special thanks to the dave ramsey organization and crown financial ministries for permission to use...

Special Thanks to the Dave Ramsey Organization and Crown Financial Ministries for Permission to Use Their Material. Both Organizations Provided a Tremendous Amount of Information on Budgeting, Family Finances, Business, and More. Check Them Out!

http://www.daveramsey.com http://www.crown.org

Download this entire presentation and accompanying materials at:

http://ngj.me/ffab

Practical Tax & Financial Services, Inc. Mel Cohen, President Certified Financial PlannerTM

Registered Tax Return Preparer

10 0 0 P ea rl R oa d P leasa n tv ille , T N 37 0 3 3 P h o n e (9 3 1) 59 3 -2 4 84 F ax (9 31 ) 5 93 -24 9 4 E m ail:m elc o h e n @ h u g h e s.n et w w w .p r ac tax .n e t

Tax Services Corporations Individuals IRS Problems Offers In Compromise Partnerships Financial Services Debt Counseling Mortgage Consulting Money Matters Real Estate Restructuring Business Services Barter Advisory Book Marketing Business Plans Business Start-up Advisory Marketing Consulting Non-Profit 501(c) (3) Formations Compliance IRS/State Fillings State Charity Registration Sales Tax Exemptions

BIOGRAPHY Mel Cohen Certified Financial PlannerTM

Registered Tax Return Preparer A consultant with hands on experience. Regularly provides practical advice in Business, Book Marketing, General Marketing, Finance, Taxation, Management, Non-Profit Organizations and Barter. Over 35 years of experience in: Retailing/ Wholesaling/ Merchandising/ Inventory Control and Turnover Over 30 years experience in: Tax preparation and planning for Individuals/ Partnerships/ Corporations/ Trusts and Estates Over 25 years of experience in: Business Start-Up and Evaluation/ Business and Marketing Plans/ General Business Consulting for both Non-Profit and for Profit Organizations

CURRENT AND FORMER MEMBERSHIPS, AFFILIATIONS AND ASSOCIATIONS College for Financial Planning Delaware County Chamber of Commerce Delaware Valley Society of the Institute of Certified Financial Planners Institute for Certified Financial Planners International Board of Standards and Practices for Certified Financial Planners Licensed Real Estate Professional National Association of Tax Practitioners - National Society of Tax Professionals Financial Planning Association Rotary International A Biographical Record appeared in the Silver Anniversary 28th Edition of Marquis Who’s Who in Finance and Industry as well as the Thirty-first 2000/2001 Millennium Edition, inclusion in which is limited to those individuals who have demonstrated outstanding achievement in their own fields of endeavor and who have, thereby contributed significantly to the betterment of contemporary society. A speaker on marketing for the American Institute of Certified Public Accountants Firm Administrator’s Conference. Numerous radio and TV appearances on baseball cards, barter, and finance. Author of several local and national articles on taxation, business, marketing, and baseball cards. Author and publisher of the book, “Secret of the Pros, How to Become a Baseball Card Dealer”. Editor-in-Chief of, “Secret of the Pros, the Newsletter for Collectors, Investors and Dealers of Trading Cards.” Expert witness (plaintiff) for the largest class action lawsuit against major trading card companies that was filed to date in 1997. Was retained for other expert witness engagements by law firms representing insurance companies. Design special Amazon promotions that have resulted in creating “Amazon Best Seller” status books. Achieved rankings in the Amazon Top 100 out of their over 20 million books on their website. Latest June 2011: A Love That Multiples by Michelle and Jim Bob Duggar resulted in 7 Top 100 rankings: Overall Sales, Movers and Shakers, Hot New Releases and the #1, #1, # 2position in its specific genre as well as a #12 Kindle rating in its genre. For 3 straight days the book was in the Top 50 in overall sales.

SNAPSHOTSOF AMERICA’S FINANCES

Roughly three-quarters of Americans are living paycheck-

to-paycheck, with little to no emergency savings, according

to a survey released by Bankrate.com.


Source: http://www.uscourts.gov/uscourts/Statistics/BankruptcyStatistics/Bankruptcy

Filings/2013/1213_f2.pdf

In 2013 there were 1,071,932 bankruptcies

filed in the U.S.1,038,720 were personal filings, 33,212 were business filings

http://www.uscourts.gov/uscourts/Statistics/BankruptcyStatistics/BankruptcyFilings/2013/1213_f2.pdf


Christian Financial Concepts says that in 1929 only 2% of the homes in America had a mortgage against

them and by 1962 only 2% DID NOT have a mortgage against them.

GOAL: Eliminate all DEBT


In 2013 households had $814.74 Billion in credit card debt.

Average per household: $7,026With all Consumer Loans E.G. Cars, Department Stores, etc. the Average

Household Debt was $12,808 Without Accounting for Mortgages.

