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Budgeting 101:. Developing and Maintaining a Personal Budget Lillian Hallstrand, Director of Stewardship and Vocational Planning. BUDGET!!!!. Learning Objectives . In this session, we will set you on a path to: Identify/Develop your financial goals
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Budgeting 101: Developing and Maintaining a Personal Budget Lillian Hallstrand, Director of Stewardship and Vocational Planning
Learning Objectives • In this session, we will set you on a path to: • Identify/Develop your financial goals • Examine how financial values come into play • Discuss basic budgeting terminology and principles • Explore tools to develop your personal budget • Talk about challenges and barriers to budgeting • Discuss ways for you to track your financial health and progress
Trigger Warning • Money Management can stir up “stuff” within us: • Anger • Guilt • Frustration • Sense of Hopelessness • Anxiety/Fear • Avoidance
Why Budget? • Budgets are a necessity to take control of personal spending, saving, and debt. • The loudest voices in finance come from corporations that do not have your best interest in mind. • Living beyond your means is a dangerous practice. • Many individuals don’t realize they are overspending until they are deeply in debt. • Credit cards and easy access to funds make it easier to be mindless about spending. • The absence of a budget is one of the greatest contributors to stress about money matters.
Health and $$ • A 2013 study by Northwestern’s Feinberg School of Medicine showed that young adults (24-32 years old) in debt had higher blood pressure levels and exhibited more depressive symptoms than their debt-free counterparts. • The same study showed the higher the debt-to-asset ratio, the higher perceived stress and depression and worse self-reported general health. (Sweet, McDade, Adam & Nandi, 2003)
Start From Scratch • Whether you have a budget that is giving you challenges or have never created one – let’s wipe the slate clean! • Have a healthy dose of skepticism toward information available on finances; choose websites, books, and magazines wisely • Empower yourself to become an expert on your personal finances. (No ostriches allowed!)
Financial Decision-Making • Whether we are conscious of it or not, our values determine how we use our money. • Any financial goals you create are an extension of your values. • Financial hardship often comes when we stop paying attention to the connection between our values and our money. • Take a moment and write down 5 of the values that you hold to be central to your identity.
Where to Begin? • Your Financial Snapshot: The Net Worth Statement • Your personal net worth is the difference between all of your assets (things you own) and liabilities (debts you owe). • Your net worth statement is a complete list of all of these items and their current values. • Having concrete knowledge (not a “guesstimate”) of your net worth allows for the best starting point for the budgeting process.
Assets • Cash Equivalents • Bank and money market accounts • CDs • Cash on Hand • Investments • Stocks, bonds, mutual funds • Savings bonds • Stock options • Retirement Funds • 401K/Pension Funds • IRAs • Small-business plans
Assets • Real Estate • House • Land • Rental Property • Personal Property • Vehicles • Campers/RVs/Boats • Household Goods • Furnishings • Jewelry/Furs • Electronics • Money Owed to You • Rental Deposits/Utility Deposits • Other Assets • Life Insurance (only with cash value not term policies)
Liabilities • Loans • Mortgages • Home Equity Loans • Vehicle Loans • 401(k) Loans • Student Loans • Credit Card Balances • Taxes Owed • Real Estate Taxes • Unpaid Income Taxes • Quarterly Estimated Taxes • Other Debts • Unpaid Bills Due • Alimony • Child Support • Miscellaneous
Creating a Net Worth Statement • Start by listing everything that you own, even if you still owe money on them, such as house, car, etc. ( ALL ASSETS) • List all items at their current market value today. • Add up all assets and subtract cumulative liabilities. • If number is positive, CONGRATS! You have a positive net worth. Your goals will be focused on building wealth. • If the number is negative, DO NOT DESPAIR. Your journey beginnings with working toward a positive net worth.
Why Financial Goals are Important • “Goals are like the wheels on your car; they keep you moving in the direction you want to go, and you won’t get very far without them.” – Davidoff • Working toward goals brings a sense of accomplishment and diminishes stress. • Financial Stewardship is a theological value.
