How to prepare a budget and stick to it

Agenda Having control over your money is important, both for your financial well-being and for your peace of mind. In this presentation, you'll learn about preparing a budget to help you better manage your money and achieve your financial goals: Why it s important to have a budget Setting financial goals Making a plan The steps involved in preparing a realistic budget Finding ways to save money Additional information & resources 2

Why it s important to have a budget A budget is a spending and savings plan, consisting of one simple equation: Total monthly income 3

Why it s important to have a budget A budget is a spending and savings plan, consisting of one simple equation: Total monthly income Total monthly expenses 4

Why it s important to have a budget A budget is a spending and savings plan, consisting of one simple equation: Total monthly income Total monthly expenses Amount over/ under 5

Why it s important to have a budget A budget is a spending and savings plan, consisting of one simple equation: Total monthly income Total monthly expenses Amount over/ under Having a budget can help you: - Control your finances - Reduce expenses - Save money - Pay down debt - Determine your debt-to-income ratio 6

Setting financial goals Before looking at any numbers, ask yourself, Why do I want to create a budget? Get everyone in your household involved and ask for support Set goals and categorize them as short, medium, or long-term Short-term (within 2 years) Pay off a credit card 7

Making a plan Prepare a budget that is realistic and flexible Create a plan that fits your lifestyle and financial goals General recommended budget percentages Category Percentage of income Housing 27% Food 21% Personal debt 14% Transportation 8% Savings 7% Utilities 6% Insurance 6% Clothing 4% Personal care 3% Health 3% Misc Items 1% Source: Alexis Holloway. How do you feel about your savings plan? Blogging for Change. Money Management International. April 16, 2010. 10

The steps involved in preparing a realistic budget

Step 1: Determine your income Look at the money you have coming in: Gather information on all household income that is received on a regular basis Do not include income that is not reliable or that may be irregular What income should I include? Employment Social Security Retirement Rental Alimony or child support Unemployment benefits 12

Step 1: Determine your income Look at what money you have coming in: Gather information on all household income that is received on a regular basis Do not include income that is not reliable or that may be irregular What income should I include? Employment Social Security Retirement Rental Alimony or child support Unemployment benefits What income should I leave out? Income not received on a regular basis Discretionary bonus that is not guaranteed Legal settlements that are not finalized Alimony or child support that is not received on a regular basis 13

Step 2: Determine your fixed expenses Fixed expenses generally stay the same each month and may not be easy to adjust. Fixed expenses Mortgage or rent payment Car payment Student loan payment Insurance Property taxes and homeowners insurance (if applicable) 14

Step 3: Determine your variable expenses Variable expenses can change on a daily, weekly, monthly or annual basis and have the most flexibility for adjustment Also includes optional expenses: things that you want versus what you need Variable expenses Groceries Credit cards Gasoline Utilities Entertainment Cable television Personal care items 15

Step 4: Prioritize Identify expenses that could be eliminated or reduced Set goals as to how extra cash will be used, such as to pay off debt or to save money Pay yourself first save! 16

Step 4: Prioritize Identify expenses that could be eliminated or reduced Set goals as to how extra cash will be used, such as to pay off debt or to save money Pay yourself first save! 17

Step 5: Follow your spending Follow your daily, weekly and monthly spending with a system that works best for you, such as a daily spending diary: Determine your debt-to-income ratio (how much you owe vs. what you earn) to get an idea of how much of your income goes toward paying existing debt Use your housing-to-income ratio to find out how much house you can comfortably afford by estimating your monthly mortgage payment 18

Step 6: Keep track of and stick to your budget Develop a budgeting system that works for you and will help you stick to your budget Your budget system should help you: - Track your spending so you know where your money is going - Plan for the following month s expenses - Pay your bills on time Consider: - Online tools such as My Portfolio, Bank of America s online tool for budgeting and tracking - Smart phone or tablet applications - Traditional systems such as the envelope system Readjust your budget when you have unexpected expenses 19

Finding ways to save money

Food Prepare more home-cooked meals Bring your lunch to school or work Bring a shopping list to the grocery store Shop during sales Use coupons Buy generic or store brands 21

Transportation Comparison shop for gas Use public transportation Carpool to work or school to save on total commuter cost, including monthly parking fees Buy a used car instead of a new one Shop competitive insurance offers Keep up with regular car maintenance 22

Utilities Weather-proof your home Adjust thermostat settings Turn things off Use energy efficient appliances and light fixtures Monitor utility bills for fluctuations Shop competitive service providers Reduce service features Avoid late fees 23

Personal care Explore exercise options for the better deal - Example: exercise group versus gym membership Use at-home cosmetic or skin care products instead of paying for salon care Read clothing labels to determine what can be washed at home instead of dry cleaned 24

Health Keep fit and eat a healthy diet to help avoid costly medical expenses Visit your doctor and dentist annually for preventative care Understand your insurance deductible and copayment arrangements Visit in-network doctors to lower healthcare costs Look into flexible spending healthcare accounts offered through your employer 25

Additional information and resources

Tips for paying off debt Prioritize debt you want to pay off first Pay more than the monthly minimum Reallocate extra money and adjust your budget Use unexpected income to pay down debt - Bonuses, cash gifts, tax returns Consider using a snowball debt-reduction method - Pay off debts with low balances first 27

Keys to success Establish a budget that is realistic and fits your goals and lifestyle Track and monitor your progress Control your use of credit cards Carry your written savings goals with you as a reminder Shop around to get the best deal on big-ticket items, such as cars and appliances Make revisions and adjustments when necessary Look into online tools and resources Keep your plan and goals top-of-mind Stay motivated don t give up when unexpected setbacks occur 28

Resources To find out more about home financing, prequalify for a mortgage loan* or talk to a Bank of America loan expert: - Home Loan Guide at bankofamerica.com/homeloaneducation For additional online financial education: - Better Money Habits at bettermoneyhabits.com - FDIC Money Smart: Learn more about budgeting, saving and investing - Visit: fdic.gov Home Consumer Protection Financial Education & Literacy Money Smart - A Financial Education Program Find a Nonprofit Housing Counseling Agency at HUD.gov; on the site select Resources, then select HUD Approved Housing Counseling Agencies Have more questions about what you learned today? Email us at: webinars@bankofamerica.com * Prequalification is neither preapproval nor a commitment to lend; you must submit additional information for review and approval. 29

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