SNAPSHOTSOF AMERICA’S FINANCESConsumer Reports Money Book

says the typical household has $38,000 in debt and that total

consumer debt has almost tripled since 1980.

Total Household Debt in 2014: $11.65 Trillion


A Marist Institute Poll published in USA Today stated that 55 percent of Americans

“always” or “sometimes” worry about their money

Where no counsel is, the people fall: but in the

multitude of counsellors there is safety.

Proverbs 11:14

If any of you lack wisdom, let him ask of God, that giveth to all

men liberally, and upbraideth not; and it

shall be given him. James 1:5

MAJOR COMPONENTS OF AHEALTHY FINANCIAL PLAN

Written Cash Flow Plan Teach My Children

Will and Estate Plan Life Insurance

Debt Reduction Plan Health Insurance

Tax Reduction Plan Disability Insurance

Emergency Funding Auto Insurance

Retirement Funding Homeowners Insurance

Charitable Giving

Ownership

The earth is the LORD'S, and the fulness thereof; the world, and they that dwell therein.

Psalms 24:1

Webster’s Dictionary says a Steward is:

“One who manages another’s financial affairs

or property.”

Savings By Nation

There is treasure to be desired and oil in the

dwelling of the wise; but a foolish man spendeth it up.

Proverbs 21:20

Living But godliness with

contentment is great gain…

I Timothy 6:6-10

DebtThe rich ruleth over the

poor, and the borrower is servant to the lender.

Proverbs 22:7

$1,000 one time investment, no withdrawalAge 25 to Age 65 (40 years)

Definition of 'Rule Of 72'A rule stating that in order to find the number of years required to double your money at a given interest rate, you divide the compound return into 72. The result is the approximate

number of years that it will take for your investment to double.

Investopedia explains 'Rule Of 72'

For example, if you want to know how long it will take to double your money at

12% interest, divide 12 into 72 and you get 6 years.

121,415 11,021

Compounded

Dailey

Total Minimum New Payments CumulativeItem Payoff Payment Payment Remaining Payments____ ______ ________ ________ _________ ______________ ______ ________ ________ _________ ______________ ______ ________ ________ _________ ______________ ______ ________ ________ _________ ______________ ______ ________ ________ _________ ______________ ______ ________ ________ _____________ ______ ________ ________ _________ ______________ ______ ________ ________ _________ __________

DATE: ________________ Count down to freedom...

__________

Pay off the smallest debt amount first regardless of the

interest rate.

“Baby Steps”

$1000.00 in an “Emergency Fund”Work to pay off all debt utilizing the “Debt Snowball” (Except the house)3-6 months expenses in savingsStep Three:

Step Two:

Step One:

“Baby Steps”

Invest 15% of household income into Roth IRA’s and/or Pre-tax retirement plansCollege FundingPay-off home earlyBuild Wealth! (Mutual Funds/Real Estate)

Step Four:

Step Five:Step Six:Step Seven:

19 2000 2,240 0 0

20 2000 4,749 0 0

21 2000 7,558 0 0

22 2000 10,706 0 0

23 2000 14,230 0 0

24 2000 18,178 0 0

25 2000 22,599 0 0

26 2000 27,551 0 0

27 0 30,857 2000 2,240

28 0 34,560 2000 4,749

29 0 38,708 2000 7,558

AGE BEN RETURN ARTHUR RETURN

BEN AND ARTHUR---BOTH SAVE AT 12% PER YEAR!BEN STARTS AT AGE 19 AND ENDS AT AGE 27ARTHUR STARTS AT AGE 27 AND STOPS AT 65

60 0 1,298,835 2000 861,31761 0 1,454,694 2000

9,62 0 1,629,262 2000 1,085,18363 0 1,824,773 2000 1,217,64464 0

52,043,745 2000 1,366,008

65 0 2,288,990 2000 1,532,160

...AND HE NEVER

CAUGHT UP!

AGE BEN RETURN ARTHUR RETURN

966,915

The Amazing Free Car StoryWe normally buy:$18,000 car: 7 years at 10% payments of $300

Value after 7 years $800OR

$6,000 car: 7 years at 10% payments of $100Value after 7 years $400

The other $200 per month saved at 10% 7 years = $24,190.

NOW WHO MADE THE CORRECT CHOICE!!

The Amazing Free Car Story

No Car Payments!

At Year Seven the car is junk, in either plan, but in our plan:

Savings $24,190One year old car for cash$16,000Left in savings $ 8,190

IAMNOWHERE

I AM NOWHERE

I AM NOW HEREPLAN and BUDGET

75% of Forbes 400 wealthiest people

surveyed said, “The #1 key to building

wealth is to be debt free.”

