Learning to Run the Business Called Your Life C R E AT I N G F I N A N C I A L S EC U R I T Y I N 2 0 0 9 2008 – The Numbers 2 11.1 Million unemployed 3 Million foreclosure filings 12 million households owe more than their homes are worth $973 Billion in revolving credit debt $30 Trillion in global stock value Cambridge Credit Counseling Corp. America’s Personal Savings Rate 3 Cambridge Credit Counseling Corp. Importance of a Plan 4 The most important financial step an individual can take! Directed by goals and financial resources. Reviewing spending habits ensures you’re on the right path to achieve your goals. Provides direction as you manage all aspects of your finances -- spending, credit, savings, and investments. Cambridge Credit Counseling Corp. Plan Construction 5 Initial Spending Assessment “wants” Recognizing “needs” and Adjust spending accordingly Review your spending plan Establish and implement Track your spending Cambridge Credit Counseling Corp. short- and long-term goals Initial Spending Assessment 6 You can’t tell where you’re going unless you know where you’ve been. A clear picture of your current situation helps to create a course of action, allowing you to pursue your goals. Conduct an Initial Spending Assessment. Cambridge Credit Counseling Corp. Sweet Clarity 7 Understanding where one’s money is going is the cornerstone of any financial plan. Provides an overview of the costs associated with the various aspects of one’s life Many people do not truly know how all of their money is spent. to make sound decisions as you pursue financial goals. Provides information necessary Two-step process. Cambridge Credit Counseling Corp. “Gut-Check” Budget 8 Gain a sense of how much of your income is being spent in each of the specific spending categories. Each person’s financial circumstances are unique. Average consumer commits a certain % of their income among several generalized categories. May immediately bring attention to category within budget commanding too much income. Make immediate changes to reallocate earnings. Cambridge Credit Counseling Corp. Gross vs. Net Income 9 Gross Income Gross income represents a $1312 Gross Income person’s income before taxes and other deductions are taken out. Does not offer a true representation of your finances. Net income represents the money you actually control. Cambridge Credit Counseling Corp. Income and Expenses 10 There are two key elements that drive a spending plan -- income and expenses. Income includes salary and any additional forms of income, such as alimony, child support, sales commissions, etc. Gather all bills, including credit card statements, receipts for groceries, gas, or anything else that you buy with cash. your checkbook register available. To review additional expenses, it is also helpful to have Cambridge Credit Counseling Corp. 11 Recommended Spending Spending generally falls within six categories in an average budget. Cambridge recommends that each category take up a certain percentage of your monthly income. Cambridge Credit Counseling Corp. Categories 12 LIFE: (17%) Includes clothing, childcare, groceries, restaurants and fast food, computer downloads, subscriptions, and entertainment items such as monthly cable payments, movie tickets and/or rentals. DEBT: (12%) Includes credit cards, gas and store cards, as well as any other loans. HOME: (40%) Includes rent or mortgage payments and any insurances associated with housing, household heating and electric bills, payments for household furnishings, as well as cleaning and maintenance products. Cambridge Credit Counseling Corp. Categories 13 OTHER: (6%) Contains everyday expenses you may have, including tobacco, school tuition fees, personal care products, gym memberships, Internet service, etc… Create an emergency fund first, then allocate savings according to your goals, including retirement. Including car loan payments, auto insurance, parking fees, registrations, tolls, fuel expenses, and public transportation. SAVINGS: (10%) TRAVEL: (15%) Cambridge Credit Counseling Corp. Comprehensive Budget 14 There are two distinct differences between a Gut Check Budget and a Comprehensive Budget -- more categories and only one recommendation for spending. A Comprehensive Budget provides the opportunity to gain a more complete view of where earnings are spent. We all have very different needs, wants and means. Cambridge Credit Counseling Corp. Comprehensive Budget 15 No matter the situation, all individuals should strive to reach the recommended