Name Your Short-Term Financial Goals • Determine what your goals are for the near future start small, for example, for the academic year. • Samples: • Not accrue more than $$ in student debt this year • Pay off my car • Save up an emergency fund for unexpected life events • Pick 2-3 and write these goals down…….seriously, do it! • Display them in a location where you will be reminded of them often.
Developing Your Budget • Once you have your net worth statement and have created some financial goals, you are ready to create your budget. • Your Budget = your tool for attaining your goals • The term “budget” can bring negative imagery to mind (penny-pinching, stress, etc.). Choose your ‘tude! • A budget is a spending plan. Nothing more. • Controlling spending makes saving effortless.
Signs of a Good Budget • It should be Realistic • Has some flexibility to meet the changing demands of life • Allows progress toward your goals • Should be simple enough that you can manage it in the time you allot • Should reflect the your financial values
Customizing Your Budget • List and add all your sources of income for one month (MONEY IN): • Wages from job/s • Student Loans (a monthly total) • Child support/alimony • Rental income • Interest income/Dividend income • Child support and/or Alimony Income • Other sources of income (family support?)
Customizing Your Budget • Next, list all of your expenses for one month (MONEY OUT): • Savings (list me first) • Mortgage or Rent • Utilities • Auto Expense/Other Transportation • Tuition • Groceries/Eating Out • Insurance (auto, medical, home) • Medical Expenses (out-of-pocket) • Entertainment/Recreation • School Supplies (Computer, Books, etc) • Child Care • Credit Card Payments • Clothing/Shoes • Gifts and Donations (Tithes) • Household/Personal Care Products • Miscellaneous
Pete the Planner • The following are recommended guidelines for the most common financial categories in budgets: • Rent/Mortgage – 25% • Utilities/Phone – 10% • Transportation – 15% • Groceries/Dining Out – 12% • Savings – 10% • Entertainment – 5% • Medical 5% • Gifts/Donations – 10% • Clothing/Shoes – 5% • Misc. – 3% • These are guidelines, not universal laws, but try not to stray too far from these figures.
Setting Your Budget Figures • Set a realistic spending goal for each category • First, figure out where you money is going now – how much to each category and use that as a guide • Track the small expenditures – trips to Starbucks, iTunes downloads, snacks from across 21st Ave.
Keep it Simple-Go Digital! • Mint.com – use it!! (Basic edition is free) • Links to all bank accounts, mortgage, credit cards, and more… • Creates a net worth statement • Notifies you of upcoming bills and recent transactions • Allows you to enter receipts immediately via the phone app • Helps you set a budget and gives real-time updates on where you are with regards to your goals • Displays everything in pretty and easy to understand charts and graphs
Monitor Progress • Monitor your progress each month • Celebrate each victory • Plug any “spending leaks” • Impulse buys • Grocery indulgences • Over-purchasing (phone plans, cable TV, anything that you are paying for and don’t really use/need)
Top 10 Personal Finance Tips • From “The Everything Personal Finance in Your 20s and 30s Book,” by Howard Davidoff, JD, CPA, LLM” • Make the effort to educate yourself about personal finance. Read financial magazines and good financial books and use well-known, reputable sites on the Internet. • Budget! Operating without a budget is like driving a car without a steering wheel. You don’t have control over where you are headed. • Save the pennies and dollars will save themselves. Lots of small amounts add up to big savings.
Top 10 Personal Finance Tips • Pay cash. If you can’t afford to pay cash, maybe you can’t afford to buy. • Always think about opportunity costs. You may not be paying for something directly, but giving up the opportunity to make money is a real cost. • If possible, take savings out of your paycheck before you see it. After a while you will get used to spending on the lower amount, while your savings grow. • Be a smart shopper. Don’t buy cheap items that won’t last and don’t pay for bells and whistles that you don’t need or won’t use.
Top 10 Personal Finance Tips • Know how to recognize the warning signs of too much debt, and if you see yourself headed for trouble, act quickly, before you ruin your credit score. • Don’t go without some type of medical insurance, even if you can only afford a policy with a very high deductible. If you become ill or are injured in an accident, the medical bills could ruin you financially. • Remember, most millionaires are just average people who practiced sound financial principles like those in this book. You could be one of them.
