How to prepare a budget and stick to it

Agenda

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Having control over your money is important, both for your financial well-being and for your peace of mind. In this presentation, you'll learn about preparing a budget to help you better manage your money and achieve your financial goals: • Why it’s important to have a budget • Setting financial goals • Making a plan • The steps involved in preparing a realistic budget • Finding ways to save money • Additional information & resources

Why it’s important to have a budget

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A budget is a spending and savings plan, consisting of one simple equation:

Total monthly income

Why it’s important to have a budget

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A budget is a spending and savings plan, consisting of one simple equation:

Total monthly income

Total monthly expenses

Why it’s important to have a budget

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A budget is a spending and savings plan, consisting of one simple equation:

Total monthly income

Total monthly expenses

Amount over/ under

Why it’s important to have a budget

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A budget is a spending and savings plan, consisting of one simple equation:

• Having a budget can help you: - Control your finances - Reduce expenses - Save money - Pay down debt - Determine your debt-to-income ratio

Total monthly income

Total monthly expenses

Amount over/ under

Short-term (within 2 years)

Pay off a credit card

Setting financial goals

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• Before looking at any numbers, ask yourself, “Why do I want to create a budget?”

• Get everyone in your household involved and ask for support • Set goals and categorize them as short, medium, or long-term

Medium-term (within 5 years)

Grow your savings

Short-term (within 2 years)

Pay off a credit card

Setting financial goals

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• Before looking at any numbers, ask yourself, “Why do I want to create a budget?”

• Get everyone in your household involved and ask for support • Set goals and categorize them as short, medium, or long-term

Medium-term (within 5 years)

Grow your savings

Long-term (More than 5 years)

Save for a down payment on a house

Short-term (within 2 years)

Pay off a credit card

Setting financial goals

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• Before looking at any numbers, ask yourself, “Why do I want to create a budget?”

• Get everyone in your household involved and ask for support • Set goals and categorize them as short, medium, or long-term

Making a plan

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• Prepare a budget that is realistic and flexible • Create a plan that fits your lifestyle and financial goals

General recommended budget percentages

Category Percentage of income

Housing 27% Food 21% Personal debt 14% Transportation 8% Savings 7% Utilities 6% Insurance 6% Clothing 4% Personal care 3% Health 3% Misc Items 1%

Source: Alexis Holloway. “How do you feel about your savings plan?” Blogging for Change. Money Management International. April 16, 2010.

The steps involved in preparing a realistic budget

Step 1: Determine your income

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Look at the money you have coming in: • Gather information on all household income that is received on a

regular basis • Do not include income that is not reliable or that may be irregular

What income should I include?

• Employment • Social Security • Retirement • Rental • Alimony or child support • Unemployment benefits

Step 1: Determine your income

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Look at what money you have coming in: • Gather information on all household income that is received on a

regular basis • Do not include income that is not reliable or that may be irregular

What income should I include?

• Employment • Social Security • Retirement • Rental • Alimony or child support • Unemployment benefits

What income should I leave out?

• Income not received on a regular basis

• Discretionary bonus that is not guaranteed

• Legal settlements that are not finalized

• Alimony or child support that is not received on a regular basis

Step 2: Determine your fixed expenses

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Fixed expenses generally stay the same each month and may not be easy to adjust.

Fixed expenses

• Mortgage or rent payment • Car payment • Student loan payment • Insurance • Property taxes and homeowners

insurance (if applicable)

Step 3: Determine your variable expenses

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Variable expenses can change on a daily, weekly, monthly or annual basis and have the most flexibility for adjustment • Also includes optional expenses: things that you want versus what you need

Variable expenses

• Groceries • Credit cards • Gasoline • Utilities • Entertainment • Cable television • Personal care items

Step 4: Prioritize

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• Identify expenses that could be eliminated or reduced • Set goals as to how extra cash will be used, such as to

pay off debt or to save money • Pay yourself first — save!

