Money Management 101 How to stretch your DOLLAR 1
MONEY What is Money? It is a man-made common medium of exchange for goods and services. Your money is actually a part of your time and life. For example, if you are making $10.00 per hour and buy a shirt that cost $70.00, that is 7 hours of your life. Wealth is the total of everything you own that has value. Your wealth is essentially your money. Debt is an obligation to pay or do something. Net Worth is the difference between what you own (your wealth) and what you owe (your debt). 2
A Simple Bookkeeping System Fixed expenses included your rent, your Utilities, your car payment, car insurance and Health insurance. An envelope set aside for the food Weekly allowance should be included. If you are paid weekly and make $400.00 per week, break down your monthly rent, etc. and each week placed the amount of money in each of the envelopes. If you pay $400. per month, then put $100.00 in the rent envelope each week. If your car payment is $300.00 per month; place $75.00 in your car payment envelope. Your payment is there when it comes due. 3
Personal Budgeting When staring your budgeting, track your money and find out what you have now and what you can reasonably expect to earn. Then in tracking your money, find out your typical pattern of spending. Why has your previous budgeting failed? The following are some reasons for failure: 1. Failure to prioritize expenses. 2. Failure to budget practically for normal out-of-pocket expenses like groceries and gas. 3. Failure to plan for the unexpected. 4. Failure to include quarterly or annual expenses. 5. Spending more money than you pocket. 4
How to Prioritize Expenses The Discretionary Unexpected Annual, expenses semiannual, typically buy that you could live without, but chances Expenses are are part of your normal out-of-pocket expenses the things you you won t. Failure quarterly to budget for discretionary expense is one of the top budget busters. Dental, medical, eye care Car repair and maintenance Chiropractic, prescription drugs Need to help parents License renewals, tax return Property taxes, insurance, Homeowners association fees, Monthly Weekly Discretionary Rent, Utilities On-going prescription drugs Cell phone, car payment, cable, internet Child Support payments, credit card payments Groceries, Child Care, Transportation, dog groomer, house cleaning Lawn service, personal care, SAVINGS (DON T FORGET TO PAY YOURSELF). Books, magazines, Entertainment, impulse purchases, snacks Dining, vacation, travel, membership fee. 5
10 Steps to Good Money Management 1. Pay Bills on Time. Organize due date to pay on time. Avoid any penalty. If you pay the minimum payment, add on the interest charge to the payment. 2. If you have credit cards, cut them up. On your past credit card bills, pay more than the minimum payment. If you have to pay the minimum payment, contact a debt relief company for help. 3. Read your bank statement carefully. What fees does your bank have? 4. Build an emergency fund. Work toward a three months living expense. 5. Prepare a will. Check with an attorney or the internet. How about a living will? Young people get into accidents, etc. 6. Shop around for the best insurance rates. 7. Follow a monthly budget. 8. Check your credit report annually for accuracy. 9. Contribute to some type of retirement account. You will get old. 10. If you are buying a home, comparison shop for the best deal on your mortgage. You may want to refinance. 6
Personal Finance is Easy The first step to establishing a budget or to control your money is to track your spending. Get receipts and write down the cost in a notebook, pone, PDA or computer for all of your expenditures. Be sure to group your spending into appropriate categories: eating out, groceries, entertainment, transportation, et. By recording your expenses, you will figure out your habits and become conscious of where your money goes. After a month of recording your expenses, start reviewing your expenses and see what areas you are spending too much on and come up with a plan to cut down or optimize your spending in those areas. 7
Bill Gates Interview In an interview a few months back on CNBC, Bill Gates (Founder of Microsoft) responded to a question on business with the following: Well, it s surprising that the fundamentals of business are pretty straight forward, you know. You try to take more in income than you spend in cost. The same could be said about personal finance. Personal finance at the most basic level is simply making sure that you are earning more than you are spending. Your discretionary income should be at a minimum of 10 percent. What is discretionary income? That is the difference left out of your income after you pay what you owe. INCOME EXPENSES = DISCRETIONARY INCOME 8
Practical Personal Budgeting Put the amount of money you had left after tracking your sending at the top of your budget. Next, add your net monthly income. You may have calculated this when you tracked your money, but if you didn t your net income is the money you take home each month. If you are paid weekly, multiply your weekly take home pay times 13 and divide by three to calculate your average monthly income. Add these figures together. Your total is your available cash for this month s personal budget. List your expenses by priority. List the total amount of each expense and the date it is due. One easy way, when your bill comes, write on the outside of the envelope the amount and the date due. Remember, allow time for mailing and posting by the company of your payment. 9
