Women Cash Flow And Budgeting


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Here is the slide show for my Women Building Wealth Seminar- on Cash Flow Management

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  • Introduce myself and the fact that I am a state registered RIA. I do fee-only hourly financial planning. Do not sell product or take assets under management. Background…
  • In the next hour of so we will hopefully inspire you to act give you specific things to work on and tools to get started. A workbook is provided with some of the worksheets and information as well as a copy of the slides with room to make notes. The medicine bag icon shown here is pictured when the information is provided in the handouts or separate worksheet.
  • Why is financial planning important? Because it allows you to reach your important life goals and dreams. A financial planner is kind of like a doctor for your finances. We look at your entire financial life and help you come up with a plan to be financially fit. If you go for a physical each year your doctor looks at your vital signs, takes your history, and looks for potential problems that need to be addressed. Likewise a planner will look at all the aspects of your finances, insurance, investments, catastrophe planning, taxes, etc., identifies areas that need to be taken care of, then gives you a prescription for these issues. Hopefully today I will give you some prescriptions for your own financial success. It is your responsibility to then implement these and monitor your progress.
  • First off, what would a healthy patient look like financially? Well, here are some signs of financial fitness. How fit are you? If you have all of these areas covered I give you an A or gold star! If you are like most people though you could probably use help in at least some of these areas.
  • These are the top three areas of financial discomfort or illness I see in my practice. In today’s session we will focus on cash flow management. The three areas that are generally problematic are low awareness of spending- Where did my money go?- No or very little cash reserves, and debt-which I like to call the artery clogger. In another session, which is also available over the next month, I will cover retirement planning. This class is probably a good start to prepare for the retirement planning session. If you are interested in the retirement planning session contact human resources to sign up.
  • Why is cash flow management so important? It is like a patient with healthy blood flow. It provides a flow or stream of cash that you can spend, save, invest, etc. It provides you choices and tradeoffs. If you control your cash you control your life. Here are some of the typical advantages for a person that has their cash flow under control. Someone who does not have positive cash flow each month is like a patient with high blood pressure they are living with the risk of serious financial problems including not being able to retire on time, leaving a spouse and kids with little reserves to draw from should they become disabled or die early, they are at risk of losing more money to the credit card companies or ultimately they may need to declare bankruptcy with ruins their credit and ability to gain employment. This does affect your physical health as well as the health of your relationships.
  • Here is the first complaint or concern that I here from some of my clients who have cash flow problems. If is a common one for most Americans. Most people do not have an awareness of how their money is being spent. In order to get real about this you really need to review your spending in the past and make changes so that you are more purposeful and intentional about your budget. ( Here I will pass out a cash flow form for them to use to create a budget and review it with them.)
  • Discuss these steps in the context of the form that was handed out. I will also explain the difference between a discretionary and non discretionary budget item as well as fixed vs. variable. Fixed is your mortgage pmt whereas variable are your grocery and entertainment expenses; grocery is non-discretionary for the most part and entertainment mostly discretionary. . Use an example of category like groceries and eating out. Let’s say you notice your grocery and eating our budget is $1200 a month for three people. Wow! You are surprised it is that high and sure you could easily cut three hundred dollars a month from that. Set your new goal and monitor it and/or use cash instead of credit to ensure you stay on track. Americans probably spend more time researching sports games or cars than our budgets. Refer to the cash flow tools above and discuss the pros and cons of each method
  • Ex. Say you want to retire at age 62 in Fla where you will work part time and volunteer with your church. The two core values you feel are most important are raising an independent, financially responsible children and tithing 10% of your annual budget to charities that are important to you. However, say your are living in the moment and are not saving enough for retirement. Also, you tend to give your child anything he wants without any tradeoffs or discussions. Your (action) budget is not lining up with your goals and values so talking to your son and realigning your budget will likely have to be done. Alternatively, you may need to extend your retirement date.
