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Tab 4a, Basic Financial Planning and Money Management


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Tab 4a, Basic Financial Planning and Money Management

  1. 1. Financial Fitness Program Financial Planning and Money Management
  2. 2. Key Points <ul><li>Importance of financial planning </li></ul><ul><li>Steps in financial planning </li></ul><ul><li>How to set and achieve goals </li></ul><ul><li>Financial health and net worth </li></ul>
  3. 3. Key Points <ul><li>Overview of money and marketplace </li></ul><ul><li>Wants versus needs </li></ul><ul><li>Consumer pitfalls </li></ul>
  4. 4. Key Points <ul><li>Managing income and spending </li></ul><ul><li>Tracking expenses </li></ul><ul><li>Creating a spending plan </li></ul>
  5. 5. Why Plan Your Finances? <ul><li>To set goals and priorities </li></ul><ul><li>To learn how finances work in your life </li></ul><ul><li>To make wise consumer decisions </li></ul><ul><li>To save money for big purchases </li></ul><ul><li>To establish credit and use it wisely </li></ul>
  6. 6. Why Plan Your Finances? <ul><li>To track where your money is going </li></ul><ul><li>To help you live within your income </li></ul><ul><li>To show you where to cut spending </li></ul><ul><li>To spend money without feeling guilty </li></ul><ul><li>To create a way to measure your progress </li></ul>
  7. 7. Why Plan Your Finances? <ul><li>To avoid financial setbacks </li></ul><ul><li>To avoid consumer scams </li></ul><ul><li>To invest for the future </li></ul><ul><li>To buy a home </li></ul>
  8. 8. Steps in Financial Planning <ul><li>Assess needs </li></ul><ul><li>Set goals </li></ul><ul><li>Make a plan </li></ul><ul><li>Take action </li></ul><ul><li>Review progress </li></ul>
  9. 9. SMART Goal Setting <ul><li>S pecific </li></ul><ul><li>M easurable </li></ul><ul><li>A ttainable </li></ul><ul><li>R elevant </li></ul><ul><li>T ime-related </li></ul>
  10. 10. Goal Setting <ul><li>Short-term goals <1 year </li></ul><ul><li>Mid-term goals 1-5 years </li></ul><ul><li>Long-term goals 5+ years </li></ul>
  11. 11. Barriers to Achieving Goals <ul><li>Lack of resources </li></ul><ul><li>Lack of skills </li></ul><ul><li>Shortage of time </li></ul><ul><li>Unexpected expenses </li></ul>
  12. 12. Financial Health: Net Worth <ul><li>Assets </li></ul><ul><ul><li>What you own in property and savings </li></ul></ul><ul><li>Liabilities </li></ul><ul><ul><li>What you owe </li></ul></ul><ul><li>Net Worth </li></ul><ul><ul><li>Assets - Liabilities </li></ul></ul>
  13. 13. Warning Signs of Financial Imbalance <ul><li>Relying heavily on credit cards for new purchases </li></ul><ul><li>Living paycheck to paycheck </li></ul><ul><li>No savings or investment plan </li></ul><ul><li>No assets (except a car) </li></ul><ul><li>No reserves for emergencies </li></ul><ul><li>Can’t afford a vacation </li></ul>
  14. 14. Warning Signs of Financial Imbalance <ul><li>No retirement plan </li></ul><ul><li>Lost track of how much you owe </li></ul><ul><li>Don’t know your checkbook balance </li></ul><ul><li>No plans for the financial future </li></ul>
  15. 15. How Did You Learn about Money? <ul><li>From parents and family </li></ul><ul><li>From friends </li></ul><ul><li>From co-workers </li></ul><ul><li>From media </li></ul><ul><li>From own experiences </li></ul>
  16. 16. Time Is Money $150,000 $5,000 $20.49 $.3415 $40,000 $112,500 $3,750 $15.37 $.2561 $30,000 $75,000 $2,500 $10.25 $.1708 $20,000 $37,500 $1,250 $5.12 $.0852 $10,000 1 hour/day for 30 yrs. worth 1 hour/day for 1 year worth 1 hour worth 1 minute worth Annual income
  17. 17. Common Advertising Techniques <ul><li>Status/Hero Endorsement </li></ul><ul><li>Peer Approval </li></ul><ul><li>Physical Attraction </li></ul><ul><li>Entertainment </li></ul><ul><li>Dangling Comparisons </li></ul><ul><li>Catch Phrases and Slogans </li></ul>