MAJOR COMPONENTS OF A

HEALTHY FINANCIAL PLAN

Teach My Children

Retirement Funding

Life Insurance

Written Cash Flow PlanWill and Estate Plan

Debt Reduction PlanTax Reduction PlanEmergency Funding

Charitable Giving

Health InsuranceDisability Insurance

Auto InsuranceHomeowners Insurance

Framework starts with asset allocation

Asset Allocation does not completely protect against

fluctuating markets and uncertain returns.

Wor

st

Per

form

ance

B

est

The Value of Asset AllocationAnnual Returns for Key Indexes (1999-2013) Ranked by Performance (Best to Worst)

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Emerg-Mkt Stocks 66.4%

Real Estate Securities

26.8%


12.8%Commodities

23.9%



31.5%




Managed Futures

14.1%


Mid-Cap Stocks 26.6%

Inv-Grade Bonds

8.6%

Emerg-Mkt Bonds 22.8%

Small-Cap Stocks 41.3%

Intl Stocks 27.3%

Commodities 24.2%

Inv-Grade Bonds

8.5%

Managed Futures

12.4%

Intl Stocks 39.2%


Commodities 17.5%


30.2%

Intl Stocks

11.6%

Inv-Grade Bonds

5.0%

High-Yield Bonds 57.5%


Emerg-Mkt Bonds

5.9%

Emerg-Mkt Stocks

18.6%




Small-Cap Stocks

6.5%




Intl Stocks 14.0%

Intl Stocks 26.9%

Commodities 11.1%

Cash Alternatives

1.8%



23.5%


4.7%

Intl Stocks

17.9%

Large-Cap Stocks 32.4%



High-Yield Bonds

4.5%

Inv-Grade Bonds 10.9%


36.7%

Intl Stocks 20.7%



Mid-Cap Stocks

8.0%

Emerg-Mkt Bonds -15.4%


Emerg-Mkt Stocks

19.2%

High-Yield Bonds

4.4%

Mid-Cap Stocks

17.9%

Intl Stocks

23.3%

Hedge Funds 19.0%

Inv-Grade Bonds 11.9%

Cash Alternatives

4.1%


3.6%




Small-Cap Stocks

15.1%

Hedge Funds 7.7%

Hedge Funds -19.9%

Intl Stocks 32.5%

Commodities 16.7%

Large-Cap Stocks

2.1%


Asset Class Blend 9.7%

Commodities 18.6%

Small-Cap Stocks

11.8%

Emerg-Mkt Bonds

3.5%

Hedge Funds 3.6%





Managed Futures

7.6%

Asset Class Blend -24.6%



Small-Cap Stocks

1.0%


Hedge Funds 7.7%


Managed Futures

7.9%

Hedge Funds 3.1%

Cash Alternatives

1.7%




8.9%


Inv-Grade Bonds

7.3%

High-Yield Bonds -26.4%


Large-Cap Stocks

15.1%

Cash Alternatives

0.1%


High-Yield Bonds

7.4%


Cash Alternatives

6.1%

Managed Futures

0.8%




Small-Cap Stocks

7.7%

High-Yield Bonds

11.7%


Small-Cap Stocks -31.1%



Mid-Cap Stocks

-1.7%


13.6%

Cash Alternatives

0.1%


Hedge Funds 5.8%

Mid-Cap Stocks

-0.6%

High-Yield Bonds

-1.9%



Hedge Funds 5.1%


Emerg-Mkt Bonds

6.2%

Mid-Cap Stocks -36.2%


21.0%





-1.4%

Cash Alternatives

4.8%


Asset Class Blend

-1.1%

Emerg-Mkt Stocks

-6.0%Commodities

22.7%Commodities

7.6%

Large-Cap Stocks

4.9%

Hedge Funds 9.2%

Large-Cap Stocks

5.5%Commodities

-36.6%Commodities

18.7%

Intl Stocks

8.2%

Managed Futures

-3.0%

Inv-Grade Bonds

5.1%

Managed Futures

-1.9%

High-Yield Bonds

2.5%

High-Yield Bonds

-5.2%

Emerg-Mkt Stocks

-2.4%

Mid-Cap Stocks -14.5%

Hedge Funds 9.0%

Hedge Funds 5.8%

Cash Alternatives

3.0%

Cash Alternatives

4.8%

Cash Alternatives

4.8%

Large-Cap Stocks -37.0%

Hedge Funds 9.7%

Managed Futures

7.1%

Hedge Funds -3.7%

Hedge Funds

4.1%

Emerg-Mkt Bonds -2.0%

Managed Futures

-1.2%

Large-Cap Stocks

-9.1%


Small-Cap Stocks -14.6%

Managed Futures

8.7%

Inv-Grade Bonds

4.2%

High-Yield Bonds

2.7%

Inv-Grade Bonds

3.8%

High-Yield Bonds

2.2%


-41.5%

Inv-Grade Bonds

4.8%

Inv-Grade Bonds

6.8%

Intl Stocks

-11.7%

Cash Alternatives

0.1%

Emerg-Mkt Stocks

-2.3%

Inv-Grade Bonds

-2.1%

Intl Stocks

-14.0%

Intl Stocks -21.2%

Intl Stocks -15.7%

Inv-Grade Bonds

4.5%

Managed Futures

3.3%

Inv-Grade Bonds

2.5%

Managed Futures

3.5%

Small-Cap Stocks

-0.3%

Intl Stocks

-43.1%

Cash Alternatives

0.2%

Hedge Funds 5.0%

Commodities -13.4%

Commodities -1.1%

Inv-Grade Bonds -2.7%


-4.6%

Emerg-Mkt Stocks -30.6%

Commodities -22.3%


Cash Alternatives

1.0%

Cash Alternatives

1.2%

Managed Futures

1.7%Commodities

-2.7%


-20.2%


Managed Futures

-0.1%

Cash Alternatives

0.1%


Managed Futures

-1.6%Commodities

-9.6%

Recessions 3/01 11/01 12/07 6/09

Asset Class Definitions Asset Class Blend High-Yield Bonds Large-Cap Stocks

Return on an equal blend of all indexes. BofA Merrill Lynch U.S. High-Yield Master II Index - Tracks the performance of below-investment-grade, publicly issued U.S. corporate bonds.

