1. Developing a Spending Plan Financial Literacy

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 1. Set Financial Goals 2. Organize 3. Decide 4. Implement 5. Control 6. 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. 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

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

12. Balancing Your Budget  Use the 3 R’s  Reality  Responsibility  Restraint

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. Evaluating Your Budget  What strategies can you use to reduce your expenses?  What are some purchasing strategies that will help to reduce expenses?

15. 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)

16. 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

17. 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

18. Savings  Why are savings important?  What strategies can you use to achieve your financial goals?

19. Rebalancing your Budget  Uh oh, you spent too much on a variable expense! What now?

20. 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!

21. Homework  Research the influence of advertising and peer pressure on spending.  Come to class with 2 articles on the topic, and any other notes you have taken.