Personal Finance 07 Feb 2009. Warnings & Apologies -I am not a certified financial anything -I will probably say something offensive -What follows is.

Personal Finance

07 Feb 2009

Warnings & Apologies

-I am not a certified financial anything

-I will probably say something offensive

-What follows is highly opinionated

-My recommendations and feelings are partially based on my personality and situation

Recommendations

-Use this talk as a starting point , or a refresher

-Find a system that works for you, and your personality

-Be realistic that finances involve both logic and emotion

-Don’t be discouraged

-Do something

What We Will Talk About

-Personal Finance

-Budgeting

-Strategies

What We Will Not Talk About

-Investing

-Taxes

What Is Personal Finance?

-The process of treating your assets and liabilities as if you were a business

-Any good business has a good budget

Key #1

I don’t know HOW I’m doing, so I have to know WHAT I’m doing.

Steps of Personal Finance

-Assessing

-Forecasting/Dreaming

-Budgeting

-Tracking/Revaluating

Questions: Assessing

-How much income do I have?

-How much debt am I liable for?

-What are my monthly expenses?

-What are my discretionary expenses?

Questions: Forecasting/Dreaming

-What does my future hold?

-How do I want to spend my money?

-What about school, marriage or buying a house?

-When will I go on vacation or buy a car?

-Is my job status likely to change?

-Might there be little me’s on the way?

Questions: Budgeting

-How much do I want to spend on each category?

-How much money can I/do I want to save?

-How quickly can I pay down my debts?

Questions: Tracking

-How do I close the loop and keep on top of my finances?

-What system works for me?

-Are my spending and saving habits sustainable?

Key #2

Any budgeting system you choose will fail if don’t close the loop, because everything

feeds back.

Starting A Budget: The Basics

-Add up your income and look for fluctuation

-Add up your debts and become aware of their rates and terms

-Gather your bills and expenses

-Calculate your approximate tax burden

Form a Preliminary Budget

-Look at your present expenses to establish categories

-Use your current expenses to estimate a projected budget

-What bills are monthly, and what are yearly?

-Start plugging in and guessing numbers

National AveragesYear 2005 Per Month

Income Before Taxes 58,712 $4,893

Average Age (reference) 48.6Persons 2.5Earners 1.3Vehicles 2Percent Homeowner 67

Annual Expenditure 46,409 $3,867Food 5,931 $494 Food At Home 3,297 $275 Away From Home 2,634 $220Housing 15,167 $1,264 Shelter 8,805 $734 Utilities 3,183 $265 Operations 801 $67 Supplies 611 $51 Furnishings 1,767 $147Apparel and Services 1,886 $157Transportation 8,344 $695 Vehicle Purchase 3,544 $295 Gas And Oil 2,013 $168 Other 2,339 $195 Public Transportation 448 $37Healthcare 2,664 $222Entertainment 2,388 $199Personal Care 541 $45Education 940 $78Insurance, Pensions, SS 5,204 $434

National Averages

Year 2005

Food 12.8% At home 7.1% Away from home 5.7%Housing 32.7%Clothes 4.1%Transportation 18.0% Vehicles 7.6% Gas 4.3% Other 6.1%Healthcare 5.7%Entertainment 5.1%Personal Care 1.2%Education 2.0%Insurance/Pensions 11.2%

Sample Budget 1Income

Net Yearly Net MonthlyJane 29000.00 2416.67John 24000.00 2000.00Total 53000.00 4416.67

ExpensesMortgage/Tax/HI 16800 1400Student Loans 6240 520Food 5640 470Tithing 5280 440Car Payment 5160 430Gas 2520 210Car Insurance 2400 200Interest Payments 1440 120Utilities 1440 120Media/Communication 1200 100Fun/Other 4800 400

Yearly MonthlyTotal 52920 4410.00

Yearly MonthlyYearly Monthly

Savings 80.00 6.67

Flesh Out Your Budget

-Account for maintenance and irregular costs

-Try to predict future expenses

-Nail down your bills

-Do you have positive cash flow?

Sample Budget 2

IncomeNet Yearly Net Monthly

Jane 29000.00 2416.67John 24000.00 2000.00Total 53000.00 4416.67

ExpensesMonthly ExpensesMortgage 1400Student Loans 520Food 470Tithing 440Car Payment 430Gas 210Car Insurance 200Interest Payments 100Phones 100Cable 60Natural Gas 40Internet 35Water/Sewage/Trash 35Electricity 20Living/Fun 600

Yearly MonthlyTotal 55920 4660

Yearly ExpensesCar Maintenance 800Hobbies 1000House Work 500Vacationing 2500Health Care 500

Yearly MonthlyTotal 5300 441.67

Yearly MonthlyTotal Expenses 61220 5101.67

Yearly MonthlySavings -8220.00 -685.00

Key #3

You want to have positive cash flow.

Problem

Key #4

Plan beyond your month-to-month expenses.

Plan For Things That Are Hard To Plan For

-Home Owners: pipes break, refrigerators die, roofs leak windows crack

-Car Owners: 30k, 60k, 90k checks, unexpected repairs, tires, eventual replacement

-Parents: My condolences

ACK! What DO I DO?

-Carefully consider your expenses, both necessities and discretionary items

-Be honest about what your needs and wants are

-Be realistic about your situation

Key #5

In light of your long term financial health, be willing to make hard decisions.

Opinions, Pt. 1

-There is good debt and bad debt

-Good debt is sometimes bad and bad debt is never good

-Consumer debt on credit cards is enemy number one

-You NEED to have an emergency fund

-You must work towards having liquid savings

Opinions, Pt. 2

-Largely ignore how your peers spend money

-Debt, especially at high interest rates closes windows

-If you have credit card debt, institute a debt snowball or other method to pay it off

Opinions, Pt. 3

-Think long and hard about your standard of living

-If you grew up in a favorable situation, it may be hard to realize you need to downgrade

Opinions, Pt 4

-Please, please, please try to save at least 10% of your net income

-If you’re not in a position to save, do your best not to dig a hole

-Learn to prioritize to a greater extent

Opinions, Pt. 5

-We have many more things to buy than ever before (ipods, HDTVs, microwaves)

-There aren’t too many things we used to buy that we don’t now

-Avoid “lifestyle” stores and purchases

-The internet is designed to separate you and your money

Where To Cut Expenses?

-Try big items like food first

-Eliminate splurge spending

-Stop eating out

-Be careful with spending on clothes, luxury items and hobbies

-Ask “how many hours of work does it take me to pay for this?”

Track Your Budget

-Paper

-Spreadsheet

-Software

-Websites

Track Your Budget

Track Your Budget

Key #6

A good budget/personal finance program is systematic.

Tools

-Websites like Mint or Quicken

-Online banking

-Books

-Blogs like “Get Rich Slowly”

Well, that’s great, tell me,

HOW DO I STICK TO MY

BUDGET?!?!?!?

Sticking To The Budget

-Cash only, no credit cards

-Envelope method

-Credit only

-Direct deposit accounts

-Self waiting periods

-Internalizing Costs

Month-To-Month

-Don’t pat yourself on the back for a month of low expenses

-Make sure you remember to mentally amortize your yearly bills, and projected expenses

-Track, track, track

Goals

-Asses your situation

-Think about the present and the future

-Collect your financial data

-Make a budget

-Select a method for tracking spending

-Pick a strategy that fits

-Keep on keeping on

Questions?