  • What is the root cause of your spending patterns? Most people who do not have a purposeful budget have issues with money based on messages they heard as kids or experiences as young adults. Ask yourself these questions and maybe do this exercise with your spouse or significant other. Here I will ask everyone to write on a piece of paper a phrase of phrases that finish the sentence Money is…….Have some share what they wrote down, if they are comfortable doing this. If you understand the emotional patterns you have regarding money you can better adjust your behavior when you see yourself falling into that pattern. The first step is to be aware of your triggers. If have time I will use examples here of my father in law who grew up in three room house with nine people and contrast that with a trust fund kid.
  • Here are some typical budget buster behaviors. The most important thing here is tradeoffs. If you are not making tradeoffs with respect to your money on at least a monthly basis I would argue that you do not have or adhere to a budget. You must be making trade offs and you must teach your kids that money is not unlimited. Remember the expression our parents told us “Money doesn’t grow on trees?” We need to remind ourselves that just because we can buy on credit doesn’t mean that the money is endless. Next time your child asks you for something he/she wants I want you to ask him/her what he/she would like to give up in order to get that. You will find that suddenly they don’t want it or if it is important to them they will be willing to sacrifice something else.
  • If you really want to get serious about your budget and your cash flow summary indicates that you should be able to save say $200+ month consider automatically sweeping that amount into your 401K or into an after tax savings account. Another way to save is to put your money into a Roth IRA which is after tax and contributions can always be obtained without penalty. This can almost act as an emergency reserve of it’s own. Note that any earnings may be taxed and penalized if you withdraw within certain timeframe or before age 591/2. You really should be saving at least 10% of your salary more if you are older and/or have delayed savings up to this point. If you make 60K a year and save 8% in your 401K that would be $4,800 which with a match of 4.8% from IP for a total savings of 12.8%. In addition you can save another 5 or 6K in a Roth or traditional IRA.
  • Folks who have high levels of debt will have a hard time meeting their other expenses. The debt “crowds out” other spending because there is not enough money left to live after the debt payments are made. Here are some guidelines for debt but really you should consider keeping you debt well below these limits(subtract another 6%). Don’t stretch too much for purchasing a house of car. It end up making you a hostage to those bills with leaving very little flexibility for other living expenses. Good debt is home and student loans. Bad debt is pretty much everything else. So avoid other loans that are not tax deductible and or for investing for your future and certainly keep your debt below these %.
  • Phone is 85000 toilet is 3000. Was a recent article about Mattresses that cost over 10K. What silly useless or time savings products are you buying.
  • A common method to get out of debt is the debt snowball. Here are the steps to a debt snowball. The website whatsthecost.com has a worksheet that you can fill out to help you with this calculation. The key here is to free up cash to put towards the snowball to reduce the term of your debt and pay less interest. IF you can’t free up cash or can not pay the non home loans off over three to five years you will most likely need to seek credit counseling and or potential bankruptcy.
  • A health financial patient has at least six months of living expenses in insured liquid cash reserves. This might seem like a lot of money but since the recession I have seen people who are now laid off for six months plus that wish they had this savings in reserve. Don’t leave yourself vulnerable. I am always amazed at how few people practice this concept. It is essential to protecting you from an unexpected event such as an illness, disability or loss of job.
  • These books help reinforce the concepts of living below your means, spending money in a way that reflects your life’s values and the importance of saving early and often to achieve financial freedom.
