1. Questions? 1. Does your personal credit rating affect your ability to get a business loan? Answer from Corning Credit Union: Every financial institution underwrites business loan requests differently, but in general it is best practice to pull a personal credit bureau for each guarantor of a business loan. It is just one factor used in the loan decision, however, as compared with consumer lending where the credit score is typically the overriding factor. © 2012 Matthew S. Whiting 1 Wk 1

2. 1. Balance the budget 2. Establish short-term emergency fund 3. Pay off consumer debt 4. Establish long-term emergency fund 5. Develop “large purchase” savings plan 6. Pay off mortgage 7. Save for retirement 8. Save for college 9. Invest the surplus 10. Share the surplus 2 Week 2 Week 3 Week 4 Week 5 Week 6 Wk 2 © 2012 Matthew S. Whiting

3. 3 Wk 1 © 2012 Matthew S. Whiting Balance the budget Establish short-term emergency fund Pay off consumer debt Establish long-term emergency fund Create large purchase savings plan Pay off mortgage Save for retirement Save for college Invest the surplus Share the surplus The steps don’t have to be strictly in sequence… …but the exceptions are few

4. 1. Balance the budget 2. Establish short-term emergency fund 3. Pay off consumer debt 4. Establish long-term emergency fund 5. Develop “large purchase” savings plan 6. Pay off mortgage 7. Save for retirement 8. Save for college 9. Invest the surplus 10. Share the surplus 4 Wk 2 © 2012 Matthew S. Whiting

5. Document the “as is” Balance sheet  Assets – Liabilities = Net Worth  Net Worth may be a negative value (in debt!) Income statement  Income – Expenses = Surplus  Surplus may also be a negative value (loss) Develop the “to be” (aka budget) Determine the path from “as is” to “to be” 5 © 2012 Matthew S. Whiting Wk 2

6. List all assets House Cars Savings & checking accounts Investments High-value personal property (diamonds, gold, etc.) List all liabilities Mortgage and loans (cars, college, etc.) Credit card balances Anything else you owe to anyone 6 © 2012 Matthew S. Whiting Wk 2

7. List all sources of income Wages/Salary Interest and dividends Bonuses Rental income Alimony, child support Record all expenses for at least a month Taxes Tithe Housing (mortgage, insurance, maintenance, repairs) Auto (loans, insurance, gas, maintenance, repairs) Clothing Medical Insurance (medical, dental, disability, life) Entertainment & Recreation Debt (credit card payments, etc., other than home or cars) Miscellaneous Savings (retirement, short-term) http://savingyourfuture.org/handouts/SpendingLog.pdf 7 © 2012 Matthew S. Whiting Wk 2

8. Many guides are available on the internet I recommend the Crown Financial guides, though they are now somewhat out of date They can be viewed at the links below A sample is shown on the next page http://www.crown.org/pamphlets/pdfs/PGI03(Singles).pdf http://www.crown.org/pamphlets/pdfs/PGI02(FamilyofTwo).pdf http://www.crown.org/pamphlets/pdfs/PGI01(FamilyofFour).pdf http://www.crown.org/pamphlets/pdfs/PGI06(FamilyofSix).pdf 8 © 2012 Matthew S. Whiting Wk 2

9. 9 © 2012 Matthew S. Whiting Wk 2

10. Income assumption from: http://www.ers.usda.gov/Data/Unemployment/RDList2.asp?ST=PAhttp://www.ers.usda.gov/Data/Unemployment/RDList2.asp?ST=PA 10 © 2012 Matthew S. Whiting Wk 2

11. Compare monthly expense record against budget targets This shows clearly the problem areas The next step is to evaluate each expense category and look for reduction opportunities or find a way to increase income or both This may require some drastic decisions… Selling a house and renting or buying smaller Keeping cars longer or selling a car Cutting back on discretionary purchases Increasing income via overtime, job change 11 © 2012 Matthew S. Whiting Wk 2

12. Without at least a balanced budget, no further progress is possible All subsequent steps require at least some surplus funds above those required for subsistence Therefore, once the budget is balanced, it is imperative that some small surplus be created to allow progression to step 2 – Short-term Emergency Fund 12 © 2012 Matthew S. Whiting Wk 2

13. 1. Balance the budget 2. Establish short-term emergency fund 3. Pay off consumer debt 4. Establish long-term emergency fund 5. Develop “large purchase” savings plan 6. Pay off mortgage 7. Save for retirement 8. Save for college 9. Invest the surplus 10. Share the surplus 13 © 2012 Matthew S. Whiting Wk 2

14. Once the budget is in balance; need to keep it that way! Three ways to handle money emergencies Cash Credit (can very expensive) Live without it (not always possible) Cost of credit example: $500 car repair By cash – cost is $500 By credit card – cost could easily be $525 as shown on the next slide. 14 © 2012 Matthew S. Whiting Wk 2

15. What is missing in this analysis? 15 © 2012 Matthew S. Whiting Wk 2

16. Need a modest savings that will cover most minor emergencies such as: car break-down, appliance break-down, minor medical, etc. Suggest $1,000 give or take per circumstances – built up from the monthly surplus of income over expenses Should be readily available (liquid) Savings account Money market account Not many good options in today’s economy 16 © 2012 Matthew S. Whiting Wk 2

17. The existence of the short-term emergency fund greatly lessens the chance of falling deeper into debt Once the fund is in place, the money that was being used each month to build the fund can now be deployed to fund step 3 – Pay off Consumer Debt 17 © 2012 Matthew S. Whiting Wk 2

18. 18 Wk 1 © 2012 Matthew S. Whiting Balanced the budget Established a short-term emergency fund

19. Questions? © 2012 Matthew S. Whiting 19 Wk 2