Transcript Financial Counseling

Budgeting Workshop
Credit Advisors Foundation
Copyright 2007
Objectives for…
About Budgeting
After completing this lesson you should
be able to:
• Prepare a thoughtful budget
• Understand the components and
percentages necessary to create a
reasonable budget
• Recognize the importance of budgeting
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Let’s Get to Work
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Income
Income can come from a variety of sources.
Paychecks
Rental income
Investment dividends
Child support or alimony
For an accurate budget include all of your
household income sources.
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Income
Add all sources of income
Total them all for a one year period
Since most expenses are billed monthly:
Divide your overall total by 12
This is a monthly average income to use in your
budget calculations.
Credit Advisors Foundation
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Income
Gross
Net
Monthly
Salary/Wages
$
45,000.00
$
29,250.00
Partner Salary/Wages
$
60,000.00
$
39,000.00
Child Support/Alimony
$
Investment Income
$
$
120.00
Other Income
$
Total Household Income
$
$
68,370.00
-
120.00
-
105,120.00
Credit Advisors Foundation
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$
5,697.50
Understanding
expenses
Fixed expenses remain
the same from month to
month such as rent or
mortgage, car or truck
payment, or possibly
level-pay utilities
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Fixed Expenses
Budget
Actual
Savings
$
50.00
Mortgage or Rent
$
1,300.00
Car Payment
$
450.00
Car Payment
$
500.00
Other Loan
$
200.00
Pledged Contributions
$
50.00
Life Insurance
$
20.00
$
2,570.00
Other:
Total Fixed Expenses
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Difference
Understanding
expenses
Variable expenses are not
as predictable as fixed
expenses. Examples:
your electric bill in the
summer, gasoline costs,
or entertainment.
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Variable Expenses
Budget
Actual
Utilities
$
300.00
Home Maintenance
$
200.00
Food
$
500.00
Fuel
$
280.00
Clothing & Upkeep
$
100.00
Health Care
$
40.00
Recreation/Entertainment
$
72.00
Goals
$
300.00
Total Variable Expenses
$
1,792.00
Other
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Difference
Understanding
expenses
Periodic expenses are
those expenses that are
not monthly. They may
be quarterly, semi-annual
or even annual.
Examples include some
insurance, real estate
taxes, car licensing, etc.
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Periodic Expenses
Budget
Actual
Home Insurance
$
75.00
Real Estate Taxes
$
210.00
Car Insurance
$
160.00
Car Licensing
$
900.00
Other
$
75.00
Total Periodic Expenses
$
1,420.00
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Difference
Expenses
The first time it is always tough to
remember everything
Budgeting is an art.
Let the calculations begin!
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Why do we separate our expenses?
• Fixed expenses give us the least
amount of flexibility.
• We can control variable expenses but
only to a point.
• We have the most flexibility with
periodic expenses but they often have
the worst bite!
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Determine your total monthly
income & subtract your total
monthly expenses. Are there funds
left over? Or are you in the red?
-
Total Monthly Income
Total Monthly Expenses
Disposable Income
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Total Variable Expenses
$
2,570.00
Total Fixed Expenses
$
1,792.00
Total Periodic Expenses
$
1,420.00
Total Expenses for Month
$
5,782.00
Total Income
$
5,697.50
Total Expenses
$
5,782.00
Remainder
$
(94.50)
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Summary
What’s going on ?
Many people find their budget in the black but
their lives in the red!
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Black or Red…all budgets
can use adjustments and
analysis
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Budget
Adjustments
During budget development certain areas will
become obvious focus points where adjustments
can & should be made.
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Budget
Adjustments
Take a moment & review your list of
expenses.
Don’t forget to look at income. Are there
options for over-time, week-end work,
etc.
Identify categories where adjustments
could be made.
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An important part of developing a budget is
recognizing the difference between
Wants
big screen TV
vacation
jewelry
Needs
food
shelter
clothing
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Understand how you spend money so you will
be aware of influences to your budget by
Become aware of your common spending habits.
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Monitor your spending habits to find black
holes in your budget where money disappears
Keep a log for 30 days of everything you spend
Divide by type - food, clothing, & entertainment
Find patterns in your spending where wants are
being lived as needs.
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Analyze Black Hole Expenses
• When added to your budget, are you going
over in particular categories?
• Were you aware of how much you were
spending?
• Determine the time value of your purchases.
Total price/net hourly wage = time value
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Take it to the Next Level
• Experts say….
Suggested Expense Percentages
Housing
27%
Mortgage/Rent
Insurance
Taxes
Utilities
Food
16%
Transportation
12%
Car Loan
Gas
Tokens
Maintenance
Insurance
Licensing
Clothing
7%
Medical
6%
Recreation
5%
Other
Savings
17%
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10%
Are you in the Black?
Even Just a Little?
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Reality
Budgeting is not fun.
It is about denying yourself and limiting
yourself
UNLESS…..
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Goals
You realize that budgeting is the process to
help you achieve your biggest goals!
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By making plans to achieve your dreams you
learn how to form your budget around…
Successful financial management builds on a
foundation of goals.
Setting the goal to have a lump sum of money
by a specific time allows you to plan beyond
everyday expenses
with
your
budget.
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How to set
Goals:
Specific The more specific you are the more likely your success.
Using SMART as a guideline will create a specific goal design
Measurable Your goal must be tangible. Determine the end
result.
Achievable Begin with small or moderate goals to establish a
pattern of success. Believe you can!
Realistic Review your target, timeframe, income & expenses.
There’s nothing wrong with a challenge but stay honest about
your level of dedication and determination.
Timely A goal needs a deadline for you to work towards.
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Short term goals
Whether a goal is short or long
term is not determined by it’s
importance or value…
but by the time it will take to
reach the desired target.
A short term goal involves a
timeframe of about one year or
less.
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Examples of short term goals include:
$900 over the next 8 months for a summer
vacation
$500 over 5 months for holiday gift-giving
$350 in the next 4 months for a new 27’ TV
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Long term
goals
A long term goal would require more
time for it to be successfully achieved.
You may choose to budget the same
amount as a short term goal but allow
for a longer length of time to reach the
targeted total.
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Examples of long term goals include:
$2,000 over the next two years as a down payment for
a new car
$10,000 over five years for a down payment on a home
$18,000 over the next 15 years for your child’s college
tuition
This is where budgeting becomes FUN!!
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Goals: The Gift that Keeps on
Giving.
• Many goods actually become cheaper over time.
• PIF – The real cost of goods.
• Goals change!
• Success feeds on itself. If I can do this…
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Additional Tips
• Involve every member of your household!
• Do not pre-maturely quit!
• Keep your eye on the ball – it’s not the
budget but the goal!
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Monitoring
A big part of maintaining your budget in the
future involves continually monitoring your
income and expenses in relation to your short
and long term goals.
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Remember…
Some people go over their budgets very
carefully each month.
Others just go over them.
Which will you be?
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Thanks for Coming!
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Copyright 2007