

Is your spending plan helping you

reach goals?

Do you need to make any

adjustments?

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 25Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

The Brown FamilyStep Five: Evaluate and Make Adjustments

How could creating a

spending plan help you now

and in the future?

• John and Tia realized that if they dine out at restaurants less often they will need to increase their monthly grocery expense

• Increase their grocery budget by $20.00

• How has developing a spending plan helped the Brown family?

1.15.2.G1

© Family Economics & Financial Education – Updated May 2012 – Spending Plans – Slide 26Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Summary• A spending plan is an

important financial planning tool▫Helps achieve goals

•Make your spending plan work for you

•Make sure to control, evaluate, and adjust your spending plan

Step 1 - Track Current Income and

Expense

Step 2 - Personalize Your

Spending Plan

Step 3 - Allocate

Money to Each Category

Step 4 - Implement and

Control

Step 5 - Evaluate and Make

Adjustments