Power of Paycheck Planning

The POWER of PAYCHECK PLANNING www.credit.org Promoting Financial Literacy

About Springboard  Springboard is a non-profit organization founded in 1974.  We offer personal financial education and assistance with money, credit, and debt management through educational programs and confidential counseling.

About Springboard  Accredited by the Council on Accreditation (COA)  Member of the National Foundation for Credit Counseling (NFCC)  Certified by the Department of Housing and Urban Development (HUD)  Member of the Better Business Bureau (BBB)

Our Services Include  Credit and Debt Counseling  Financial Education Programs – Seminars and Materials  Debt Management Plans  Homeowner Assistance (Foreclosure Prevention)  First Time Home Buyer Education Seminars  Reverse Mortgage Counseling  Pre-Bankruptcy Budget and Credit Counseling  Pre-Discharge Financial Management Instructional Course

Introduction  Surveys show that only 12% of high school seniors learn about money management in school.  Historically, it has been up to parents to teach their children the skills needed.  Most of us learn these lessons the hard way after we’ve moved out on our own and made some mistakes.

First Steps  Stop incurring new debt  Live on a cash basis  Get a handle on your situation  Relax

What is a Budget? A budget (spending plan) is a plan to figure out where your money goes before you get it.

Where to Begin When Creating a Budget:  How much do you earn?  How much do you spend?

Track Your Spending!  Track ALL spending for at least 90 days  Write down even the smallest expenditure  Transfer expenses to the monthly tracking sheet to summarize and view by category

Daily Tracking Sheets  Use the forms provided in this book or  Carry a small notebook  Keep your receipts in a separate envelope for each day  Use software like Microsoft® Money or Quicken® (chances are you already own one of these applications if you own a personal computer)

Tracking Sheet for Monthly Expenses  Housing  Food  Insurance  Medical  Auto  Child Support  Taxes  Personal  Savings

Creating Your Budget  Three things you need to know:  Income  Expenses  Goals

Track All Your Sources of Income  Job  Spouse’s job  Part time job  Rentals  Commission/bonuses  Child support/alimony  Investments

Categorizing Your Expenses  The two most important categories of expenses are needs and wants.  Necessary expenses are your needs.  Discretionary expenses are your wants.  The rule to bear in mind is this: Anything that is necessary for you to earn a living is a need.

Necessary Expenses  Housing (include utilities, taxes, insurance)  Food  Insurance (medical/dental/life)  Medical  Transportation (include car insurance)  Child care  Taxes  Savings

Discretionary Expenses  Personal care, clothing, jewelry  Entertainment (include cable TV!)  Miscellaneous  Pet care  Gifts  Cell phone  Cigarettes/Alcohol  Charitable giving  Internet access

Periodic Expenses  Insurance premiums  Taxes  DMV registration  Gift giving

Debt Payments  Credit Card Payments  Personal Loans  Student Loans  Any Other Debt Payments

Debt Repayment  After you divide your necessary from your discretionary expenses, you aren’t done categorizing your spending.  This usually takes the form of credit card bills, though auto loan repayments and personal loans would also count.  Take each debt and figure out a monthly payment amount that will allow you to pay off your debts as quickly as possible.

Debt Repayment  For your auto loans, this is your established car payment.  For your credit cards, don’t just send the minimum monthly payment; if you do, you’ll be paying toward that debt for the next 30 years.  For example, say you owe $6000 on a credit card. Over four years, or 48 months, you’d pay $125 per month to wipe out the debt. If that amount is too large for your budget, you can adjust the payoff term to something longer, like 5 years. (Then you’d only have to pay $100 per month.)  Whatever you do, though, don’t stretch out the payoff term so much that you’re just making minimum payments.

Setting Goals  A short–term goal should be accomplished within one year.  A mid-range goal takes between 2 and 5 years to accomplish.  Long-term goals take over 5 years to achieve.

