Budgeting
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Liz Pomplun, Associated Bank - Business Development Officer We are going to talk about how to create a budget. Go over the budgeting guideline percentages. Discuss ways we can all cut costs. Lastly, conduct a financial "fire drill".
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Budgeting
- 1. BUDGETING FINANCIAL EDUCATION SERIES Equal Housing Lender. Member FDIC and Associated Banc-Corp. Regarding Web sites and other sources, the information conveyed is for information purposes only. No endorsement is implied. Neither Associated Banc-Corp nor any of its affiliates give tax or legal advice. Consult with your tax and/or legal advisor for information specific to your situation.
- 2. AGENDA • Creating a budget • Budgeting guideline percentages • Cutting costs • Conducting a financial fire drill • Your questions 1
- 3. CREATING A BUDGET 1. Identify how you're spending money now. 2. Evaluate your current spending and set goals that take into account your long-term financial objectives. 3. Track your spending to make sure it stays within those guidelines. 2 -money.cnn.com
- 4. CREATING A BUDGET Step 1 – List your expenses Step 2 – Add it up Step 3 – Determine where to cut back Step 4 – Write it down 3 -personalfinancebudgeting.com Housing and utilities Household Transportation Entertainment Communication Health/Beauty
- 5. BUDGETING GUIDELINE PERCENTAGES 4 -ourworld.compuserve.com Budget Item Average % of gross income Housing & Utilities 25-40% Taxes 20% Transportation & Upkeep 15% Food 10% Savings 10% and up Entertainment & Vacations 5% Debt (credit cards, personal loans) 5% Other Expenses 5% and up
- 6. CUTTING COSTS • Eliminate trivial but needless costs • Reduce larger expenses • Refinance your mortgage • Cut your taxes • Appeal your home assessment 5 -money.cnn.com
- 7. CONDUCT A FINANCIAL FIRE DRILL 1. Can your family survive without one income? 2. Can you downshift your fixed expenses? 3. What is your emergency back-up plan? 6 -Elisabeth Warren and Amelia Warren Tyagi, The Two-Income Trap
Editor's Notes
- Welcome participants. Ensure everyone receives the following: a copy of the corresponding handout, your business card and any applicable brochures for related products and/or services as well as any current promotions you’d like to discuss. Please also bring along business cards of any partners you may discuss or mention. Introduce yourself, the Financial Education Series and its purpose. If time permits, ask participants to introduce themselves and share a question or concern they may have about budgeting. Explain that this is one of many topics within the Financial Education Series. Other topics include: Debt Reduction, Identity Theft, Understanding Your Credit Score, Saving for College, and IRAs. Encourage future participation in topics of interest. Introduce budgeting topic and handout. (e.g., Creating a budget is the first step to successful money management. How can you manage your money if you don’t know how much you have or what you’re spending it on?)
- Review agenda items. Introduce Creating a Budget. (e.g., A budget has two parts, income and expenses. The object is to keep your expenses at or below your income. Sounds easy, but as we all know, it can get a little tricky sometimes.). Discuss steps for creating a budget on next slide. (e.g., Analyze your spending habits to see where you need to make changes.)
- Review slide. Source: Spring, 2008. Move on to specifics.
- Step 1: If you are not sure of the amount, go back through your checkbook for the past few weeks or months to get an idea. For items you pay cash for, such as fast food, think about how many times per week or month you normally spend money on that item and how much you pay each time. Use the following list as a rough guide to list your expenses: Step 2: Now that you have your list of expenses, go ahead and add it up. Figure all expenses as a monthly amount. For example, if your property taxes are due once per year, divide the amount by 12 to get a monthly figure. If your expenses are lower than your take home income, skip to step 4. If not, continue on to step 3. Step 3: Start by determining how much you need to trim. To do this, subtract your income from your expenses. If your take-home pay is $2000 per month and your list of expenses came to $2200 per month, you need to trim $200 per month. The figure may seem daunting at first, but if you look hard enough at your expense list, you can usually find a few items that are easy to cut. Step 4: Create a section in your daily planner or a notebook for your budget. At the top of each page, write the date that you will be paid. Below that, list everything that needs to come out of that check. To do this, you need to divide your expenses as evenly as possible between each paycheck. If your largest bills are all due at once, move some up and pay them a little early, rather than trying to fit them all into the same pay period. Source: Spring, 2008.
