Financial education course, part 3

In the first two parts you spent time developing personal financial goals or SMART goals. It is likely that they included developing a savings plan to reach some specific goal. In this chapter, you will focus on ways to help you reach your savings goals.

We recommend two approaches depending on what kind of person you are.

The Budgeter

You’ve heard it before… “in order to achieve your financial goals, you need to plan for them.” This plan for your money is called a budget. Everyone has a plan for your money, so you need to have one too! The “Budgeter” is the kind of person who finds that having a written spending plan or budget is useful. Budgeters are willing to track their expenses for at least a couple weeks to make sure that their expenses match what they budgeted for that item, and are interested in refining this written budget over time in order to gain more control over their money. We will review a budgeting process that will help you establish and use a budget if that appeals to you. People who are willing to take the time to learn how to use a budget often find that their savings power is boosted and their stress around money lessens because they have a tool to control their money rather than have their money controlling them!

The Non-Budgeter

In our experience, we have also found that there are people who don’t find written plans useful but have found a way to manage their cash flow and save money without a detailed budget. By paying yourself first (by automatically depositing money from your paycheck into a savings account), you will train yourself to spend at a lower level.

The Power of Money and Time

Pay Yourself First and Make it Automatic

  1. Decide how much of each paycheck you wish to save, considering your financial goals and when you would like to achieve them. A budget will help you decide that you can free up to boost your savings. Certified Financial Planners recommend that you save 10% of your gross income (before taxes) each paycheck. If you cannot save 10% start with whatever you can!
  2. Determine where you want to put your savings. You should set aside a chunk of each paycheck and have it automatically deposited into a savings vehicle with your bank, credit union, or mutual fund company. The savings vehicle you choose will depend on your savings goals.
  3. Watch your savings grow.

Watch Your Savings Grow

By putting aside $200 a month at 5% interest, you’d have $31,186 in 10 years to put toward a financial goal.

How your money grows at 5% APY

Budget to Meet Your Goals

A budget is a planning tool that helps you reach your savings goal.

How Do I Create a Successful Budget?

  1. Establish your savings goal.
  2. Know your net monthly family income (what you take home after taxes) and base your budget on this income amount.
  3. Know what your expenses are by tracking fixed and changing expenses.
  4. Make a one-month budget (include savings remember to pay yourself first!)
  5. Track your expenses and income for one month to see if the amount you budgeted equals what you actually spent.
  6. Evaluate your spending choices and decide whether you need to increase or decrease your budget in particular areas.
  7. Continue to refine your budget so that the budgeted amounts and the money actually spent are more consistent over time, and you are more in control of your spending and savings.
  8. Develop a yearly budget customized to your family’s needs to meet your savings goals.

Keys to Successful Budgeting

You will succeed if you are determined and patient!

Budgeting Can Be Easy

Learn how to successfully manage your money and avoid credit problems. This guide will give you money management techniques that can put you in control of your money and help you to plan for a successful financial future.

We’ve created this guide with two purposes in mind:

Making the most of your money can be tough, but without a budget, it is impossible.

Budgeting can be easy if you have the right tools and guidelines. Remember, now is a great time to learn how to create and live within a budget. The more you put off the budgeting process the longer you will be in financial chaos.

If you do not learn to manage your money now, the headaches your debts create may stay with you for a long time.

Managing Debt

You can’t achieve financial freedom without budgeting.

Why?

Because people who can account for their money are in control of it. You can’t run a business successfully without a business plan, and you can’t successfully run your household without a budget.

Start this process by writing down your fixed monthly expenses like rent, car payments, and insurance. Then make a list of your flexible expenses like groceries, utilities, gasoline, and medical expenses. Finally, list discretionary expenses such as clothes, entertainment, etc. Make sure you don’t leave anything out; don’t forget your morning cup of coffee or your newspaper! The key is to include everything you spend money on. Look back over your check stubs or bank statement to see where you’ve been spending money.

Use these suggested percentages for spending and see how your spending compares.

See how your budget spending compares

Income

The first step to creating your budget is to list all sources of monthly income, including gifts, bonuses, tax refunds, cost of living increases, allowances, etc. To total your income, use the following Income Worksheet.

Income Worksheet

Income Sources Weekly/Bi-Weekly Income Monthly Income
Your Wages $ $
Spouse’s Wages $ $
Part-Time Wages $ $
Child Support $ $
Alimony $ $
Social Security Benefits $ $
Veteran’s Benefits $ $
Other $ $
Other $ $
Total $ $

Tip: Pay yourself first. Set up a savings account, transfer at least 5% of your income into the account, and try to forget about it.

The extra money will come in handy when you need it!

Expenses

The next step is to list your expenses. Expenses are separated into three categories:

  1. “fixed”
  2. “flexible”
  3. “discretionary”

Credit card debt is considered a fixed expense because it usually remains the same each month. Use the following form to your monthly credit card debt. List all major credit cards, department store, credit cards, gas credit cards and dining cards. When you are finished, total up the amount and transfer it to the appropriate column on the fixed expense worksheet.

Credit Card Debt Worksheet

Creditor Name Interest Rate Balance Owed Monthly Payment
1. % $ $
2. % $ $
3. % $ $
4. % $ $
5. % $ $
6. % $ $
7. % $ $
8. % $ $
9. % $ $
10. % $ $

Total Average Interest of all Cards: ____________%
Total Owed: $_______________
Monthly Payments: $__________________

Fixed Expenses Worksheet

Use this sheet to list your Fixed Expenses. These items cost the same each month, i.e. rent, loans, car payments, etc.

Fixed Expenses Worksheet

Monthly Expenses Current Payments
Mortgage/Rent $
Real Estate Taxes $
Homeowners Insurance $
Car Loans/Lease Payments $
Car Insurance $
Student Loans $
Alimony/Child Support $
Medical Insurance $
Credit Card Debt $
Other $
Other $
Total $

Flexible Expenses Worksheet

The next step is to list your Flexible Expenses. These expenses are ones where you control the amount of money you spend. Sometimes flexible expenses are items you need, like groceries, but you can control how much you spend on them by choosing less expensive items, shopping at discount stores, etc. Depending on your circumstances, a few of the items listed on the next page may fall into the Fixed Expenses category.

Flexible Expenses Worksheet

Monthly Expenses Current Payment Adjusted to Balance Income
Telephone Bill $ $
Electric/Gas/Water $ $
Cable Television Bill $ $
Groceries $ $
Household Supplies $ $
School Supplies $ $
Clothes $ $
Dry Cleaning/Laundry $ $
Savings (5% is your starting goal) $ $
Other $ $
Total $ $

Discretionary Expenses Worksheet

The next step is to list all of the other expenses not listed in the previous categories. We call these discretionary Expenses. They are items that are not necessary for survival.

If your expense to income ratio is out of balance and you are spending more money than you earn, items from this category should be eliminated or cut back.

Discretionary Expenses Worksheet

Monthly Expenses Current Payment Adjusted to Balance Income
Income $ $
Recreation $ $
Movies/Plays $ $
Dining Out $ $
Sporting Events $ $
Magazine/Newspapers $ $
Barbers/Beauty Salon $ $
Hobbies $ $
Charity/Dues $ $
Other $ $
Total $ $

Continue to the next lesson

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