Goal Strategies  Competition  Cooperation  Attempts  Don’t be too Flexible

Adding It All Up  Now it’s time to put everything together and see whether your budget will work.  Remember, your short, mid and long term goals should be included with your expenses on your budget. Total Necessary Expenses + Total Discretionary Expenses + Total Debt Payments = Total Monthly Expenses

Now Let’s See if Your Budget Balances Total Monthly Net Income - Total Monthly Expenses = Surplus (+) or Deficit (-)

If Your Expenses Exceed Your Income  Work to find solutions  Credit counseling can help if you have high debt payments that are upsetting your budget.  Whatever you do, don’t cut into the 10% - 15% you should be saving; you need to save up to three – six total month’s of expenses to get through an emergency  Re-evaluate your budget periodically, especially when your income or needs change.

What Your Spending Should Look Like  Housing 35-45%  Utilities 8-15%  Food 10-20%  Transportation 15-25%  Medical 8-15%  Clothing 3-5%  Personal & Misc. 5-10%  Savings 5-10%  Monthly Installments 10-20%

Monthly Budget  Now that you’re more familiar with your income, expenses, and goals, it’s time to propose a monthly budget.

Balancing that Budget  Continue to track spending for another 30-60 days to plug budget “leaks”.  Wants vs. Needs – know the difference!  Ask before you buy: “How did I get along without it?”  Plan ahead and curb those impulse buys.  Include your family in budget discussions

Budget Busters  Food  Dine out too often  Five times more expensive than making it yourself  Grocery shopping  Entertainment  Impulsive nature of it  Movies - #1 entertainment outlet  Retail Shopping  Paying too much for things  Buying what you don’t need  Shopping as a form of entertainment

Increasing Income and Reducing Expenses  Make sure you control your money, not the other way around  Rework your budget as needs, priorities, income, and expenses change  Try some of these tips to reduce expenses for  You and Your home  Your phone  Your transportation  When grocery shopping

Shopping with Coupons  Coupons can be a valuable tool to help consumers save money at the grocery store.  But coupon shoppers have to be careful; coupons can be advertising devices designed to get you to purchase high-priced name brand items that are still more expensive than the brands you normally buy.

Where Do You Get Coupons?  Wednesday and Sunday • Sunday paper, except before holidays  Grocery store coupons on flyers, mailer coupons,  Coupons enclosed in products.  Magazines  Boxes  You can also find coupons online:  Couponcabin.com  Ebates.com  Keycode.com  Ecoupons.com

Shopping Smarter  Planning ahead can make the difference when retail shopping.  Use the calendar as a rough guide for when to find seasonal sales or discounts

Serious Spending Issues – Compulsive shopping vs. Impulsive shopping  10 signs of Compulsive shopping  To relieve anger or depression  Spending disrupts normal life  Conflict with loved ones  Lying to family & friends  Feelings of elation  Taking cash from others – purchasing on your own credit card  Feels like something forbidden  Guilt or shame  Purchase never unwrapped or used  Purchasing on credit for items wouldn’t spend with cash

Your Credit Report  The FACT Act of 2003 mandated that the three major national credit-reporting bureaus establish a website, a toll-free number and a mail address for consumers to request their credit report for free every year:  *You may also purchase your score at this website for a small fee.  www.annualcreditreport.com  877-322-8228

Getting Your Report  If you’ve been denied credit because of what your credit report says, you are also entitled to a free copy of the credit report used in the decision - within 60 days of the denial.  Contact the credit bureaus directly  Equifax – www.equifax.com  Experian – www.experian.com  TransUnion – www.transunion.com

Opt Out of Prescreened Offers  If you would like to stop receiving offers of new credit you may Opt Out.  www.optoutprescreen.com  1–888-5OPT OUT

Thank You! Springboard Nonprofit Consumer Credit Management www.credit.org 800-947-3752 4351 Latham St. Riverside CA. 92501 www.credit.org

Power of Paycheck Planning

by Springboard on Sep 14, 2010

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Power of Paycheck Planning — Presentation Transcript