Spending Plans. Advanced Level

Transcription

1 Spending Plans Advanced Level

2 Where s My Dough? What expenses do you have? How much do you spend on each expense? Play dough = income Divide your play dough to show how much is spent on each expense Write a personal financial goal Based upon your current spending, is it realistic to achieve your goal? Adjust your play dough to reach your goal You have begun to develop a spending plan! Take Charge Today August 2013 Spending Plans Slide 2

3 What is a Spending Plan? An income and expense statement sometimes referred to as a budget which records both planned and actual income and expenses over a period of time A budget Take Charge Today August 2013 Spending Plans Slide 3

4 Why is a Spending Plan an important part of financial planning? Analyze the opportunity costs of your trade-offs to maximize financial wellbeing Help manage your money in a positive manner Increase net worth Helps set and reach goals Take Charge Today August 2013 Spending Plans Slide 4

5 Money Management Tools Statement of Financial Position Income & Expense Statement Spending Plan What is my financial position today? How have I managed my money in the past? What is my future money management plan? Determine what changes to make Make changes Take Charge Today August 2013 Spending Plans Slide 5

6 A forward-looking Income and Expense Statement May use the same template for both the Income and Expense Statement and the Spending Plan Take Charge Today August 2013 Spending Plans Slide 6

7 Spending Plan Development Process Develop the spending plan Step 5 - Evaluate and Make Adjustments Step 1 - Track Current Income and Expense Maintain the spending plan Step 4 - Implement and Control Step 3 - Allocate Money to Each Category Step 2 - Personalize Your Spending Plan Take Charge Today August 2013 Spending Plans Slide 7

8 Track Current Income and Expenses Completed by developing an Income and Expense Statement Ensures spending plan is realistic Step 5 - Evaluate and Make Adjustments Step 4 - Implement and Control Step 3 - Allocate Money to Each Category Step 1 - Track Current Income and Expense Step 2 - Personalize Your Spending Plan Take Charge Today August 2013 Spending Plans Slide 8

9 Congratulations! You have been hired as a financial advisor for John and Tia Brown Financial Advisor Information Developed a Statement of Financial Position and Income and Expense Statement Identified the following goals: Your Job Develop a spending plan for the Brown family Increase the amount of their emergency savings fund Pay more on their monthly car loan payment to pay the loan off faster Spend less money dining out at restaurants Spend less money on clothing every month Take Charge Today August 2013 Spending Plans Slide 9

10 The Brown Family Step One: Track Current Income and Expenses Financial Advisor Information Kept all receipts for the month of January to create an Income and Expense Statement Your Job Review John and Tia s January Income and Expense Statement for a realistic view of their income and expenses Take Charge Today August 2013 Spending Plans Slide 10

11 Personalize Your Spending Plan How will you develop a spending plan? Step 5 - Evaluate and Make Adjustments Step 1 - Track Current Income and Expense What is the intended time period for your spending plan? Step 4 - Implement and Control Step 2 - Personalize Your Spending Plan What categories will your spending plan include? Step 3 - Allocate Money to Each Category Take Charge Today August 2013 Spending Plans Slide 11

12 How will you develop a spending plan? Paper and pencil Any written method that works for you Spreadsheet Money management computer software Applications How would you develop a spending plan? Take Charge Today August 2013 Spending Plans Slide 12

13 What is the intended time period for your spending plan? Usually concurrent with pay period What time period would you choose for your spending plan? What categories will your spending plan include? Reference tracking from the Income and Expense Statement Do any categories need added, changed, or removed? Take Charge Today August 2013 Spending Plans Slide 13

14 The Brown Family Step Two: Personalize Your Spending Plan Financial Advisor Information Requested a spending plan for the month of February Requested the same document and categories as the Income and Expense Statement Your Job Find the column on the Income and Expense Statement where the Spending plan will be created Take Charge Today August 2013 Spending Plans Slide 14

15 Allocate Money to Each Category Reference tracking from Step One Step 5 - Evaluate and Make Adjustments Step 1 - Track Current Income and Expense Determine what changes to make Step 4 - Implement and Control Step 3 - Allocate Money to Each Category Step 2 - Personalize Your Spending Plan Take Charge Today August 2013 Spending Plans Slide 15

16 When allocating money consider: Trade-offs and opportunity costs Goals Contractual expenses Contractual Required to pay expense for a specific amount of time - not easy to reduce or eliminate Rent, Internet, Cell phone Non-contractual Easy to reduce or eliminate Food, entertainment Take Charge Today August 2013 Spending Plans Slide 16

17 Spending Plan Guide 10% 18% 7% Saving and Investing 10% Insurance 7% Housing 30% 15% Transportation 20% 30% Food 15% 20% Other 18% What variables may cause these percentages to be different? Take Charge Today August 2013 Spending Plans Slide 17

18 Net Gain or Net Loss? Income Expenses Net Gain or Net Loss Net Gain? Add more money to savings or another expense Net Loss? Increase income Decrease expenses Both Take Charge Today August 2013 Spending Plans Slide 18

19 The Brown Family Step Three: Allocate Money to Each Category Financial Advisor Information Indicated a * next to expenses that are either contractual or they are unwilling to decrease Remember goals Consider trade-offs Must have a net gain or a zero balance Take Charge Today August 2013 Spending Plans Slide 19

20 The Brown Family Step Three: Allocate Money to Each Category Your Job Develop a spending plan for the family Explain each change made Re-write goals into SMART goals using their new spending plan Take Charge Today August 2013 Spending Plans Slide 20

21 Implement and Control Make your planned spending decisions Step 5 - Evaluate and Make Adjustments Step 1 - Track Current Income and Expense Use a control system to stay on track Step 4 - Implement and Control Step 3 - Allocate Money to Each Category Step 2 - Personalize Your Spending Plan Take Charge Today August 2013 Spending Plans Slide 21

22 Which control system would help you stick to Money management computer software your spending plan? Internet-based spending plan program Control Systems Depository institution programs Check register system Envelope system Take Charge Today August 2013 Spending Plans Slide 22

23 The Brown Family Step Four: Implement and Control Your Job Recommend a control system for John and Tia Take Charge Today August 2013 Spending Plans Slide 23

24 Evaluate and Make Adjustments How well did your spending plan work? Step 5 - Evaluate and Make Adjustments Step 1 - Track Current Income and Expense Is your spending plan helping you reach goals? Step 4 - Implement and Control Step 2 - Personalize Your Spending Plan Do you need to make any adjustments? Step 3 - Allocate Money to Each Category Take Charge Today August 2013 Spending Plans Slide 24

25 The Brown Family Step Five: Evaluate and Make Adjustments Financial Advisor Information John and Tia realized that if they dine out at restaurants less often they will need to increase their monthly grocery expense Your Job Increase their grocery budget by $20.00 How has developing a spending plan helped the Brown family? How could creating a spending plan help you now and in the future? Take Charge Today August 2013 Spending Plans Slide 25

26 Summary A spending plan is an important financial planning tool Helps achieve goals Make your spending plan work for you Make sure to control, evaluate, and adjust your spending plan Step 5 - Evaluate and Make Adjustments Step 4 - Implement and Control Step 3 - Allocate Money to Each Category Step 1 - Track Current Income and Expense Step 2 - Personalize Your Spending Plan Take Charge Today August 2013 Spending Plans Slide 26