Managing Finances & Budgeting

Financial RecordsSafe

Deposit BoxBirth certificates

Mortgage papers

Car & house titles

Insurance policies

Will

Home FilePersonal records (SSN, resume, etc)

Money Mgmt records (budget, goals, b/s)

Financial Records (ckbk, statements)

Tax records (W-2 forms, old tax returns)

Consumer records (major purchases-manuals, etc)

Housing records(lease, repair)

Insurance records (health)

Investment records (stocks, CD)

Estate & Retirement Planning(will, IRA, SS info)

Computer

Budgets

Banking transactions

Resume

Tax records

Net WorthAssets

• Liquid (cash, savings)• Real Estate (Mkt value)• Personal Property (car,

furniture, etc)• Investments (retirement,

stock)

- Liabilities

• Current (medical bills, Credit cards)

• Long-term (mortgage, student loan, car loan)

= Net Worth

• Solvent or Insolvent?

Financial Progress?Debt Ratio Liabilities divided b

net worth$25,000 / $50,000=.5

Compares your liabilities to your net worth. (low ratio is desirable)

Liquidity Ratio Liquid assets divided by mo. expenses

$10,000/$4,000=2.5

Indicates # of mo. You would be able to pay your living expenses. (the higher the better)

Debt-payments Ratio

Monthly credit payments divided by take-home pay

$540/$3,600-.15=15%

Indicates how much of a persons earning goes to pay debts(excluding mtg). <20%

Savings Ratio Amt saved each mo. Divided by gross mo. Income

$600/$5,000=.12=12%

Most financial experts recommend at least 10%

Budgeting Process• Pay off car loan, save for college, etcStep 1: Set Financial Goals

• Salary & Interest Step 2: Estimate Your Income

• Emergency, vacation, collegeStep 3: Budget for Unexpected Expenses & Savings

• Mortgage, car loan, student loan, insurance premiumsStep 4: Budget for Fixed Expenses

• Food, Clothing, Utilities, Entertainment, Medical, Transportation, PersonalStep 5: Budget for Variable Expenses

Step 6: Record What you Spend

Step 7: Review Spending & Saving Patterns

10 Simple Saving Strategies (w/o becoming cheap)

1. Don’t become emotionally separated from your money. (Direct deposit, debit cards…make it very easy!)

2. Understand and be honest about expense classifications.1. Discretionary expenses = wants (cell phone, take out lunch, non-

work clothes, vacation, gifts, movies, etc)2. Nondiscretionary = needs (house, taxes, doctors, commuting

expenses, utilities, gas, food, car, etc)

3. The time to lower your “needs” spending was yesterday.

4. Enjoy free stuff!

5. Major on the major. (more time on major purchases!)

6. Enjoy being with people you like.

7. Don’t blow off the recurring minor (cable bill, cell phone plan, morning coffee, ATM fees, bank fees, dry cleaning, etc)

8. Spend with comfort on items or experiences you value highly.

9. You won’t spend what you don’t see. (automatic transfer)

10. Constant budgeting isn’t required.