S&P 500 - Covers 500 industrial, utility, transportation and financial companies in the U.S. markets.

Cash AlternativesBarclays Capital US Treasury Bills (1-3M) - An index that is representative of money markets.

Mid-Cap Stocks

Emerging Market Bonds S&P MidCap 400 - The 400 companies on the S&P Composite 1500 index with market capitalization that is greater than that of companies on the S&P SmallCap 600 and less than that of companies on the S&P 500. Commodities BofA Merrill Lynch Global Emerging Market Sovereigns Index -

Tracks the performance of sovereign debt issued and backed by more than 20 emerging market countries.

Dow Jones-UBS Commodity Index - Reflects the return of underlying commodity futures for commodities traded on the U.S. exchanges and London Metal Exchange. Small-Cap Stocks

Emerging Market Stocks S&P SmallCap 600 - The 600 smallest U.S. companies on the S&P Composite 1500 index as measured by market capitalization.

Investment-Grade Bonds MSCI Emerging Markets Index - Designed to measure equity market performance of 22 emerging markets.BofA Merrill Lynch U.S. Government/Corporate Master Index - A

statistical composite tracking the performance of the entire U.S. corporate bond market over time.

Hedge Funds

International Stocks HFRI Fund of Funds Conservative Index - Represents hedge funds in the Hedge Fund Research, Inc. database that exhibit lower historical annual standard deviation than the HFRI Fund of Funds Composite Index.

MSCI EAFE - Represents all of the MSCI developed markets outside of North America.

Real Estate SecuritiesMSCI REIT Index - Represents equity real estate investment trusts (REITs) that generate the majority of their revenue and income from real estate rental and leasing. The index represents approximately 85% of the U.S. REIT universe.

Managed FuturesBarclay CTA Index – Represents 565 programs managed by commodity trading advisors with a minimum of four years of performance history.

RecessionsAs defined by the National Bureau of Economic Research.

This chart is provided for illustrative purposes only and is not indicative of any specific investment; individual investment results will vary. Information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. The data assumes the reinvestment of all income and dividends and does not account for taxes and transaction costs.Asset allocation/investment timing cannot eliminate the risk of fluctuating prices and uncertain returns. Past performance is no guarantee of future results.

Please note that all indexes are unmanaged and do not take into account any fees or expenses of investing in the individual securities they track, and that individuals cannot invest directly in an index. Investments in stocks and bonds are subject to risk, including market and interest-rate fluctuations.Stocks of mid-cap and small-cap companies are typically more volatile than stocks of larger companies. They often involve higher risks as they may lack the management expertise, financial resources, product diversification and competitive strengths to endure adverse economic conditions.Global/international investing involves risks not typically associated with U.S. investing, including currency fluctuations, political instability, uncertain economic conditions and different accounting standards. These risks are heightened in emerging markets.Bond prices fluctuate inversely to changes in interest rates. Investing in fixed-income securities involves certain risks such as market risk if sold prior to maturity and credit risk. All fixed-income investments may be worth less than original cost upon redemption or maturity. Government bonds and Treasury bills, unlike stocks, are guaranteed as to payment of principal and interest by the U.S. government if held to maturity. High-yield bonds, commonly known as junk bonds, are subject to greater risk of loss of principal and interest, including default risk, than higher rated bonds. The prices of these bonds may be volatile, and they are generally only suitable for aggressive investors.

There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions.

