Learning Objectives In this session, we will set you on a path to: Identify/Develop your financial goals Examine how financial values come into play Discuss basic budgeting terminology and principles Explore tools to develop your personal budget Talk about challenges and barriers to budgeting Discuss ways for you to track your financial health and progress
Trigger Warning Money Management can stir up “stuff” within us: Anger Guilt Frustration Sense of Hopelessness Anxiety/Fear Avoidance
Why Budget? Budgets are a necessity to take control of personal spending, saving, and debt. The loudest voices in finance come from corporations that do not have your best interest in mind. Living beyond your means is a dangerous practice. Many individuals don’t realize they are overspending until they are deeply in debt. Credit cards and easy access to funds make it easier to be mindless about spending. The absence of a budget is one of the greatest contributors to stress about money matters.
Health and $$ A 2013 study by Northwestern’s Feinberg School of Medicine showed that young adults (24-32 years old) in debt had higher blood pressure levels and exhibited more depressive symptoms than their debt-free counterparts. The same study showed the higher the debt-to-asset ratio, the higher perceived stress and depression and worse self-reported general health. (Sweet, McDade, Adam & Nandi, 2003)
Start From Scratch Whether you have a budget that is giving you challenges or have never created one – let’s wipe the slate clean! Have a healthy dose of skepticism toward information available on finances; choose websites, books, and magazines wisely Empower yourself to become an expert on your personal finances. (No ostriches allowed!)
Financial Decision-Making Whether we are conscious of it or not, our values determine how we use our money. Any financial goals you create are an extension of your values. Financial hardship often comes when we stop paying attention to the connection between our values and our money. Take a moment and write down 5 of the values that you hold to be central to your identity.
Where to Begin? Your Financial Snapshot: The Net Worth Statement Your personal net worth is the difference between all of your assets (things you own) and liabilities (debts you owe). Your net worth statement is a complete list of all of these items and their current values. Having concrete knowledge (not a “guesstimate”) of your net worth allows for the best starting point for the budgeting process.
Assets Real Estate House Land Rental Property Personal Property Vehicles Campers/RVs/Boats Household Goods Furnishings Jewelry/Furs Electronics Money Owed to You Rental Deposits/Utility Deposits Other Assets Life Insurance (only with cash value not term policies)
Liabilities Loans Mortgages Home Equity Loans Vehicle Loans 401(k) Loans Student Loans Credit Card Balances Taxes Owed Real Estate Taxes Unpaid Income Taxes Quarterly Estimated Taxes Other Debts Unpaid Bills Due Alimony Child Support Miscellaneous
Creating a Net Worth Statement Start by listing everything that you own, even if you still owe money on them, such as house, car, etc. ( ALL ASSETS) List all items at their current market value today. Add up all assets and subtract cumulative liabilities. If number is positive, CONGRATS! You have a positive net worth. Your goals will be focused on building wealth. If the number is negative, DO NOT DESPAIR. Your journey beginnings with working toward a positive net worth.
Why Financial Goals are Important “Goals are like the wheels on your car; they keep you moving in the direction you want to go, and you won’t get very far without them.” – Davidoff Working toward goals brings a sense of accomplishment and diminishes stress. Financial Stewardship is a theological value.
Name Your Short-Term Financial Goals Determine what your goals are for the near future start small, for example, for the academic year. Samples: Not accrue more than $$ in student debt this year Pay off my car Save up an emergency fund for unexpected life events Pick 2-3 and write these goals down…….seriously, do it! Display them in a location where you will be reminded of them often.
Developing Your Budget Once you have your net worth statement and have created some financial goals, you are ready to create your budget. Your Budget = your tool for attaining your goals The term “budget” can bring negative imagery to mind (penny-pinching, stress, etc.). Choose your ‘tude! A budget is a spending plan. Nothing more. Controlling spending makes saving effortless.
Signs of a Good Budget It should be Realistic Has some flexibility to meet the changing demands of life Allows progress toward your goals Should be simple enough that you can manage it in the time you allot Should reflect the your financial values
Customizing Your Budget List and add all your sources of income for one month (MONEY IN): Wages from job/s Student Loans (a monthly total) Child support/alimony Rental income Interest income/Dividend income Child support and/or Alimony Income Other sources of income (family support?)
Customizing Your Budget Next, list all of your expenses for one month (MONEY OUT): Savings (list me first) Mortgage or Rent Utilities Auto Expense/Other Transportation Tuition Groceries/Eating Out Insurance (auto, medical, home) Medical Expenses (out-of-pocket) Entertainment/Recreation School Supplies (Computer, Books, etc) Child Care Credit Card Payments Clothing/Shoes Gifts and Donations (Tithes) Household/Personal Care Products Miscellaneous
Pete the Planner The following are recommended guidelines for the most common financial categories in budgets: Rent/Mortgage – 25% Utilities/Phone – 10% Transportation – 15% Groceries/Dining Out – 12% Savings – 10% Entertainment – 5% Medical 5% Gifts/Donations – 10% Clothing/Shoes – 5% Misc. – 3% These are guidelines, not universal laws, but try not to stray too far from these figures.
Setting Your Budget Figures Set a realistic spending goal for each category First, figure out where you money is going now – how much to each category and use that as a guide Track the small expenditures – trips to Starbucks, iTunes downloads, snacks from across 21 st Ave.
Keep it Simple-Go Digital! Mint.com – use it!! (Basic edition is free) Links to all bank accounts, mortgage, credit cards, and more… Creates a net worth statement Notifies you of upcoming bills and recent transactions Allows you to enter receipts immediately via the phone app Helps you set a budget and gives real-time updates on where you are with regards to your goals Displays everything in pretty and easy to understand charts and graphs
Monitor Progress Monitor your progress each month Celebrate each victory Plug any “spending leaks” Impulse buys Grocery indulgences Over-purchasing (phone plans, cable TV, anything that you are paying for and don’t really use/need)
Top 10 Personal Finance Tips From “The Everything Personal Finance in Your 20s and 30s Book,” by Howard Davidoff, JD, CPA, LLM” 1. Make the effort to educate yourself about personal finance. Read financial magazines and good financial books and use well-known, reputable sites on the Internet. 2. Budget! Operating without a budget is like driving a car without a steering wheel. You don’t have control over where you are headed. 3. Save the pennies and dollars will save themselves. Lots of small amounts add up to big savings.
Top 10 Personal Finance Tips 4. Pay cash. If you can’t afford to pay cash, maybe you can’t afford to buy. 5. Always think about opportunity costs. You may not be paying for something directly, but giving up the opportunity to make money is a real cost. 6. If possible, take savings out of your paycheck before you see it. After a while you will get used to spending on the lower amount, while your savings grow. 7. Be a smart shopper. Don’t buy cheap items that won’t last and don’t pay for bells and whistles that you don’t need or won’t use.
Top 10 Personal Finance Tips 8. Know how to recognize the warning signs of too much debt, and if you see yourself headed for trouble, act quickly, before you ruin your credit score. 9. Don’t go without some type of medical insurance, even if you can only afford a policy with a very high deductible. If you become ill or are injured in an accident, the medical bills could ruin you financially. 10. Remember, most millionaires are just average people who practiced sound financial principles like those in this book. You could be one of them.