Developing a Spending Plan

1. Developing a Spending Plan Family Economics and Financial Education

2. Introduction • Spending Plans • Income and Expense • Fixed & Flexible Expenses • Net Loss & Gain • Spending Plan Process

3. Spending Plan • Financial Statement • Assists in money management • Estimate of income and expense over time • Important positive uses: • Understanding where money is going • Tracking income and expense • Helps to meet financial goals • Helps people live within their income • Reduces the need for using credit

4. Income & Expense • Spending Plans have two main components • Income • Money Earned • Expense • Money Spent • Fixed Expenses • Flexible Expenses

5. Income • Income is money earned from: • Tips • Wages or salaries • Withdrawal of money from savings • Interest from savings accounts, or investments • Monetary gifts • Scholarships

6. Expense • Money Spent • Fixed Expenses • Same amount paid each time, usually has a specific due date • Rent/Mortgage • Difficult to change in short amount of time • Flexible Expenses • Different amount paid each time, usually no specific due date • Clothing • Easier to change in short amount of time

7. Net Loss & Gain When finished with the spending plan two outcomes are possible: • Net Loss • More expenses than income • An individual needs to increase income or decrease spending • Net Gain • More income than expenses • Ideal situation • Extra money can go into savings, be invested, or spent

8. Spending Plan Process • Six steps in the spending plan process • Set Financial Goals • Organize • Decide • Implement • Control • Evaluate

9. Step 1:Set Financial Goals • Financial Goals should be: • Specific: exactly what is to be done with the money; • Measurable: write the exact dollar amount; • Attainable: how will the goal be reached - determined by budget; • Realistic: Do not set the goal for something unattainable or unrealistic; • Time Bound: specifically state when the goal needs to be reached.

10. An example of a Financial Goal • To save $5,000 for a car down payment, I have to deposit $208 into my savings account each paycheck for 2 years.

11. Step 2:Organize • Determine the appropriate way of record keeping • Select categories for the spending plan • Select a time period • Usually when paychecks are received • Weekly • Bi-weekly • Monthly

12. Step 3:Decide • Make realistic decisions and estimates for categories • If expenses exceed income, • Earn more income • Decrease expenses • A combination of both

13. Step 4:Implement • Put spending plan into effect • Keep accurate records of all income and expense • Income is usually constant • Keeping track of expenses is the most important!

14. Step 5:Control • Control systems are ways that a person can keep accurate records of spending • Realize potential problems early if spending too much in one area • Control systems occur simultaneously with implementation • A person should keep a credit spreadsheet which logs all credit transactions (charges and payments for each creditor) 

15. Types of Control Systems • Envelope System • Individuals place actual budgeted cash in a labeled envelope for a certain expense • Each time $ is taken out of an envelope, write down amount and place receipt inside • Move money around to meet expenses • Once cash is gone, its gone and there is no more money in that category

16. Types of Control Systems • Spending Plan System • Track expenses on a sheet by entering amount • Keep daily to know how much is being spent • Check Register System • Tracks all expenditures in a checkbook register • Divided into spending plan categories

17. Step 6:Evaluate • Determine if previous steps in spending plan process have worked • Compare estimated amounts to actual amounts • Have goals been met? • Were there major balances or deficits? • Make necessary changes to spending plan • A continual process because financial situation is always changing!

18. THE END!