  18. 18. Common Sales Techniques <ul><li>Coupons and rebates </li></ul><ul><li>Package deals </li></ul><ul><li>Loss leaders </li></ul><ul><li>Free gifts </li></ul><ul><li>Contests </li></ul>
  19. 19. Common Sales Techniques <ul><li>Bait and switch </li></ul><ul><li>High pressure </li></ul><ul><li>Inside groups and clubs </li></ul><ul><li>Going out of business sales </li></ul>
  20. 20. Spending Personalities <ul><li>Impulsive Buyer buys on a whim </li></ul><ul><li>Fanatical Saver focused on saving </li></ul><ul><li>Passive Buyer uncomfortable </li></ul><ul><li>Avoidance Shopper shops to relax </li></ul>
  21. 21. Spending Personalities <ul><li>Esteem Buyer label-conscious </li></ul><ul><li>Overdone Buyer addicted to shopping </li></ul><ul><li>Hot Potato Buyer worries about decisions </li></ul>
  22. 22. Spending Choices <ul><li>Need </li></ul><ul><ul><li>Something you must have to survive </li></ul></ul><ul><li>Want </li></ul><ul><ul><li>A way to satisfy needs with a higher level of comfort, ease or style </li></ul></ul>
  23. 23. Smart Shopping <ul><li>Plan at home </li></ul><ul><li>Make a shopping list </li></ul><ul><li>Decide on quality </li></ul><ul><li>Comparison-shop </li></ul><ul><li>Negotiate for the best deal </li></ul><ul><li>Take your time </li></ul>
  24. 24. Tips for Being a Wise Consumer <ul><li>Don’t shop on payday </li></ul><ul><li>Don’t shop when you’re tired </li></ul><ul><li>Don’t shop for food when you’re hungry </li></ul><ul><li>Take your time </li></ul><ul><li>You don’t have to buy it today </li></ul><ul><li>Nothing is a bargain unless you need it </li></ul><ul><li>Have a spending plan and stick to it </li></ul><ul><li>No one can make you buy anything </li></ul>
  25. 25. Consumer Rights <ul><li>To safety </li></ul><ul><li>To be informed </li></ul><ul><li>To choose </li></ul><ul><li>To be heard </li></ul><ul><li>To consumer education </li></ul><ul><li>To service </li></ul>
  26. 26. Consumer Responsibilities <ul><li>To use products correctly </li></ul><ul><li>To seek information before purchase </li></ul><ul><li>To comparison shop </li></ul><ul><li>To report unfair business practices </li></ul><ul><li>To speak out </li></ul><ul><li>To take advantage of educational offers </li></ul><ul><li>To be a courteous and responsible consumer </li></ul>
  27. 27. Consumer Pitfalls <ul><li>Paycheck Advancement Companies </li></ul><ul><li>Rent-to-Own Companies </li></ul><ul><li>Predatory Lenders </li></ul><ul><li>Check-Cashing Outlets </li></ul><ul><li>Pawn Shops </li></ul>
  28. 28. Local Resources <ul><li>Local NeighborWorks Organization </li></ul><ul><li>Better Business Bureau </li></ul><ul><li>Legal Aid Society </li></ul><ul><li>Consumer Credit Counseling Services </li></ul>
  29. 29. Why Budget? <ul><li>Puts you in control of spending and saving </li></ul><ul><li>Helps you set priorities and make decisions </li></ul><ul><li>Helps you live within your means </li></ul><ul><li>Protects your credit rating </li></ul><ul><li>Helps you maintain savings and investments </li></ul><ul><li>Helps to you teach your children about money </li></ul>
  30. 30. Why Budget? <ul><li>Prepares for large expenses </li></ul><ul><li>Identifies wasteful spending </li></ul><ul><li>Keeps control of financial future </li></ul><ul><li>Encourages savings </li></ul><ul><li>Helps to accomplish goals </li></ul>
  31. 31. 10 Basic Rules of Money Management <ul><li>Plan </li></ul><ul><li>Set financial goals </li></ul><ul><li>Know your financial situation </li></ul><ul><li>Develop a realistic spending plan </li></ul><ul><li>Don’t allow expenses to exceed income </li></ul>
  32. 32. 10 Basic Rules of Money Management <ul><li>Save </li></ul><ul><li>Pay bills on time </li></ul><ul><li>Determine wants versus needs </li></ul><ul><li>Use credit wisely </li></ul><ul><li>Keep record of daily expenditures </li></ul>
