Transcript Slide 1
Budgeting 101: A Balancing Act © 2012, Financial Planning Association® This presentation is for educational purposes only. Participants should be aware that a financial planning engagement has not been established. Complete data has not been gathered and all alternatives have not been considered. The content in this material is believed to be current, but, over time, legislative and regulatory changes, as well as new developments, may date this material. Ask Yourself… • Am I living paycheck to paycheck? • Am I paying late fees on loans and credit card bills? • Am I putting off important things – like healthcare – because I can’t afford them? • Do I want to save more, but find it impossible? If Your Answer is “Yes” A risky approach: • • • • Hope things improve • Get another credit card OR • Play the lottery • Borrow to get by • A safer approach: Evaluate spending Develop a budget or spending plan Stick to the plan Set the financial goals What is a Budget Snapshot of your current finances • Income • Spending Plan for expected spending – and the unexpected A first step in financial planning Sources of Income Salary • Your primary job • Your spouse’s income • Part-time work $ Income Other Investments • Interest and dividends • Property Types of Expenses Fixed, regular Variable • Housing • Food • Insurance • Clothing • Utilities • • Loan repayments Credit card charges • Savings • Transportation • Entertainment • Travel • Taxes • Miscellaneous Calculate Income and Expenses Gather your records: • Pay stubs • Checkbook register and bank statements • Credit card receipts Assign all income and spending to a specific category Evaluate your bottom line Take Financial Control Can you increase your income? • Higher paying job • Salary increase • Part-time work Can you trim your spending? • Reduce extras • Control essential costs Which path is more realistic? Trim Spending Step 3: Plan for lower fixed costs Step 2: Reduce variable spending Step 1: Cut out avoidable expenses How can each of these steps help you trim your spending? Cut Avoidable Expenses • Services you don’t need o Telephone and cable extras o Credit monitoring service • Late fees, over-limit fees • Bank charges you can control Reduce Variable Expenses • Shop food and clothing sales • Join a car pool • Perfect your cooking • Turn down the thermostat • Learn basic home repair Buy a Lunchbox Lunch x Days x Weeks = Spending $7/day x 5 days x 50 weeks = $1,750 $7/day x 3 days x 50 weeks = $1,050 $7/day x 1 day x 50 weeks = $350 Plan to Lower Fixed Costs Consider how you might: • Lower your housing costs • Reduce your utility bills • Renegotiate or pay off your loans • Find cheaper insurance coverage Make Hard Decisions • Rein in your overall spending o Leave credit cards at home o Stay out of stores o Fight impulse spending • Evaluate cost of habits and hobbies • Ration entertainment Reduce Your Debt • Pay off highest rate debt first o May be smart to use savings o Avoid new debt at high rates • Pay more than the minimum on cards • Never skip a payment or pay late Include Savings in Your Budget • • • Save part of every paycheck o Automatic deductions from checking o Pay yourself first Build an emergency fund o Cover the unexpected o Take advantage of new opportunities Set goals and save to meet them Budgeting 101 Recap • Gather sources of income • Review fixed and variable expenses • Trim wherever possible o Eliminate extras o Reduce fixed and variable costs • Align income with expenses • Include savings as part of budget • Monitor and modify periodically Getting Help www.FPAnet.org 800.647.6340 www.PlannerSearch.org • Lists large number of qualified planners • Offers multi-faceted search options including location, how planners charge, planner specialties, assets and income minimums, and last name • Lets you easily find planners who offer a free initial consultation • Allows quick search of planners in your geographic area • Provides a list of questions to ask planners to help you choose a financial planner who is right for you This presentation is for educational purposes only. Participants should be aware that a financial planning engagement has not been established. Complete data has not been gathered and all alternatives have not been considered. The content in this material is believed to be current, but, over time, legislative and regulatory changes, as well as new developments, may date this material.