Step 4: Prioritize

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• Identify expenses that could be eliminated or reduced • Set goals as to how extra cash will be used, such as to

pay off debt or to save money • Pay yourself first — save!

Step 5: Follow your spending

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• Follow your daily, weekly and monthly spending with a system that works best for you, such as a daily spending diary:

• Determine your debt-to-income ratio (how much you owe vs. what you earn) to get an idea of how much of your income goes toward paying existing debt

• Use your housing-to-income ratio to find out how much house you can comfortably afford by estimating your monthly mortgage payment

Step 6: Keep track of and stick to your budget

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• Develop a budgeting system that works for you and will help you stick to your budget

• Your budget system should help you: - Track your spending so you know where your money is going - Plan for the following month’s expenses - Pay your bills on time

• Consider: - Online tools such as My Portfolio, Bank of America’s online tool for

budgeting and tracking - Smart phone or tablet applications - Traditional systems such as the envelope system Readjust your budget when you have unexpected expenses

Finding ways to save money

Food

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• Prepare more home-cooked meals • Bring your lunch to school or work • Bring a shopping list to the grocery store • Shop during sales • Use coupons • Buy generic or store brands

Transportation

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• Comparison shop for gas • Use public transportation • Carpool to work or school to save on

total commuter cost, including monthly parking fees

• Buy a used car instead of a new one • Shop competitive insurance offers • Keep up with regular car maintenance

Utilities

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• Weather-proof your home • Adjust thermostat settings • Turn things off • Use energy efficient appliances and

light fixtures • Monitor utility bills for fluctuations • Shop competitive service providers • Reduce service features • Avoid late fees

Personal care

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• Explore exercise options for the better deal - Example: exercise group versus

gym membership • Use at-home cosmetic or skin

care products instead of paying for salon care

• Read clothing labels to determine what can be washed at home instead of dry cleaned

Health

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• Keep fit and eat a healthy diet to help avoid costly medical expenses

• Visit your doctor and dentist annually for preventative care

• Understand your insurance deductible and copayment arrangements

• Visit “in-network” doctors to lower healthcare costs

• Look into flexible spending healthcare accounts offered through your employer

Additional information and resources

Tips for paying off debt

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• Prioritize debt you want to pay off first • Pay more than the monthly minimum

Reallocate extra money and adjust your budget • Use unexpected income to pay down debt

- Bonuses, cash gifts, tax returns • Consider using a snowball debt-reduction method

- Pay off debts with low balances first

Keys to success

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• Establish a budget that is realistic and fits your goals and lifestyle • Track and monitor your progress • Control your use of credit cards • Carry your written savings goals with you as a reminder • Shop around to get the best deal on big-ticket items, such as cars

and appliances Make revisions and adjustments when necessary

• Look into online tools and resources • Keep your plan and goals top-of-mind • Stay motivated — don’t give up when unexpected setbacks occur

Resources

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• To find out more about home financing, prequalify for a mortgage loan* or talk to a Bank of America loan expert: - Home Loan Guide at bankofamerica.com/homeloaneducation

• For additional online financial education: - Better Money Habits at bettermoneyhabits.com - FDIC Money Smart: Learn more about budgeting, saving and investing

- Visit: fdic.gov Home Consumer Protection Financial Education & Literacy Money Smart - A Financial Education Program

• Find a Nonprofit Housing Counseling Agency at HUD.gov; on the site select

“Resources,” then select “HUD Approved Housing Counseling Agencies”

• Have more questions about what you learned today? Email us at: webinars@bankofamerica.com * Prequalification is neither preapproval nor a commitment to lend; you must submit additional information for review and approval.

Questions?

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Credit and collateral are subject to approval. Terms and conditions apply. This is not a commitment to lend. Programs, rates, terms and conditions are subject to change without notice. Bank of America, N.A. Member FDIC. Equal Housing Lender. ©2014 Bank of America Corporation. All rights reserved. 12-2014 AR5DLMK4 PRES-12-14-0540

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