Buying commodities allows for a source of diversification for those sophisticated persons who wish to add commodities to their portfolios and who are prepared to assume the risks inherent in the commodities market. Any purchase represents a transaction in a non-income-producing commodity and is highly speculative. Therefore, commodities should not represent a significant portion of an individual’s portfolio.

Futures trading, which is speculative and volatile and involves a high degree of risk, is only appropriate for the risk capital portion of a portfolio.

Hedge funds are complex, speculative investment vehicles and are not suitable for all investors. They are generally open to qualified investors only and carry high costs, substantial risks, and may be highly volatile. There is often limited (or even non-existent) liquidity and a lack of transparency regarding the underlying assets. They do not represent a complete investment program. The investment returns may fluctuate and are subject to market volatility, so that an investor’s shares, when redeemed or sold, may be worth more or less than their original cost. Hedge funds are not required to provide investors with periodic pricing or valuation and are not subject to the same regulatory requirements as mutual funds. Investing in hedge funds may also involve tax consequences. Speak to your tax advisor before investing. Investors in funds of hedge funds will incur asset-based fees and expenses at the fund level and indirect fees, expenses and asset-based compensation of investment funds in which these funds invest. An investment in a hedge fund involves the risks inherent in an investment in securities, as well as specific risks associated with limited liquidity, the use of leverage, short sales, options, futures, derivative instruments, investments in non-U.S. securities, “junk” bonds and illiquid investments. There can be no assurances that a manager’s strategy (hedging or otherwise) will be successful or that a manager will use these strategies with respect to all or any portion of a portfolio. Please carefully review the Private Placement Memorandum or other offering documents for complete information regarding terms, including all applicable fees, as well as other factors you should consider before investing.

Securities and Insurance Products:

Not Insured by FDIC or any Federal Government Agency · May Lose Value · Not a Deposit of or Guaranteed by the Bank or any Bank affiliate.

Wells Fargo Advisors is the trade name used by two separate registered broker-dealers: Wells Fargo Advisors, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, non-bank affiliates of Wells Fargo & Company. First Clearing, LLC, Member SIPC is a registered broker dealer and non-bank affiliate of Wells Fargo & Company.

Ibbotson® SBBI®

Stocks, Bonds, Bills, and Inflation 1994–2013

Past performance is no guarantee of future results. Hypothetical value of $1 invested at the beginning of 1994. Assumes reinvestment of income and no transaction costs or taxes. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2014 Morningstar. All Rights Reserved.

1

$10

0.60

$9.66

$5.84

$3.89

$1.60$1.75

Compound annual return

• Small stocks 12.0%• Large stocks• Government bonds

• Inflation• Treasury bills

9.27.0

2.42.9

1994 1999 2004 2009

Risk Versus ReturnStocks, bonds, and bills 1926–2013

Past performance is no guarantee of future results. Risk and return are measured by monthly annualized standard deviation and compound annual return, respectively. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2014 Morningstar. All Rights Reserved.

14% Return

12

10

8

6

4

2

0

0% Risk 5 10 15 20 25 30 35

Large stocks

Long-term government bonds

Intermediate-term government bonds

Treasury bills

Small stocks

http://crown.org

RECOGNIZE THE DIVISIONS OF INCOME

The first part belongs to God. It is returned to Him as a tithe in

recognition that He owns all that we have. We are merely stewards.

Will a man rob God? Yet ye have robbed me. But ye say, Wherein have we robbed thee? In tithes and offerings. Malachi 3:8


The government wants its share.

They say unto him, Caesar's. Then saith he unto them, Render therefore unto Caesar the things which are Caesar's; and unto God the things that are God's. Mathew 22:21

The portion available after tithe and taxes is termed net spendable income.


Family needs come next.

But if any provide not for his own, and specially for those of his own house, he hath denied the faith, and is worse than an infidel.

1 Timothy 5:8


God says pay your debts.

The wicked borroweth, and payeth not again: but the righteous sheweth mercy, and giveth.

Psalms 37:21

Faithful management will yield a fifth portion.


The creation of a surplus should be a major goal for the Christian. It is the

surplus that allows us to respond to the needs of others.

But by an equality, that now at this time your abundance may be a supply for their want, that their abundance also may be a supply for your want: that there may be equality:

2 Corinthians 8:14Even if a family is not in debt, their finances should be budget controlled to maximize the surplus.

WHERE DO WE START?

Starting a budget is just like starting on a trip. You cannot set a course without first

determining where you are.Step One – The budget: What is the present level of spending? Step Two – Budget goals: Establish the “ideal” budget. In

actuality, few people ever reach the ideal. But it is possible to establish the “now” condition by reviewing the ideal.

In establishing a budget this trip will consist of comparing the present spending level with a guideline for balanced spending. The comparison will point out where adjustments should be made. Once the budget is established, a control system must be incorporated that will keep spending on the “road.” The system must be able to sound the alarm before overspending occurs.

