7.15.2.g1 the essentials to take charge of your finances spending plans advanced

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The Essentials to Take Charge of Your Finances

Spending plans Advanced

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© Family Economics & Financial Education –Updated August 2009– The Essentials to Take Charge of Your Finances – Spending Plans AdvancedFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at The University

of Arizona

The Costs Add UpItem Average Yearly Expense

Daily Latte at $2.50

Eating lunch out 5 days per week at a cost of $5.00=$10.00 each time

Daily can of soda or chips at $1.00 each

Daily candy bar at $1.00

Daily can of chew or pack of cigarettes at $3.79

Weekly attendance at a sporting event with $3.50 admission and $5.00 for snacks

Monthly haircut at $25.00 per month

Monthly movie and popcorn for two at $20.00

Monthly gym membership at $38.00

Do not let money fly away! By creating a spending plan, a person can realize everyday expenses, reduce these expenses, and increase current income. Beginning at age 15, if a person saved $547.50 per year by not having a can of soda everyday, they would have $105,504 extra to retire on at age 50 with a 8.5% interest rate compounded yearly.

$912.50

$1,300.00-$2,600.00

$365.00

$365.00$1,383.35

$442.00

$300.00

$240.00$456.00

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Having a plan Financial planning

is a process individuals engage in to achieve long-term financial success while having a quality standard of daily living

A Spending plan is a paper or electronic document used to record both planned and actual income through expenditures over a period of time

Step 2– Creating

Personalized Income and

Expense Categories

Step 1- Track Current

Income and Expenses

Step 5– Evaluate and

Make Adjustments

Step 4– Implement

and Control Step 3– Allocate Money to

Each Category

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Income Gumball machine

represents components of the financial planning process

Income is money earned Gumballs going into

the machine Wages from a job,

allowance, gifts

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Expenses Expense is money spent Money going out of the

gumball machine Fixed expenses may

have a fixed amount due each month and are contractual

Flexible expenses can vary each month in the amount owed and are not contractual

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Spending plan activity Decide if each item is income, a

fixed expense, or a flexible expense Indicate a response by walking to

the corresponding activity sign

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Spending plan activityRent

Fixed expense

Wages

Income

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Spending plan activityGroceries

Flexible expense

Internet bill

Fixed expense

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Spending plan activityTips

Income

Utilities

Fixed expense

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Spending Plan ActivityAutomobile Registration

Fixed Expense

Eating Out/Snacks

Flexible Expense

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Spending Plan ActivityScholarships

Income

Hobbies

Flexible expense

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Spending Plan ActivityGift from Family

Income

Savings

Fixed Expense

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Developing a spending plan – step 1 Track current

income and expenses Individuals will

determine what income and expenses they have within a give period of time Usually concurrent

with an individual’s pay day Monthly Bi-monthly

Step 2– Creating


Expense Categories


Income and Expenses


Make Adjustments

Step 4– Implement


Each Category

How are you able to track

your expenses?

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Gross vs. Net Pay

• Total amount of money earned during a pay period (salary or hourly wage x hours worked)

Gross IncomeWhen calculating spending plan expense categories, use net pay

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SAMPLE

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Creating personalized income and expense categories – step 2 Each spending

plan is unique because of individual and family values

Categories are based upon the individual’s/family’s income and expenses

Step 2– Creating


Expense Categories


Income and Expenses


Make Adjustments

Step 4– Implement


Each Category

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Spending plan category pie chart

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Housing Housing

Housing is the largest of the four major expenditures

Approximately 30% of an individual’s net income Monthly

payment – A fee charged each month to live in a home

Utilities – include electricity, water, and garbage fees

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Housing

What are examples of expenses that are associated with housing?

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Transportation Transportation

The second largest major expenditure

Approximately 20% of an individual’s net income Monthly

payment – is made if a loan is taken out to purchase a vehicle

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Transportation

What are examples of expenses that are associated with transportation?

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Food Food

The third most expensive category within an individual’s spending plan

Approximately 15% of an individual’s net income

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Food

What are examples of expenses that are associated with Food?

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Insurance Insurance

Arrangement between an individual and an insurance company to protect the individual against risk Risk is

uncertainty about a situation’s outcome

Approximately 7% of an individual’s income

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Insurance

What are examples of expenses that are associated with Insurance?

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Additional expenses Savings and

investing Save 3-6 months

of income that is available in a liquid account for emergencies

Other Fulfills additional

needs and accounts for 18% of an individual’s net income

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Allocate money to each category – step 3

Reference tracking from step one to be realistic about expenditures and income Think if there were any

unique expenses in the past month that should be included

Consider changes that need to be made Identify ways to

implement that change Consider financial goals

and money that needs to be allocated

Step 2– Creating


Expense Categories


Income and Expenses


Make Adjustments

Step 4– Implement


Each Category

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Allocate money to each category

Net gain is remaining money to either save, spend or invest

Net loss an individual is spending more money that he/she is earning and has to use credit (borrowed money) to meet their financial obligations

A spending plan should have income and expense matching one another (reach zero)

Income

Expenses

Net gain

or loss

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Implement and control – step 4 When individuals

implement their spending plan

Must develop control systems to track their income and expenses Continually compare

them to their spending plan to ensure they are on-track and make changes to prevent credit or savings use

Step 2– Creating


Expense Categories


Income and Expenses


Make Adjustments

Step 4– Implement


Each Category

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Implement and control There is not one correct control system.

Depends upon the individual/family Envelope systems – individuals place the

actual budgeted amount of cash from a paycheck into a specific envelope system for the expense

Check register system – This helps consumers to track all expenditures in a checkbook register which has been divided into spending plan categories

Electronic spending plan systems – Multiple types of software are available for consumers to use to help keep track of their financial records

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Evaluate and make adjustments – step 5 Assess if spending

plan is working Make changes if

necessary Analyze if goals

are being met Begin the process

again

Step 2– Creating


Expense Categories


Income and Expenses


Make Adjustments

Step 4– Implement


Each Category

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gumball analogy

Income (money in) Net worth (wealth) Flexible Expenses

(money out) Fixed Expenses

(money out)

Always have more money coming in than out!

Work towards building wealth!

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Insurance Includes the following:

Health – pays a portion of health care expenses if one is sick or injured

Disability – provides financial support if an individual is injured and cannot work

Life – provides financial support to an individual’s beneficiaries upon death

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ANY QUESTIONS

7.15.2.g1 the essentials to take charge of your finances spending plans advanced

Documents

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