Basics of Managing Your Finances and Debt

At the conclusion of this presentation, the participants will have received information in the following areas: How to set financial goals for yourself and your family. What information to consider when developing your “family’s basic financial plan”. How to talk to your partner about financial objectives. Learn how to achieve your financial objectives. Learn the basics of budgeting.

Seminar Objectives 2 Learn to overcome the fears of living within a budget. How to create more money to achieve your financial goals. How to reduce your debt loads. What to do when your cash flow does not match your expenses. What resources are available to help when your financial situation gets out of control.

Basis for Managing Your Finances The outflow of cash can not be exceeded by the amount of income that you receive. Avoid spending more money than you actually earn. Simple concept that is difficult for many of us to actually achieve.

Importance of Developing a Budget Knowledge is power Having a budget allows you the freedom to know how you are spending your money Able to change spending patterns Will be able to achieve the financial goals that we have for ourselves and our families.

Importance of developing a budget Budgets are a necessary evil. Beware of luxuries that are dressed up as necessities. Do not count on windfalls. Beware of spending creep. Use income increases as a chance to save Spending beyond your limits. Most households spend more than they take in Recognize signs of cash leakage. ATM withdrawals

Basic Reasons for a Budget A necessary tool for managing your finances. Allows you to know where your money is going. Allows you to change your cash flow to better meet your needs and goals. Prevents waste. A budget can improve your marriage. A budget can get you out of debt

How to set up a successful budget Start with a budget worksheet Go through your check book or bills to determine categories Be sure to consider hobbies and your habits Go through your pay stubs to calculate your average monthly gross income For each category, determine a budget amount that reflects your actual spending Track cash expenditures throughout the month and place in each category

How to set up a successful budget 2 Subtotal the income and expense categories Subtract the total expenses from total income Moment of truth Determine what to do with extra money Determine areas that can be cut

Biggest budget busters Negative attitude Budget can be a means to an end Lack of motivation Why are you doing it? Debt repayment or bk court agreement Unrealistic expectations What do you expect to gain? Discover large amounts of lost cash

Identifying your financial goals Most people struggle to meet day-to-day expenses. Importance of choosing the financial goals that matter most to you. Often financial goals can collide with one another Paying for your child’s braces takes money for house down payment or college education

Financial Goals: Buying a home Send children to college Save for retirement Buy a boat/RV Buy a vacation home/property for retirement Take a vacation Start own business Return to school to finish degree/earn degree Saving for an emergency Getting out of debt

Importance of knowing your financial goals: Goals provide you with a direction Can I achieve these goals or are they just a dream What changes are necessary to achieve my goals? What are the obstacles that prevent me from meeting my financial goals?

Setting financial objectives: Short-term and long-term goals It is not possible to achieve all of your goals Important to narrow your objectives Focus on the goals that matter Time can either be your friend or your enemy Choose objectives carefully

Setting financial objectives 2 Include family members in this process Be prepared for conflicts Start now Sweat the big stuff Don’t sweat the small stuff Most important, be prepared to change Work towards the lesser goals after the important ones have been achieved

Family basic financial plan Housing Health insurance Retirement College education Disability insurance Life insurance Emergency fund

Resolving conflicts Talk to your partner about the financial priorities Communicate!!!!!!!!!! You want their buy-in. No single best way If two goals offer similar rewards, which one causes the least harm. How many people will benefit? Decide when more people will benefit from a goal. Is someone’s health involved? Money should be used to make life better. Illness is a rainy day

Debt: What is it and how does it grow? Debt consists of the following expenses: Housing Utilities Credit card debt Car payments Child support Secured debts Food/clothing taxes

Compound Interest When you owe money, you pay interest on the debt. Each month you will pay interest on the debt and all of the previous month’s accumulated interest. Rule of 72. Divide 72 by the interest rate to see how quickly the debt will grow. 72/19.99=3.6 years

Effect of Interest Rate on the Cost of Debt

Good Debt versus Bad Debt Not all debt is created equal. Some debt is an inescapable part of life Good debts include home mortgages and student loans low interest rate, tax advantages Be wary of double digit debt Balances snowball quickly

Get Out of Debt 1 Set the foundation Where do you stand? List all of your different debts. Divide them into “good” or “bad” category. Do you have too much “bad” debt? How much are your total interest payments? How is your cash flow?

Get Out of Debt 2 Steps to Eliminating Credit Card Debt Planning the order of payoff Reducing your interest rates with a phone call. Stop using your cards Stop the flood of credit card offers Always pay more than the minimum Consolidate your debts

Importance of Making Payments on Time Fail to make payment by the due date $29 late charge Late payment twice in any six month period Interest rate can increase to 24.6% Late payment three times in 12 months Default rate of 28.9%

When your financial hole gets too deep CCCS: Consumer Credit Counseling Services Debt Management Plans Bankruptcy Contact your EAP for Assistance