THERE ARE ROAD HAZARDS

DISCOURAGEMENT:To complete the trip one must keep going. A major problem is to develop a budget and then not follow it.

LEGALISM:Another problem is becoming legalistic and inflexible. Then the budget becomes a family weapon instead of a family tool. Becoming legalistic, incidentally, seems to occur at the same time the money runs out. If a road is blocked we usually have to take another route to get where we are going. Remain flexible to necessary changes.

OVERCORRECTION: When the money gets tight, the tendency is to eliminate clothes, entertainment, food, and other “expendables.” That creates a pressure that is often relieved by overspending in other areas.

EVERYBODY NEEDS A BUDGET!

Financial bondage can result from a lack of money and overspending. But it can also be caused from the misuse of an abundance of money. Some families have enough money to be undisciplined and get away with it (financially speaking). But true financial freedom requires that we be good stewards (Mathew 24:45). That is only possible with self-discipline. A good plan requires action and discipline to make it work.

It may require sacrifice.

Begin now!

DETERMINING MONTHLY INCOME AND EXPENSES

THE PRESENT CONDITIONOn the monthly Income and Expenses form compare the actual monthly expenses with monthly income to determine present spending. (Note: You may need to keep a diary of expenses for a few months before you can accurately determine actual monthly expenses.)

To determine living cost, consider what represents a reasonable standard of living at your present income level. Reasonable, not total, sacrifices are necessary.

Therefore, when you set up your budget, include a reasonable amount for personal spending, e.g. clothes, savings, entertainment, recreation.


DETERMINING INCOME PER MONTHNOTE: Use Monthly Income and Sheet for this section. List all gross income (income before deductions) in the “Income Per Month” section on the Monthly Income and Expenses Sheet. Don’t forget to include commissions, bonuses, tips, and interest earned that will be received over the next 12 months. When income consists totally or partially of commissions or other fluctuating sources, average it for a year and divide by twelve. Use a low yearly average, not a high average. If you are paid on a weekly or bi-weekly basis, take the total yearly income and divide by twelve. Business expense reimbursements should not be considered family income. Avoid the trap of using expense money to buffer family spending or the result will be an indebtedness that cannot be paid.


WHAT IS “NET SPENDABLE INCOME” ??Net spendable income is that portion available for family spending. Some of your income does not belong to the family and therefore cannot be spent. For instance:

Category 1 - The Tithe: Since the term tithe means “a tenth,” I will assume that you give 10 percent of your total income to God.

Category 2 - Taxes: Federal withholding, social security, and state and local taxes must also be deducted from gross income. Self-employed individuals must not forget to set aside money for quarterly prepayments on taxes. Beware of the tendency to treat unpaid tax money as windfall profit.


WHAT IS “NET SPENDABLE INCOME” ??

Other deductions: Payroll deductions for insurance, credit union savings or debt payments, bonds, stock programs, retirement, and union dues can be handled in either of two ways.

1. Treat them as a deduction from gross income the same as income taxes.

2. Include them in spendable income and deduct them from the proper category. This is preferred because it provides a more accurate picture of where the money is being spent.

Example: A deduction is being made for credit union savings. This amount should be considered as a part of income with an expense shown under “Savings” for the same amount. This method makes it easier to see the overall effect the deduction has on the family budget.


NET SPENDABLE INCOME =

GROSS INCOME MINUS TITHE AND MINUS TAXES.


Category 3 – Housing Expenses: All monthly expenses necessary to operate the home, including taxes, insurance, maintenance, and utilities. The amount used for utility payments should be an average monthly amount for the past twelve months.

If you cannot establish an accurate maintenance expense, use 5% of the monthly mortgage payment.

HOW IS NET SPENDABLE INCOME BEING SPENT?


Category 4 – Food Expenses: All grocery expenses, including paper goods and non-food products normally purchased at grocery stores. Include milk, bread, and items purchased in addition to regular shopping trips. Do not include eating out and daily lunches eaten away from home.

If you do not know your actual food expenses, keep a detailed spending record for 30 to 45 days.



Category 5 – Automobile Expenses: Including payments, insurance, gas, oil, maintenance, depreciation, etc. Depreciation is actually the money set aside to repair or replace the automobile. The minimum amount set aside should be sufficient to keep the car in decent repair and to replace it at least every four to five years. If replacement funds are not available to budget, the minimum allocation should be maintenance costs. Annual or semi-annual auto insurance payments should be set aside on a monthly basis, thereby avoiding the crisis of a neglected expense.



Category 6 – Insurance: Includes all insurance, such as health, life and disability, not associated with the home or auto.

Category 7 – Debts: Includes all monthly payments required to meet debt obligations. Home mortgage and automobile payments are not included here.



