Transcript How to Save on a Tight Budget

How to Save on a Tight
Budget
Kathryn Greiner
Director of Credit Education
University of Michigan Credit Union
305 E. Eisenhower, #200
Ann Arbor, MI 48108
(734) 662-8200 xt 2741
[email protected]
Step 1: Budget Analysis, or Where the Money Goes
Average Monthly
Expenses
Housing:
Rent/Mortgage
Heat
Electric
Phone
Water
Household Exps.
Repair/Improvements*
Home Insurance
Food:
Groceries
Non-Food/Toiletries
Mid-Week Shopping
Meals Out (lunch)
Transport: Gas/Fares
Maintenance
Parking/Tickets
Car Insurance
Personal:
Clothing* (600/yr)
Medical/Dental*
Education*
Life Insurance
Gifts: Xmas 300,
B-days/other 150
Donations*
Entertainment** Read 10,
Photo 5, Music 10, Fun 40
Child Care
Vacations*
Haircuts/Laundry
Pets*
Other (cable TV)
Other
Expense Subtotal:
Savings: (include direct deposits)
Monthly Living Expenses:
Jane Doe: Single, No Kids, Gross Annual Income: $24,000
Payment
$550
20
40
35
-045
-010
150
20
20
40
50
50
-065
50
20
-0-038
40
Average Monthly Income
Monthly Take Home Pay
Partner’s Take Home Pay
Other Income - roommate
$1,465
-0320
(include child support, alimony, Social
Security, direct deposits for savings
Total Monthly Income
$1,785
Monthly Income
Less Monthly Expenses
Amount Available for debt
Creditor
Auto Loan
Student loan
Visa
Hudson’s
Target
Dentist
Mom
Total Debt
Balance
$4,500
1,250
2,500
195
375
250
100
$1,785
-1,450
$335
Pymt
$275
35
50
20
40
50
25
$9,170
70
-050
15 / 10
-022
Total Monthly Debt Payments
$495
Subtract from Amount
Available for Debt (see above)
-335
This is your Bottom Line!
*
1,420
30
$1,450
**
<$ 160>
Take year’s estimated total and divide by
12 for monthly expense
Entertainment includes: Reading, Cable,
Videos, Music, Hobbies, Going Out, Sports
Spending Plans
• Use the information gathered from the budget
analysis and your immediate bills to develop a
monthly plan for:
– Spending allowance
– Bill paying
– Saving for:
• a) long term goals & retirement
• b) emergency fund
• c) set aside
3 Reasons to Save
• Long term savings/retirement
• Emergency fund
• Set aside/short
term savings
Long Term Savings
• Long term goals:
– Retirement
– Children’s college fund
– House down payment
– Start a business
Precautionary Savings
• Emergency fund
– To be used if you loose your job
or can’t work.
– 3 to 6 months of take home pay
- Initial goals: one month’s rent,
then 1 month’s net pay
Short Term Savings
• Set Aside fund:
– Holiday gifts
– Vacations
– Home and car repair
Short Term Savings
• Set Aside fund:
– Special events such as weddings
– Car or computer replacement
– Insurance or non-monthly
and irregular bills
Monthly Plan for Spending, Bill Paying, & Saving
Bills
Mortgage/Rent
Heat
Electric
Phone
Water
Insurance – Car
Insurance – Other
Car Payment
Child Care
Other* Mom
Cable TV
Hudsons
Target
Student Loan
Dentist
Visa
Due Date
1st
Subtotal Bills:
Savings
Retirement:
Emergency: (goal: 1 month’s income)
Set Aside: (see personal expenses)
(car maint 50, Xmas 10, vaca 25)
Subtotal Savings:
Payment
$550
20
40
35
-065
-0275
-025
22
20
40
35
50
50
Spending Allowance
This Month’s Net Income:
$1,785
Less This Month’s Bill & Saving Total
- 1,352
This Month’s Spending Allowance:
=
433
Divide month’s spending allowance by
4 for your weekly spending allowance
=
$108
$1,227
Payment
$10
30
85
$125
Subtotal Bills:
Subtotal Savings:
$ 1,227
+ 125
This Month’s Bill & Savings Total
$ 1,352
Weekly Spending Allowance
• Helps end the financial “binge/starve”
cycles.
• Something to look forward to when you
spread spending money
throughout the month.
• Avoid augmenting income by
charging basic living expenses.
Saving Methods
1. Savings withheld from paycheck
2. Saving as a fixed expenditure
3. Saving what is left over after all other
expenditures are paid
Set Aside Fund Worksheet
Goal
Travel
Amount Mo/Yr Months When
Needed Needed to save to Start
$375
April
15
Jan
2009
2008
Monthly
amount
$25
Xmas
gifts
$120
Dec
2008
12
Nov
2007
$10
Car
repair
$600
Each
year
12
Jan
2008
$50
Set side each month:
$85
BI-WEEKLY PAYDAY PLAN
Payday
1st
7th
14th
21st
Jane Doe takes home
$1,465/mo =
$732.50 every other week
Check & Amount
Who Gets Paid
Payment
Descending Balance
paycheck +$732 ………………………………………………………………………….. $ 732
renter
+ 320 ………………………………………………………………………….. 1,052
Week’s allowance
- $108
944
Rent
- 550
394
Heat
- 20
374
Electric
- 40
334
Phone
- 35
299
Cable
- 22
277
Hudson’s
- 20
257
Target
- 40
217
Visa
- 50
167
Student loan
- 35
132
HOLD for next week
$ 24
Withdraw week’s allowance
- 108
paycheck + $732 .………………………………………………………………………….
Week’s allowance
- $108
Car loan
- 275
Car insurance
- 65
Dentist
- 50
Mom
- 25
Savings $125:
1) retirement
- 10
2) emergency fund
- 30
3) set aside (travel, gift, rep)
- 85
HOLD for next week
Withdraw week’s allowance
- 108
$ 756
648
373
308
258
233
223
193
108
$ 0
Get Money to Save and Invest
• Pay yourself first: treat savings and
investing as a fixed expense.
• Make saving automatic: automatically
transfer funds from your checking to
savings account.
• Save-don’t spendextra funds.
Get Money to Save and Invest
• Make installment payments to your
savings when debt is paid off.
• Break a habit: put aside the money you
would have spent.
• Scrimp one month a year
to free up money to save
toward your goal.
Rule of 72
• Invest $3,000 at a rate of 9%
• 72 divided by 9 is
Rule of 72
• Invest $3,000 at a rate of 9%
• 72 divided by 9 is 8 years
Rule of 72
• Invest $3,000 at a rate of 9%
• 72 divided by 9 is 8 years
• So $3,000 invested at 9% doubles to
$6,000 in 8 years.
How $3,000 at 9% Grows
•
•
•
•
•
In 8 years:
$3,000 x 2 = $6,000
In 16 years:
$6,000 x 2 = $12,000
In 24 years: $12,000 x 2 = $24,000
In 32 years: $24,000 x 2 = $48,000
In 40 years: $48,000 x 2 = $96,000 !
For More Ideas…
• How To Save on a Tight Budget
• http://www.americasaves.org/strategies/tight_bu
dget.asp
• 66 Ways to Save Money
• http://www.pueblo.gsa.gov/cic_text/money/66wa
ys/index.html
• Eight Ways to Save Money Even on a Tight
Budget
• http://www.associatedcontent.com/article/56969/
eight_ways_to_save_money_even_on_a.html