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Money Management: Part 2

Money Management: Part 2. Homework (Passport page 22). How’s It Going?. Budgeting Process. Building the Budget. Refining YOUR Budget. Determining what works for you Comparing actual to budget spending Considering guideline budgets Deciding what to adjust

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Money Management: Part 2

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  1. Money Management: Part 2

  2. Homework (Passport page 22)

  3. How’s It Going?

  4. Budgeting Process

  5. Building the Budget

  6. Refining YOUR Budget • Determining what works for you • Comparing actual to budget spending • Considering guideline budgets • Deciding what to adjust • Finding creative ways to save on everyday items • Understanding net worth • Tackling debt

  7. What Do You Know?(Pre-Test page 4)

  8. Evaluating the Budget • Same Income and Expenses • More Income than Expenses • May have overestimated income • May indicate there are some expenses not captured in your budget • More Expenses than Income • May have underestimated income • May need to adjust the spending plan to reduce expenses or increase income

  9. Zero Dollar Budget • Have every dollar spent on paper before the month begins • Plan expenses for the coming month • Rollover unspent money to the following months • Pay yourself first • Make a plan for extra money

  10. The Right System For You • Envelope Method • Calendar Method • Register Method • Receipts Method • Budget Spreadsheet • Personal Finance Software

  11. Financial Pitfalls • Overcoming Temptations • Revisit Temptations List on Passport p. 15 • Track Spending to monitor progress • Work together with family members • Be realistic • Allow yourself some limited guilty pleasure

  12. Financial Pitfalls Cont’d • If you use a credit card to cover $1,000 of periodic expenses and repay the minimum payment at 24% interest: • Monthly payment: $40 • Number of months in debt: 83 months (6 years and 11 months) • Total payments: $1,775 • Interest paid: $775 • If you charged $1,000 per year in periodic expenses over 3 years and repaid only the minimum, you would need 10 years and 6 months to repay the balance and would repay more than $1,575 in interest.

  13. Variable Income • Salary + Commission • Needs = Salary • Wants = Commission • Irregular Pay • Budget using lowest paycheck allocating to needs • Excess goes to wants • Overtime • Accelerate savings, goals or debt reduction • Prioritizing Wants and Needs Essential • Savings absolute MUST

  14. Adjusting Income Short-Term • Extra Work • Overtime • Part-time supplemental • Review W-4 • Sell Assets • Yard sales/Online sales • Develop Hobbies • Turn a craft or hobby into income Long-Term • Develop career path

  15. Comparing Actual vs. Budget

  16. Using a Guideline Budget

  17. Financial Decision Tree

  18. Savings Periodic • set aside monthly amounts to fund periodic expenses Emergency • truly dire occurrences like job loss or a serious accident Retirement • IRAs, 401(k), etc. Goal Savings • S.M.A.R.T. Goals

  19. Ways to Save • Food: • Limit eating out to special occasions • Make a grocery list • Use coupons • Join membership clubs/discount stores • Buy generic or in bulk if you use large quantities • Bag lunch • Drink water when eating out • Your Ideas?

  20. Ways to Save – Cont’d • Clothing • Transportation • Shelter • Utilities • Entertainment

  21. Net Worth Assets Cash Accounts Investments House Car Personal Property Liabilities Debts Credit Cards Auto Loan Mortgage Assets (OWN) – Liabilities (OWE) = Net Worth

  22. Financial Statements Spending Plan Net Worth Short Term Long Term

  23. Priorities for Spending

  24. Dealing with Debt • Debt impacts current spending • Debt delays savings goals • Make a plan to reduce debt • Evaluate debt • Prioritize debt • Create repayment plan • Celebrate success

  25. Impact of Minimum Payments

  26. Snowball Method • Pay off one debt by paying more than minimum • Apply payment from debt #1 to next debt as additional payment. • As debts pay off, continue to apply payments to next debt. • www.powerpay.org to create your snowball

  27. Key Elements • Keep it realistic • Include spending allowances • Use guidelines • Refer to your budget before spending money

  28. What Have You Learned? (Post-Test page 24)

  29. Homework (Passport page 32)

  30. Questions?

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