Category 8 – Entertainment and Recreation Includes Eating Out, Baby Sitters, Activities, Vacations, & Misc.

Category 9 – Clothing: The average annual amount spent on clothes divided by 12. The minimum amount should be at least $10 per month per family member.

Category 10 – Savings: Every family should allocate something for savings. A savings account can provide funds for emergencies and is a key element in good planning and financial freedom.



Category 11 – Medical Expenses: Insurance deductibles, doctors’ bills, eye glasses, drugs, orthodontist visits, etc. Use a yearly average divided by 12 to determine a monthly amount.

Category 12 – Miscellaneous: Specific expenses that do not seem to fit anywhere else; pocket allowance (coffee money), misc. gifts, Christmas presents, toiletries, haircuts, etc.



Category 13 – School/Child Care: An ever increasing segment of our population has expenses for private school and/or child care. This category must reflect those expenses. All other categories must be reduced to provide these funds.

Category 14 – Investments: Individuals and families with surplus income in their budgets will have the opportunity to invest for retirement or other long term goals. When debt-free status is achieved, more money can be diverted to this category.



UNALLOCATED SURPLUS INCOME

Category 15 – Unallocated Surplus Income: Income from unbudgeted sources (garage sales, gifts, etc.) can be kept in one’s checking account and placed in this category. This section can be useful to keep track of surplus income as well as to keep records for tax purposes.


Where are you?


STEP ONE: Compile the expenses under each of the major categories (items 3 through 12) and note this as the total expense. Then in the space provided, subtract expenses from net spendable income.

STEP TWO: If income is greater than expenses, you need only to control spending to maximize the surplus.

STEP THREE: If expenses are greater than income, a detailed analysis will be necessary to correct the situation and restore a proper balance.

INCOME VS. EXPENSES

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BUDGET PROBLEM AREAS

BEWARE! Unforeseen problems can wreck your

budget. Those include:1. Bookkeeping errors2. Impulse buying3. Hidden debts4. Gifts


BOOKKEEPING ERRORS:An accurately balanced checkbook is a must. Even small errors result in big problems if they are allowed to compound. An inaccurate balance can result in an overdrawn account, as well as in significant bank charges. Automatic banking systems create additional pitfalls. Automatic payment deductions must be subtracted from the checkbook ledger at the time they are paid by the bank.

Example: An insurance premium is paid by automatic withdrawal on the fifteenth of each month. Since no statement or notice is received from the insurance company, you must make certain that on the fifteenth of every month the proper amount is deducted from your home checking account records. The same would be true for automatic credit card payments or any other automatic withdrawal.

Direct deposits into checking accounts must also be noted in the home ledger at the proper time. Don’t forget to include bank service charges in the home ledger. Automatic Tellers: If you withdraw cash from your account using an outside/automatic teller, be sure you write it in your ledger and file the transaction record.


OTHER FACTORS IN KEEPING GOOD RECORDS:

• Use a ledger type checkbook rather than a stub type. The ledger gives greater visibility and lends itself to fewer errors. I usually recommend using a checkbook that has a copy of the checks written. This eliminates errors in not posting a check.

• Make certain all checks are accounted for. All checks should be entered in the ledger when written. This entry must include the check number, amount, date, and assignee.Tearing checks out of your checkbook for future use defeats many of the safeguards built into this system. I recommend that all checks be written from the checkbook only.


OTHER FACTORS IN KEEPING GOOD RECORDS:• One bookkeeper only. When more than one individual attempts to

maintain the record system, confusion usually results. If the system is in good order, either the husband or the wife can keep the records. The choice should be based on who can do the job best. If the records are in a mess, the husband should assume responsibility for correcting the situation.

• Maintain a home ledger. If all records are kept in a checkbook ledger, you run the risk of losing it. A home ledger eliminates this possibility and makes record keeping more orderly.

• Balance the account—every month—to the penny. Never allow the home ledger and bank statement to disagree in balance. The two most common errors are arithmetic errors (addition or subtraction) and transposition errors (writing in the wrong amount). Use a calculator and balance the account to the penny.


HIDDEN DEBTS:

A common error is to overlook non-monthly debts such as doctor bills, family loans, bank notes, etc. Thus, when payments come due, there is no budget allocation for them.

To avoid surprises, establish and maintain a list of debts in total. The list must be reviewed and revised on a periodic basis, and the budget must anticipate necessary payments.

The list should reflect progress made on debt payments and can serve as a “payoff goal” sheet. Begin with a goal of eliminating the smallest debt first. Then double up on the next debt, and so on until all debts are eliminated.


IMPULSE BUYING:Impulse items are unnecessary purchases made on the spur-of-the-moment.

These purchases are usually rationalized by, “It was on sale,” or, “I owe it to myself.” Often they are made with a credit card because the cash isn’t available. The net result is a little-used item and an unnecessary debt.