- Review percentages (e.g., Although every family’s budget is different, this chart offers a guideline to follow to help develop your personal budget. The amounts are meant as guidelines and suggested maximums. Introduce ideas for cutting costs(e.g., The most common spending problems are caused by a house that’s too large, a car that’s too luxurious or a credit-card lifestyle that’s too lavish for your income.) Ask participants to share their money-saving ideas and tips (Look for: share babysitting duties with friends and neighbors; bundle cable TV, internet and phone service for a combined lower fee, clip coupons, set financial goals and make it a ‘contest’ with your family members). Explain that, whatever your situation, some common ways that people can reduce monthly bills (on next slide)… Source: Spring, 2008.
- Eliminate trivial but needless costs: Look first for small savings - not because they'll end your budget problems, but simply because they're easy to find and take advantage of. For example, swear off expensive premium lattes. Shop for clothes and household furnishings only during sales. Keep your house warmer in summer and cooler in winter. Take on chores that you usually pay someone else to perform, such as mowing the lawn or shoveling snow. Reduce larger expenses: These recommendations are decidedly more painful. If you smoke, take steps to quit. Don't buy season tickets to anything. Trade in your luxury car or sport utility vehicle for something a lot cheaper to buy, fuel, and maintain. On the assumption that those kinds of changes may be too wrenching, here are some other specific areas where many people can find savings: Refinance your mortgage: If new mortgages are costing at least one percentage point less than the rate you're paying, refinancing may save you significant dollars; check our refinancing calculator to be sure. Cut your taxes: Usually this means taking better advantage of itemized deductions. On the investment side, you can save some money by selling, and then writing off, investments that have lost money. You can use such losses to offset any gains you may have in a given year. Appeal your home assessment: If you're a homeowner, you may even be able to cut your real estate taxes by challenging the value that the local assessor puts on your property. Explain that the suggestions discussed won't work for everyone, and that participants may have considered them already. But since you alone are privy to the numbers in your budget, you alone know how radically you need to cut. If our suggestions don't appeal, find your own alternatives. Source: Spring, 2008.
- Review “Conducting a Financial Fire Drill” (Ex. Elizabeth Warren and Amelia Warren Tyagi, authors of The Two-Income Trap, suggest that couples ask themselves these three questions in order to be better prepared in the event of a financial emergency.) If both you and your spouse work, what would you do if one of those incomes went away? Could you survive for six months? If only one of you works, ask yourselves if the stay-at-home parent could enter the job market if something happened to the primary breadwinner. If the answer is no, you need to come up with a concrete disaster plan for if/when the unexpected happens: an illness or layoff, etc. If you are feeling squeezed financially when times are good, where will you cut back if a real financial crisis appears? You may have a problem with your fixed costs. Now is the time to take a hard look at the necessities, not the frills. Is there something that you are committed to on a month-by-month basis that you can pull back on? Can you manage a few more years without a new car? Can you sign up for the lower-cost HMO? Do you need premium cable TV, expensive classes or gym memberships? Should you move to a cheaper house with a smaller mortgage? Everybody checks the batteries on the smoke detector and everybody knows the way to get out of the house if there is a fire. You have to be able to do the same thing financially by having a plan. Now is the time to ask the painful "What if?" questions and prepare for the unthinkable. What if your husband loses his job? What if your health fails? Make a plan and consider what can be done now to make that plan feasible. Think about your basic expenses and put some money aside in case of an emergency. One last word of caution… over time, your income should rise as your career progresses and you manage to save money for investing. But, also over time, inflation will raise the cost of living. A mere three percent annual rise in prices will double the cost of everything within 24 years. At that time, you'll need twice as much money as you do today to live as well as you do now. So don't start spending your rising income on luxuries you've been denying yourself until you're sure that you're staying ahead of inflation. Source: Spring, 2008.
- Field any questions/comments/concerns related to Budgeting. Encourage participants to follow the tips provided and provide dates/information for future presentations of the Financial Education Series. Ask if there are any topics that they would like to learn more about (inform Learning & Development of new topic suggestions.) Before closing, share information on current ‘sales’. Thank participants for participating. Remain available for one-on-one questions until all participants have left.