  33. 33. Money Management Tips <ul><li>Money management must be learned </li></ul><ul><li>Money management must be practiced </li></ul><ul><li>Money management must include everyone in the household </li></ul><ul><li>Money management requires effort </li></ul>
  34. 34. What Does a Spending Plan Show? <ul><li>What money is coming in the near future </li></ul><ul><li>How much you spend on basic needs </li></ul><ul><li>How much you need to set aside for periodic or unexpected expenses </li></ul><ul><li>What is left over for wants or goals </li></ul>
  35. 35. Steps for Developing A Spending Plan <ul><li>Calculate net monthly income </li></ul><ul><li>Add up monthly living expenses </li></ul><ul><li>Determine your budget </li></ul><ul><ul><li>Monthly Income – Expenses= Savings </li></ul></ul>
  36. 36. Tracking Income and Expenses <ul><li>Pay stubs </li></ul><ul><li>Check registers </li></ul><ul><li>Check stubs and cancelled checks’ </li></ul><ul><li>Receipts </li></ul><ul><li>Bills and invoices </li></ul><ul><li>Credit card statements </li></ul><ul><li>Bank statements </li></ul><ul><li>Calendars, diaries and pocket notebooks </li></ul>
  37. 37. Types of Expenses <ul><li>Fixed </li></ul><ul><ul><li>stay the same each month </li></ul></ul><ul><ul><li>rent/mortgage payment (eg.) </li></ul></ul><ul><li>Variable </li></ul><ul><ul><li>costs each month that change </li></ul></ul><ul><ul><li>groceries or utilities (eg.) </li></ul></ul><ul><li>Periodic or Unexpected </li></ul><ul><ul><li>medical bills or taxes (eg.) </li></ul></ul>
  38. 38. Trimming Expenses <ul><li>Clip coupons </li></ul><ul><li>Use a list to do grocery shopping </li></ul><ul><li>Shop for store or generic brands </li></ul><ul><li>Shop in resale stores </li></ul><ul><li>Eat out less often </li></ul><ul><li>Pack lunches for work and school </li></ul><ul><li>Use public transportation when possible </li></ul><ul><li>Trade services with friends </li></ul><ul><li>Find fun activities that are free </li></ul>
  39. 39. Trimming Expenses <ul><li>Make cost comparisons fun </li></ul><ul><li>Get three quotes for large purchases </li></ul><ul><li>Agree on allowance for each family member </li></ul>
  40. 40. Spending Plan Tips <ul><li>Plan according to current income </li></ul><ul><li>Plan ahead for six months </li></ul><ul><li>Include spending money for all </li></ul><ul><li>Keep record-keeping simple </li></ul><ul><li>Set money aside for maintenance </li></ul><ul><li>Get consensus from entire family </li></ul><ul><li>Pay yourself first </li></ul>
  41. 41. Review the Plan <ul><li>Is our budget working? </li></ul><ul><li>Are all family members able to follow it? </li></ul><ul><li>Which costs always seem to be over budget? </li></ul><ul><li>Are we getting closer to reaching our goals? </li></ul>
  42. 42. Ways to Make Budgeting Easier <ul><li>Decide who pays bills </li></ul><ul><li>Know when bills are due </li></ul><ul><li>Use utilities’ level billing payments or deferred payment agreements </li></ul><ul><li>Open a checking account </li></ul><ul><li>Consolidate credit card accounts </li></ul><ul><li>Consider selling a car </li></ul><ul><li>Check interest rates on all of your loans </li></ul>
  43. 43. Ways to Make Budgeting Easier <ul><li>Stick to the plan </li></ul><ul><li>Carry written reminders of goals with you </li></ul><ul><li>Carry as little cash as possible </li></ul><ul><li>Use direct deposit </li></ul><ul><li>Put items on layaway </li></ul><ul><li>Buy only what you need </li></ul><ul><li>Try to pay with cash or check and not credit </li></ul>
  44. 44. Summary <ul><li>Financial planning is a way to help your money work for you </li></ul><ul><li>Start with your goals </li></ul><ul><li>Separate your wants from your needs </li></ul><ul><li>Be a wise consumer and avoid pitfalls </li></ul><ul><li>Make a realistic spending plan </li></ul><ul><li>Revise your plan when it’s not working for you </li></ul>