personal savings of 10%. We all make little purchases in the course of a month. The impact of these purchases doesn’t always register with us, but they can greatly affect our overall financial outlook. Cambridge Credit Counseling Corp. 16 $4 a day $28 a week $112 a Month $1,344 a year Cambridge Credit Counseling Corp. I love my coffee, but at what cost? Cutting Spending 17 Coffeemaker: $20 (one-time cost) Coffee Beans: $6 (each month) Cream: $2.50 (each week) Sugar: $5 (every three months) Cambridge Credit Counseling Corp. 18 I love my savings even more! Analyzing your Spending Plan will show you places you can reduce your spending. I now spend approximately $222 a year Savings of $1,122 Cambridge Credit Counseling Corp. 19 Recognize Needs and Wants In order to effectively determine items that can be adjusted, you must examine your “needs” and “wants.” “Needs” are essentials, the basics of life -- food, clothing, shelter, and anything else that you consider to be ABSOLUTELY essential to live life. “Wants” are basically everything else. Cambridge Credit Counseling Corp. Determining “Needs” and “Wants” 20 The paper chase… Needs, and Undetermined Remember, every item we spend our earnings Wants, on can eventually be placed in either the need or want category. Cambridge Credit Counseling Corp. Discussing Your Options 21 Finances are NOT a taboo subject. Important to discuss potential changes with everyone who will be affected. An alternate point of view may be helpful to reduce spending. More willing to accept changes to the Spending Plan. Cambridge Credit Counseling Corp. Emergency Fund 22 Single Individual Family Three months’ worth of expenses Cambridge Credit Counseling Corp. Six months’ worth of expenses 23 An individual's emergency fund The New Financial Plan With such a demand on someone's finances, the only way to achieve such an ambitious emergency fund is to begin by developing a solid spending plan. should be comprised of at least one years worth of expenses Rent or mortgage Grocery Utility Insurances Automobile Gasoline, Etc… Cambridge Credit Counseling Corp. Tracking Spending 24 Changing spending behavior is not always easy. Measures will need to be taken to ensure that you follow your plan. The best way to maintain a Spending Plan is to track day-to-day spending. Keep a Spending Journal. Cambridge Credit Counseling Corp. 25 “Bob” Like most of us, Bob has a pretty hectic lifestyle. He is usually on the go from the moment he wakes until he gets home from work Cambridge Credit Counseling Corp. 26 “Bob” These seemingly trivial expenses add up Cambridge Credit Counseling Corp. Setting Goals 27 How much money will I need to reach this goal? Is this a short- or long-term goal? Will this fit comfortably into my Spending Plan? What additional information do I need to achieve this goal? Cambridge Credit Counseling Corp. Setting Goals 28 What help, assistance, or collaboration do I need? What financial obstacles can block my progress? Is my plan to achieve this goal realistic? Is there a better way of doing things? Cambridge Credit Counseling Corp. 29 Perform a financial check-up every Review Progress After you’ve gained control of your finances, follow these steps to maintain progress toward your goals. four months using the information gathered while tracking expenses. Follow the same steps used during an initial spending assessment. Consistently look for ways to reduce or eliminate expenses. Cambridge Credit Counseling Corp. Availability of Credit 30 Reduced access to credit Shrinking credit limits Minimum payments no longer sufficient Keep an eye on your “debt to credit ratio Cambridge Credit Counseling Corp. Credit and Building Wealth 31 6.25 % - $1,539 Monthly Payment Total Interest: $304,200 8.5 % - $1,922 Monthly Payment Total Interest $441,720 Cambridge Credit Counseling Corp. It is estimated that 210,000,000 consumers’ reports contain incorrect information. Check Credit Reports Cambridge Credit Counseling Corp. 32 Ordering your Credit Reports 33 Online: www.annualcreditreport.com Telephone: 877-322-8228 Mail: Annual Credit Report Request Service P.O. Box 105281 Atlanta, GA 30348-5281 Your must download form from www.ftc.gov/credit Cambridge Credit Counseling Corp. Learning = Earning 34 US Department of Labor - 2007 Cambridge Credit Counseling Corp. “Knowledge” is Key 35 Forester Research Inc. - 2004 Cambridge Credit Counseling Corp. Social Media: Everyone is Using It 36 Cambridge Credit Counseling Corp. Questions? 37 Cambridge Credit Counseling Corp.