Budgeting presentation

1. Barbara O’Neill, Ph.D. CFP®
moneytalk1@juno.com

2.  Discuss reasons to have a spending plan
 Discuss common errors in spending plans
 Discuss strategies to improve cash flow
 Discuss how to prepare a spending plan
 Discuss how to manage large irregular expenses
 Discuss financial goals in a spending plan
 Discuss simple behavior change strategies
 Q and A
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5. Case Example:
At the age of 21 (1933), Woolworth heiress Barbara
Hutton (1912-1979) had almost $50 million at her
disposal. Married seven times, she lived above her
considerable means. She died at age 66 in a Los
Angeles hotel with about $3,500 to her name.
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6.  To determine where money is currently being spent
 To decide where to spend your money in the future
 Helps you save money
 Puts you in control of your financial future
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7.  No allowance for large, irregular expenses
 Unrealistic figures
 Vague expense categories
 No allowance for the unexpected
 No allowance for inflation
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8. Summary of income and expenses for a given period
 Positive Cash Flow: Income > Expenses
 Negative Cash Flow: Expenses > Income
Total cash Cash outlays Cash
received - during time =
surplus or
during time period deficit
period
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9.  Increase income
 Decrease expenses
 Do both
Analogy: weight control (diet, exercise, both)
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10.  Adjust tax withholding/use tax benefits (EITC)
 Add a second job or work overtime
 Start a small business
 Increase/collect child support/alimony
 Access public benefits
 Sell assets
 Upgrade job skills
 Charge adult children room and board
 Bartering
 Other?
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11. Taxes are deducted from your paycheck are based on your W-4 form
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12. 0 allowances = max taxes deducted* =
Smaller take home pay =
Larger tax refund
+ allowances = less taxes deducted =
Larger take home pay =
Smaller tax refund
* Can add extra withholding beyond “0” allowances; e.g., +$50 more)
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13.  Housing
 Food
 Transportation
 Clothing
 Utilities
 Other expenses
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14.  It’s not just about giving up pricey coffee
 It’s
about “finding” money to save by
reducing everyday expenses
 What are your “lattes”?
 _______________
 _______________
 _______________
 _______________
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15.  $5 a day = $1,825/year
 $10 a day = $3,650/year
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16.  Budget = Spending Plan
 Avoid the “Three Cs”
 Cut back
 Cut out
 Can’t
 Avoid the “Three Ds”
 Denial
 Deprivation
 Don’t
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17.  Add up take-home income
 Total fixed expenses (e.g., rent or mortgage)
 Total flexible expenses (e.g., food, clothing)
 Pro-rate (1/12 per month) occasional expenses
 Include money for emergencies
 Include money for financial goals
 Balance the bottom line: income = expenses
 Take action!
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18. Source: Personal Finance by Garman & Forgue, Houghton Mifflin 18

19.  Mental Budget
 Appropriate if financial resources and responsibilities
are limited
 Physical Budget
 Envelopes, folders or containers
 Written Budget
 On notebook paper
 Computerized Budget
 Spreadsheet or specialized software
 Online Budget
 Examples: www.mint.com and www.mvelopes.com
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20. Envelope/Mvelope Method
Cash from
paycheck = $1,200
Mortgage Gas Electrical Vehicle Groceries Savings Misc.
$400 $25 $75 $100 $150 $75 $25
Medical Gifts Donations Taxes Education Vacation
$90 $25 $25 $125 $75 $10
Sum of Envelopes = $1,200
Sum of paycheck is equal to sum of envelopes
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21.  Put a set amount into savings
 Do regularly – each pay
 View savings as a FIXED expense
It’s not what you earn; it’s what you keep!
To become wealthy, “act your wage.”
Better still, live below your means.
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22. 1. Write a check each payday and deposit
in savings account (or transfer automatically)
2. Use payroll deduction to deposit a certain
amount into savings (direct deposit)
3. Save loose change
4. Automate investment deposits
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24.  Set
SMART goals with a time
deadline and a price
Example: “Save $8,000
toward the down payment
on a new car in 4 years”
 Buildthe required savings
amount into your spending
plan as a fixed expense
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25.  Personal beliefs about what is important
 Guide how people spend time
 Guide how people spend money
 Examples:
 family togetherness
 religion/faith
 job success
 education
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26. Source: Personal Finance by Garman & Forgue, Houghton Mifflin 26

27. Short-Term- Under 3 years
Medium-Term- 3 to 10 years
Long-Term- 10 or more years
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28. http://njaes.rutgers.edu/sshw/
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29.  Health: Decrease portion sizes of favorite
foods by 1/3 to 1/2 and/or increase
exercise
 Eat half as much as you do now…gradually
 Take leftovers from restaurant meals home
 Finances: Reduce discretionary spending
by 1/3 to 1/2 and/or increase income
 Spend less than you do now
 Look for less expensive options
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30.  Health:
How many hours of exercise are
needed to burn off extra food?
 Is eating a certain food “worth the calories?”
 Finances: How many hours of work are
needed in order to buy something (use after-
tax dollars)?
 Is buying something worth the time worked?
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31. • Don’t cut out something completely
• Find a less expensive alternative
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32.  Paymore on
 Ramp up physical outstanding credit
activity card balances
 Workup to 10,000  Automatically
steps/day increase savings at
regular intervals
 Increase
fruits and
vegetables in diet  Add 1/12 of
mortgage payment
 Domore of anything (P and I) monthly
positive!
 Domore of
anything positive!
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33. “People don’t plan to
fail…they fail to plan”
A spending plan helps you take
charge of your money
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34. “Happiness is positive
cash flow”
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35. “There is no
independence quite so
important as living
within your means”
Calvin Coolidge, U.S. President
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36. Thank you for your participation.
Be healthy, wealthy, and happy.
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