Making your Personal Budget Work 1. If you don t have enough money to take care of the priorities, you will need to find a way to generate more cash. Cut your own hair, color your own hair, do your own nails, do your own lawn, clean your own house, rent a $1 movie at the red box, ride a bike to work, have a garage or side walk sale. Look at your budget, what could you do without cable, place your cell phone coverage with another company? 2. If an expense is not a priority, roll it into next month s budget. However, if you cannot pay the minimum payment, contact the creditor. 3. Look over your expenses and see what you realistically are willing to sacrifice to make your budget balance. It may be that you can have only one beer a week or month or none at all. 4. Buy generic or store brands for groceries and personal care items. 5. Will your utility company allow you to make partial payment of utility bills? Do they have the averaging plan? 6. Carpool, ride the bus, ride a bike for a month to save on vehicle expense. 10
CREDIT CARDS Have you ever looked at the amount each dollar is costing you from that credit card company? Besides the cost for the money per dollar, add fees and finance charges. Who can afford to buy someone else s money? If you can t pay cash---you don t need it. 11
During Recession Times JOB No job. Take a job below your ideal salary and look for potential advancement. Can t find a job. There is nothing to lose which can be a great time for personal innovation and use that idea that s in the back of your mind. Become an entrepreneur. Do you make cakes well? Senior citizens need their lawns mowed; dog walked; car washed; and someone to get their medicine and food. Moms need help before school with kids and getting kids to school and after school care. It is time for BOOT-STRAPPING! 12
Leisure Time Have a low tech evening with your friends. Bring out old board games or invent a new board game. In 1939, the monopoly Game came out during the depression. The new TV show 60 second to win a million Dollars has shown some Very good games. Listen to talk shows on the radio. Go to the park. Find cardboa find cardboard and build battle fields or cities or subdivisions. 13
Uncertain about Values. Know your Values. Maybe you are not always clear about what your values are. Sometimes you act from one set of values, sometimes another One set of Values supports life, self-worth, and good relationships. The other set of values support pain, abuse, and death of your selfesteem. 14
Traditional Values These are traditional values that reflect responsibility. Influence Family Freedom Friendliness I enjoy having my opinion respected by others. I value and respect the people in my family. I want to be free as long as I am not harming myself or others. I want to do what is necessary to be a trustworthy friend. 15
Win-Lose Values Our culture makes us think that conflicts call for a different set of values. We switch our good values to using values designed for winning. We deceive, fight, put others down. Relationships suddenly turn nasty. You become a different person, and you are not happy. 16
Choosing Values In choosing your values, ask yourself these questions: Who do you want to be? How do you want to live? The trick to values is sticking with them. What kind of values do you have? 17
Relationships Relationships have a lot to do with values. Relationships take a lot of work. There is a problem with the prince on the white horse manure. There is a problem with the princess self-centered me-me-me. Realizing this, do you still want to form a healthy relationship with another person? 18
5 Ways to solve relationship problems. 1. Compromise: Nobody I always right or always wrong. 2. Do not attack: Don t bring up issues and problems that neither of you can change. 3.Focus on the NOW: Stick to the one issue that you are arguing about. 4. Show respect: Allow the other person to finish his/her statements. 5. Use I statements. Avoid you, us, or we when referring to the issue. 19
I Messages YOU Statements I Statements You never listen. I feel like you didn t listen to what I said when and I think you don t respect me. You always interrupt me. We do have the money and you would buy a new truck. I feel sad when you won t work the budget. I feel that you disrespect me and what I am doing to protect the family. 20
Look for Safe People to add to your inner Circle. What are safe people? They will not 1. Abandon you. 2. Tear your dream and goals down. 3. Try to make you into the person they want. They won t let you be yourself. 4. They will validate you and respect you. 5. You can trust what they say as they tell you the facts. They do what they say. 6. They will be there for you no matter what you are going through. So if you are having a financial crisis, they are there for you. If they see you needing, if they have it, they give it to you---not loan it to you. 21