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Discuss reasons to have a spending plan
Discuss common errors in spending plans
Discuss strategies to improve cash flow
Discuss how to prepare a spending plan
Discuss how to manage large irregular expenses
Discuss financial goals in a spending plan
Discuss simple behavior change strategies
Q and A
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Case Example: At the age of 21 (1933), Woolworth heiress Barbara Hutton (1912-1979) had almost $50 million at her disposal. Married seven times, she lived above her considerable means. She died at age 66 in a Los Angeles hotel with about $3,500 to her name.
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To determine where money is currently being spent
To decide where to spend your money in the future
Helps you save money
Puts you in control of your financial future
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No allowance for large, irregular expenses
Unrealistic figures
Vague expense categories
No allowance for the unexpected
No allowance for inflation 7
Summary of income and expenses for a given period
Positive Cash Flow: Income > Expenses
Negative Cash Flow: Expenses > Income
Total cash received
during time period
- Cash outlays during time
period
Cash surplus or
deficit
=
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Increase income
Decrease expenses
Do both
Analogy: weight control (diet, exercise, both)
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Adjust tax withholding/use tax benefits (EITC) Add a second job or work overtime Start a small business Increase/collect child support/alimony Access public benefits Sell assets Upgrade job skills Charge adult children room and board Bartering Other?
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11 Taxes are deducted from your paycheck are based on your W-4 form
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0 allowances = max taxes deducted* = Smaller take home pay =
Larger tax refund
+ allowances = less taxes deducted =
Larger take home pay = Smaller tax refund
* Can add extra withholding beyond “0” allowances; e.g., +$50 more)
Housing
Food
Transportation
Clothing
Utilities
Other expenses
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It’s not just about giving up pricey coffee
It’s about “finding” money to save by reducing everyday expenses
What are your “lattes”?
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$5 a day = $1,825/year
$10 a day = $3,650/year
Budget = Spending Plan
Avoid the “Three Cs”
Cut back
Cut out
Can’t
Avoid the “Three Ds”
Denial
Deprivation
Don’t 16
Add up take-home income
Total fixed expenses (e.g., rent or mortgage)
Total flexible expenses (e.g., food, clothing)
Pro-rate (1/12 per month) occasional expenses
Include money for emergencies
Include money for financial goals
Balance the bottom line: income = expenses
Take action! 17
18 Source: Personal Finance by Garman & Forgue, Houghton Mifflin
Mental Budget Appropriate if financial resources and responsibilities
are limited
Physical Budget Envelopes, folders or containers
Written Budget On notebook paper
Computerized Budget Spreadsheet or specialized software
Online Budget Examples: www.mint.com and www.mvelopes.com 19
Envelope/Mvelope Method
Sum of Envelopes = $1,200 Sum of paycheck is equal to sum of envelopes
$400 $25 $75 $100 $150 $75 $25
$90 $25 $25 $125 $75 $10
Medical Gifts Donations Taxes Education Vacation
Cash from paycheck = $1,200
Mortgage Gas Electrical Vehicle Groceries Savings Misc.
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Put a set amount into savings
Do regularly – each pay
View savings as a FIXED expense
It’s not what you earn; it’s what you keep!
To become wealthy, “act your wage.”
Better still, live below your means.
1. Write a check each payday and deposit in savings account (or transfer automatically)
2. Use payroll deduction to deposit a certain amount into savings (direct deposit)
3. Save loose change
4. Automate investment deposits
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Set SMART goals with a time deadline and a price
Example: “Save $8,000 toward the down payment on a new car in 4 years”
Build the required savings amount into your spending plan as a fixed expense
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Personal beliefs about what is important
Guide how people spend time
Guide how people spend money
Examples:
family togetherness
religion/faith
job success
education
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26 Source: Personal Finance by Garman & Forgue, Houghton Mifflin
Short-Term- Under 3 years
Medium-Term- 3 to 10 years
Long-Term- 10 or more years
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28 http://njaes.rutgers.edu/sshw/
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Health: Decrease portion sizes of favorite foods by 1/3 to 1/2 and/or increase exercise
Eat half as much as you do now…gradually
Take leftovers from restaurant meals home
Finances: Reduce discretionary spending by 1/3 to 1/2 and/or increase income
Spend less than you do now
Look for less expensive options
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Health: How many hours of exercise are needed to burn off extra food?
Is eating a certain food “worth the calories?”
Finances: How many hours of work are needed in order to buy something (use after-tax dollars)?
Is buying something worth the time worked?
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• Don’t cut out something completely
• Find a less expensive alternative
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Ramp up physical activity
Work up to 10,000 steps/day
Increase fruits and vegetables in diet
Do more of anything positive!
Pay more on outstanding credit card balances
Automatically increase savings at regular intervals
Add 1/12 of mortgage payment (P and I) monthly
Do more of anything positive!
“People don’t plan to fail…they fail to plan” A spending plan helps you take charge of your money
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“Happiness is positive cash flow”
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“There is no independence quite so important as living within your means” Calvin Coolidge, U.S. President
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Thank you for your participation. Be healthy, wealthy, and happy.
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