  • Women Cash Flow And Budgeting

    1. 1. Improving Your Financial Fitness: Cash Flow Management Presented by Laura Scharr-Bykowsky, CFP ® , MBA Principal, Ascend Financial Planning, LLC Women Building Wealth
    2. 2. Before We Start….. <ul><li>Does anybody want to guess what percentage of Americans spend more than they earn each year? </li></ul><ul><ul><li>43% of Americans spend more than what they earn each year. </li></ul></ul>
    3. 3. Goals for Today’s Session <ul><li>Insight to understand your situation </li></ul><ul><li>Inspire you to take action </li></ul><ul><ul><li>Ideas and methods to help you move forward </li></ul></ul><ul><ul><li>Resources to take the next step </li></ul></ul>
    4. 4. Financial Planning It is not just money; it’s your life! <ul><li>Financial Planner is “general practitioner” for your finances </li></ul><ul><ul><li>Take financial pulse- symptoms </li></ul></ul><ul><ul><li>Identify areas of concern- “diagnose potential problem” </li></ul></ul><ul><ul><li>Actionable plan- prescription for success </li></ul></ul><ul><ul><li>Monitor- “check- up” </li></ul></ul>
    5. 5. Evidence of Financial Fitness <ul><ul><li>Adequate emergency cash reserves </li></ul></ul><ul><ul><li>Little to no debt (unsecured) </li></ul></ul><ul><ul><li>Adhere to guidelines safe % </li></ul></ul><ul><ul><li>Sufficient insurance protection </li></ul></ul><ul><ul><li>(life, disability, P&C, liability, LTC) </li></ul></ul><ul><ul><li>Realistic vision of retirement </li></ul></ul><ul><ul><li>Appropriate savings for age </li></ul></ul><ul><ul><li>Proper estate planning- </li></ul></ul><ul><ul><li>wills, living wills, etc. </li></ul></ul>
    6. 6. Typical Symptoms of Financial Illness or Discomfort <ul><li>Poor cash flow management </li></ul><ul><ul><li>Low awareness of spending patterns </li></ul></ul><ul><ul><li>No emergency reserves </li></ul></ul><ul><ul><li>Excessive debt </li></ul></ul>
    7. 7. Why is Cash Management so Important? <ul><li>Provides sense of control </li></ul><ul><li>Fosters better marriage- 90% of divorces due to financial issues </li></ul><ul><li>Reduces stress and anxiety </li></ul><ul><li>SWAN- Sleep Well At Night </li></ul><ul><li>Plan=Control=Achieve Goals </li></ul>
    8. 8. <ul><li>Wealth is not what you make, it is what you keep! </li></ul>
    9. 9. Chief complaint- “I don’t have any cash left at the end of month.” <ul><li>Diagnosis: Low awareness of spending patterns and behaviors </li></ul><ul><li>Symptom: Low or negative cash flow </li></ul><ul><li>Are you spending in a purposeful way? </li></ul><ul><ul><li>Does your budget reflect your values and goals? </li></ul></ul><ul><ul><ul><ul><ul><li>Cash flow form </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Article- Purposeful Budgeting </li></ul></ul></ul></ul></ul>
    10. 10. Rx Spend Purposefully <ul><li>Record fixed, variable, discretionary and non-discretionary purchases for at least a month. </li></ul><ul><li>Include less frequent bills such as quarterly or seasonal items </li></ul><ul><li>Reduce discretionary (flexible) expenses </li></ul><ul><li>Set budgetary goals </li></ul><ul><li>Monitor your progress and put savings to work! </li></ul><ul><ul><ul><ul><ul><li>Quicken, Mint.com, Mvelopes.com </li></ul></ul></ul></ul></ul>
    11. 11. What is a Purposeful Budget? <ul><li>It is a spending plan that aligns with your most important values, goals, and visions for your life. </li></ul><ul><ul><li>1. Visualize your future </li></ul></ul><ul><ul><li>2. Identify the values that are most important to you </li></ul></ul><ul><ul><li>3. Compile a list of core goals </li></ul></ul><ul><ul><li>4. Track your spending </li></ul></ul><ul><ul><li>5. Review your spending </li></ul></ul>
    12. 12. What is Your Relationship with Money? <ul><li>What was your first experience with money? </li></ul><ul><li>What was your parents attitude about money? </li></ul><ul><li>Does your view conflict with your spouse’s view? </li></ul><ul><li>What does money mean to you? </li></ul><ul><ul><li>Money is…. </li></ul></ul><ul><ul><ul><li>The root of all evil, a means to an end, a way to feel secure, something to be splurged. </li></ul></ul></ul><ul><ul><ul><li>What messages are you holding on to? </li></ul></ul></ul>