Impulse purchases are not restricted to small items. They range from homes, cars, and trip to unscheduled luncheons. Cost is not the issue; necessity is. Every purchase should be considered in light of the budget.


IMPULSE BUYING:Discipline is the key to controlling impulse buying. If necessary, resort to the self-imposed discipline of the “impulse buying sheet.”

Establish the discipline that before buying on impulse, you will list the item on the impulse sheet, along with the date and the cost. Furthermore, wait 30 days before purchasing the item and during that time, get at least 2 additional prices.

If you feel you still need the item at the end of the 30 days, and the money is available, then buy it. You will eliminate most impulse items by this discipline.


GIFTS:

A major budget-buster in most families is overspending on gifts. Tradition dictates a gift for nearly every occasion. Unfortunately, the net result is often a gift someone else doesn’t want, purchased with money that was needed for something else.

Many times the cost is increased because the gift is selected at the last moment. If gifts are a part of normal spending, budget for them and buy ahead—reasonably. To bring the cost of gifts under control, consider doing the following:1. Keep an event calendar for the year and budget ahead.2. Determine not to buy any gifts on credit.3. Initiate crafts within the family and make some for the needed gifts.4. Draw family names for selected gifts rather than giving to everyone.

THE GUIDELINE BUDGET

WHAT IS A GUIDELINE BUDGET?

A guideline budget is family spending divided into percentage to help determine the proper balance in each category of the budget, e.g. housing, food, and automobile.

The primary use of the guideline is to indicate problem areas. It is not an absolute. The percentages are based on a family of four people with incomes ranging from $15,000 to $60,000 per year. Above or below those limits, the percentages may change according to family situations and needs. In the lower income levels, basic family needs will dominate the income distribution.


PURPOSE OF A GUIDELINE

The guideline is developed to determine a standard against which to compare present spending patterns. It will serve as a basis for determining areas of overspending that are creating the greatest problems. Additionally, it helps to determine where adjustments need to be made. If you are overspending, the percentage guideline can be used as a goal for budgeting. Although the percentages are guides only, and not absolute, they do help to establish upper levels of spending.

For instance:A family spending 40% or more of their net spendable income on housing will have difficulty balancing their budget. There is little flexibility in most family incomes to absorb excessive spending on housing (or automobiles).


GUIDELINE PERCENTAGESThe net spendable income is used to calculate the ideal spending for each budget category. Net spendable income is determined by subtracting your tithe and taxes from your gross income. If taxes are know then actual amounts can be used.

Note that in some categories absolutes are impossible with variables such as utilities and taxes. You must adjust percentages within ranges under “housing” “food” and “auto.” Those three together cannot exceed 65%. Example: If 40% is used for housing, the percentage for food and auto must be reduced.

BUDGET ANALYSIS

After determining the present spending level (where you are), and reviewing the guideline percentages (where you should be), the task becomes one of developing a new budget that handles the areas of overspending. Keep in mind that the total expenditures must not exceed the net spendable income. If you have more spendable income than expenses, you need to control spending to maximize your surplus.

The Budget Analysis page provides space for summarizing both actual expenses and guidelines expenses on one sheet for working convenience. The total amounts of each category from the Monthly Income and Expense Sheet and from the Budget Percentage Guidelines should be transferred to the appropriate columns on the Budget Analysis page.

BUDGET ANALYSIS

STEP ONE: COMPARE

The Existing Budget and Guideline columns should be compared. Note the difference, plus or minus, in the Difference column. A negative notation indicates a deficient; a positive notation indicates a surplus. The budget shown is the actual spending of a typical family of four.

BUDGET ANALYSIS

STEP TWO: ANALYZEAfter comparing the Existing and Guidelines columns, decisions must be made about overspending. It may be possible to reduce some areas to compensate for overspending in others. For example:

If housing expenditures are more than 38% it may be necessary to sacrifice in such areas as entertainment and recreation, miscellaneous, and automobiles. If debts exceed 5% then the problems are compounded. Ultimately, the decision becomes on of where and how to cut back.

It is not necessary that your new budget fit the guideline budget. It is necessary that your new budget not exceed Net Spendable Income. It is usually at this point that husband-wife communication is so important. No one person can make a budget work, because it may involve a family financial sacrifice. Without a willingness to sacrifice and establish discipline, no budget will succeed.Note the flexibility gained if the family is not in debt. That 5% is available for use somewhere else in the budget.

BUDGET ANALYSIS

STEP THREE: DECIDE

Once the total picture is reviewed, it is necessary to decide where adjustments must be made and spending reduced. It may be necessary to consider a change in housing, automobiles, insurance, private schools, etc.

The minimum objective of any budget should be to meet the family’s needs without creating any further debt.

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special thanks to the dave ramsey organization and crown financial ministries for permission to use...

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