Building Budgets & Family Assets

1. Fiscal Planning A Pilot Project Building Budgets & Family Assets Financial Literacy Managing Credit Asset Development • Funding Provided under the Administration of • Jerry Brown • The People’s Governor for • the State of California • California Department of Alcohol and Drug Programs, Office of Problem Gambling • Community Partners • Developed by • Hau Cam hau cam consulting 916-995-5200

2. Budgeting • Establish Tracking and Monitoring System. • Log, Analyze, Plan, and Prioritize Expenses. • Review and Monitor System Monthly. • Update budget with changes in income and expenses. hau cam consulting 916-995-5200

3. List Income • Employment, Social Security, unemployment, public assistance, dividends, interest, alimony, and child support. • Distinguish between monthly, annual and one time payments. • An income for budgetary purposes should factor in tax liabilities (e.g., income and property) as well as insurance. • Consult a CPA or qualified tax representative to determine estimated taxes. hau cam consulting 916-995-5200

4. List Expenses • Fixed monthly expenses • Ex: rent , mortgage, car payment, telephone, cable, internet access, cell phone • Variable Expenses: weekly, monthly, quarterly, semi-annually, annual expense • Ex: Groceries, clothing, haircuts, property taxes, insurance payments, recreation, entertainment, utility bills, car maintenance and home repairs. • One-time/infrequent expenses • Ex: wedding, birthday gifts, holiday gifts, and vacation hau cam consulting 916-995-5200

5. Identify Surpluses or Deficits • Subtract Total Expenses from Total Income. • If calculation is positive, a surplus is identified. Excess funds may be directed to established a “rainy day” emergency fund for unexpected expenses or allocate towards Asset Development. • If estimate is negative, review budget to identify expenditure reductions. hau cam consulting 916-995-5200

6. Helpful Tips • Grocery and food is a significant percentage of a family’s budget. • Coupons are useful to reduce cost on items that were originally planned purchases. • Limit credit card purchases to an amount payable in FULL by the end of the month. • When using a debit card, be cautious of overdraft features in stretching spending to reduce reserve funds. • Avoid payday lenders (cash advance) = very expensive credit due to fees • Track one-time and impulse purchases. • At least once a month, review credit card/checking statements and evaluate purchases. • Consider reallocating your spending to an emergency savings account. hau cam consulting 916-995-5200

7. Example Expense Tracking Tool • Step 1: Download online accounts and convert in Microsoft Excel format. • Step 2: Consolidate accounts into a Master File to form Sample Raw Data Sheet Month. • Step 3: Pivot Table of all expenses. • Step 4: Copy and Paste Values of the entire year data over to the Budget Worksheet Cost line items to generate expense totals. • Step 5: Review trends and project expense based on average expenses column. hau cam consulting 916-995-5200

8. Prevention & Precaution • Overspending and exceeding spending limits on gambling. This impacts the ability to pay for other necessary expenses. There is potential to use credit cards to absorb deficits with high interest rates, and incur late penalty fees for missed payments. • Borrowing money from cash advances, family, friends, or loan sharks. Cash borrowed from credit card cash advances incur exceedingly high interest rates. • Home equity refinance. Through years of building equity by paying a mortgage on a home, banks may offer an equity line of credit. Problem gamblers may be tempted to access capital through a refinance. With the money, gambling can increase debt and duration of repayment. If the debt load exceeds the capacity from income to pay, bankruptcy and foreclosure dramatically jeopardizes a family’s financial health. • Budget Implosion hau cam consulting 916-995-5200

9. MANAGING CREDIT hau cam consulting 916-995-5200

10. Strategies for Improvement & Repair hau cam consulting 916-995-5200

11. Prevention & Precaution • Accessing Money. Gamblers can access money instantly from credit cards and debit cards at casinos with easy access to ATM terminals. However, with daily withdrawal limits on personal credit/debit cards, gamblers may access private lines of credit from the casino. • Credit cards. After sustaining huge gambling losses, a problem gambler may begin to subsidize daily expenses by opening additional credit cards. By paying the minimum balances, more debt is accrued and increased by higher interest rates. • Fees, Fees, & Fees. • Credit card balance transfer fees. Credit cards may offer new lower introductory interest rates on balance transfers. However, there may be significant fees associate with the transfer. Be cautious of the rate after the introductory offer. Variable and fix rates thereafter, may be astronomically high. • Financial self protection, limiting credit use, & Self-Exclusion. The Bureau of Gambling Control administers a confidential self-exclusion program. Self excluded patrons are prohibited from collecting any winnings or recovering any losses for the duration indicated on the self-exclusion form. Self-exclusion terms are irrevocable and patrons are banned from all licensed gambling establishments in the State of California but does not include Tribal casinos. This agreement also restricts access to specific establishments, or to the issuance of credit, check cashing, or marketing from a particular card room. Reference: link.

12. Asset Development EXAMPLE from the Securities Exchange Commission Illustration Using Basic Math • If you have $100.00 and it earns 5% interest each year, you'll have $105.00 at the end of the first year. But at the end of the second year, you'll have $110.25. Not only did you earn $5.00 on the $100.00 you initially deposited—your original "principal"—but you also earned an extra $0.25 on the $5.00 in interest. Twenty-five cents may not sound like much at first, but it adds up over time. Even if you never add another dime to that account, in 10 years you'll have over $162.00 through the power of compound interest, and in 25 years you'll have almost $340.00. www.sec.gov/investor/students.tips.htm

13. Illustration Using Pizza • Here's another way to look at compound interest. How much does a slice of pizza cost? Would you believe nearly $65,000? If a slice of plain pizza costs $2.00, and you buy a slice every week until you're old enough to retire, you'll spend $5,200 on pizza. If you give up that slice of pizza and invest the money instead, earning 8% interest compounded every year for 50 years, you'll have over $64,678.87. • www.sec.gov/investor/students.tips.htm

14. Are there sufficient funds to maintain monthly expenses and anticipated expenses? • Is there an exit strategy? • How much risk is assumed for expected returns? • What benchmark is used to evaluate the success of your investment strategy? • How are you monitoring the performance? • What are the tactical asset allocation range limits? • What are the selection criteria to select an investment manager?

15. Are there any investment screening process? • What are the logistics of implementation? • How often are reports reviewed in consideration of the changing financial environment? • What are the advantages and disadvantages of self-directed investment vs. hired money manager. • Does management fees erode investment returns? • How important is diversification?

16. Investing money you cannot afford to lose and can set aside without accessing for years. After reviewing the family’s budget, controlling spending, establishing an emergency fund, paying outstanding obligations, consider any type of insurance that are imperative, excess savings may be used to invest. Also, having at least one year of documented history of expenses will reduce and prepare for unanticipated costs that the family may not be aware of. Also consider future expenses like education, health insurance, long term care, and other future costs. Withdrawing money or selling assets during an economic downturn may yield significant losses. • Mortgage Affordability. When buying a home, compare monthly budget for at least a year and average out expenses. A good faith estimate from the lender details costs associated with the monthly loan payment. Projections are helpful to analyze current expenses in addition to costs associated with mortgage payment. • Unrealistic returns and speculative investments. Purchasing investments on rumors, unrealistic expectation of returns, lack of research and understanding, lack of exercising fiduciary duties and due diligence, may be characteristics of investing as a form of gambling. • Using retirement accounts to wager risky sector positions. Though retirement accounts have tax advantages, consider factors such as risk tolerance, time horizon, diversification, and the appropriate asset allocation. • Become an informed investor. When seeking professional advice on investing, ask questions and research the right questions to ask. A visit to the local library is a good start. Prevention & Precaution