how does your cash flow?
DESCRIPTION
Budgeting presentationTRANSCRIPT
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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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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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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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No allowance for large, irregular expenses
Unrealistic figures
Vague expense categories
No allowance for the unexpected
No allowance for inflation 7
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Summary of income and expenses for a given period
Positive Cash Flow: Income > Expenses
Negative Cash Flow: Expenses > Income
Total cash received
during time period
- Cash outlays during time
period
Cash surplus or
deficit
=
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Increase income
Decrease expenses
Do both
Analogy: weight control (diet, exercise, both)
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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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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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Housing
Food
Transportation
Clothing
Utilities
Other expenses
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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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$5 a day = $1,825/year
$10 a day = $3,650/year
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Budget = Spending Plan
Avoid the “Three Cs”
Cut back
Cut out
Can’t
Avoid the “Three Ds”
Denial
Deprivation
Don’t 16
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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! 17
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18 Source: Personal Finance by Garman & Forgue, Houghton Mifflin
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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 19
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Envelope/Mvelope Method
Sum of Envelopes = $1,200 Sum of paycheck is equal to sum of envelopes
$400 $25 $75 $100 $150 $75 $25
$90 $25 $25 $125 $75 $10
Medical Gifts Donations Taxes Education Vacation
Cash from paycheck = $1,200
Mortgage Gas Electrical Vehicle Groceries Savings Misc.
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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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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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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”
Build the required savings amount into your spending plan as a fixed expense
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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
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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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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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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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• Don’t cut out something completely
• Find a less expensive alternative
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Ramp up physical activity
Work up to 10,000 steps/day
Increase fruits and vegetables in diet
Do more of anything positive!
Pay more on outstanding credit card balances
Automatically increase savings at regular intervals
Add 1/12 of mortgage payment (P and I) monthly
Do more of anything positive!
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“People don’t plan to fail…they fail to plan” A spending plan helps you take charge of your money
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“Happiness is positive cash flow”
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“There is no independence quite so important as living within your means” Calvin Coolidge, U.S. President
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Thank you for your participation. Be healthy, wealthy, and happy.
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