    13. 13. Unhealthy Budget Buster Behaviors <ul><li>Live for today </li></ul><ul><li>Can’t say No </li></ul><ul><li>Don’t make tradeoffs </li></ul><ul><li>Keep up with Joneses </li></ul><ul><li>Ignore it and it will take care of itself </li></ul><ul><li>Impulsive shopper you, spouse, kids </li></ul><ul><li>Spend “found” money many times over . </li></ul>
    14. 14. Budget Boosters <ul><li>Stop Eating Out </li></ul><ul><li>Consider Cell Phone Only </li></ul><ul><li>Slash Entertainment, Kids Activities </li></ul><ul><li>Pay Yourself First </li></ul><ul><li>Sell Items on Ebay </li></ul><ul><li>Use Cash or “Envelope” Method of Budgeting </li></ul><ul><li>Think Like Your Grandparents </li></ul><ul><li>Consider Debit Cards </li></ul>
    15. 15. Simple No Brainer Savings Pay Yourself First <ul><li>Save more by increasing 401K savings </li></ul><ul><li>Max the Match! Don’t leave money on the table </li></ul><ul><li>Sweep target savings goal into separate account automatically before it before it is spent. </li></ul><ul><ul><li>Also Max your Roth IRA! </li></ul></ul>
    16. 16. Chief complaint- “I don’t have any cash left at the end of month.” <ul><li>Diagnosis: Low to negative cash flow </li></ul><ul><li>Symptom: Debt- the “artery clogger” </li></ul><ul><ul><li>Are you suffering from financial chest pains? </li></ul></ul><ul><ul><li>Guidelines: </li></ul></ul><ul><ul><ul><li><36% of gross income (all debt) </li></ul></ul></ul><ul><ul><ul><li><28% of gross income (all housing debt) </li></ul></ul></ul><ul><ul><ul><li>No credit card debt </li></ul></ul></ul><ul><ul><ul><li>No or low auto loans </li></ul></ul></ul><ul><ul><li>Good debt vs. “bad” debt </li></ul></ul>
    17. 17. Quotable quote <ul><li>“ Americans like to spend money we don’t have to buy things we don’t need to impress people we don’t know”. </li></ul>
    18. 18. RX Debt Snowball <ul><li>Budget Review </li></ul><ul><li>Free up addl. cash flow in your budget </li></ul><ul><li>Continue minimum payments </li></ul><ul><li>Apply cash flow saved to loan with highest interest rate </li></ul><ul><li>www.whatsthecost.com </li></ul>
    19. 19. Diagnosis: Low or negative cash flow <ul><li>Symptom: Insufficient emergency cash reserves </li></ul><ul><li>Rx: Keep 6-9 months of living expenses in cash reserves. </li></ul><ul><li>Also build a separate reserve for large cash purchases (auto, home repair). </li></ul><ul><li>As money is saved invest it in a high yield savings account that is FDIC insured. </li></ul><ul><ul><ul><ul><ul><li>Bankrate.com, Ratebrain.com, your local credit union </li></ul></ul></ul></ul></ul>
    20. 20. Other Educational Resources <ul><li>The Millionaire Next Door: The Surprising Secrets of America's Wealthy Thomas J. Stanley (Author) </li></ul><ul><li>Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money by Vicki Robin, Joe Dominguez, and Monique Tilford </li></ul><ul><li>The Richest Man in Babylon by George S. Clason </li></ul><ul><li>Put Your Money Where Your Heart Is by Sue Stevens </li></ul>
    21. 21. Rx: Summary of Your Prescriptions <ul><li>Put together a spending plan </li></ul><ul><li>Spend Purposefully </li></ul><ul><li>Debt Snowball </li></ul><ul><li>Keep 6-9 months of living expenses in cash reserves. Set up a separate reserve for big expenses. </li></ul><ul><li>Get help if needed from an expert who is a fiduciary </li></ul><ul><ul><li>Fee-only, CFP ® professional </li></ul></ul>
    22. 22. What Next? <ul><li>Money Habitudes </li></ul><ul><li>Retirement Planning </li></ul><ul><li>Investing 101 </li></ul><ul><li>Tax Planning </li></ul>
    23. 23. Disclaimer <ul><li>This presentation is for informational purposes only and is not intended as specific advice or recommendations by Ascend Financial Planning, LLC. </li></ul><ul><li>© 2010, Ascend Financial, LLC </li></ul>