Learning to Run the Business Called Your Life Part One

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					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

 

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

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America’s Personal Savings Rate

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Importance of a Plan

 The most important financial step an individual can

 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.
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Plan Construction

 Initial Spending

Assessment “wants”

 Recognizing “needs” and
 Adjust spending


 Review your spending plan  Establish and implement  Track your spending
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short- and long-term goals

Initial Spending Assessment

 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.

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Sweet Clarity

 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.

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“Gut-Check” Budget

 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.
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Gross vs. Net Income

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.
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Income and Expenses

 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

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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.

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 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.
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(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%)

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Comprehensive Budget

 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.
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Comprehensive Budget

 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.

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$4 a day $28 a week

$112 a Month $1,344 a year
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I love my coffee, but at what cost?

Cutting Spending

 Coffeemaker: $20
(one-time cost)

 Coffee Beans: $6
(each month)

 Cream: $2.50
(each week)

 Sugar: $5
(every three months)

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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

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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


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Determining “Needs” and “Wants”

 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.
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Discussing Your Options

 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

 More willing to accept changes to the Spending Plan.

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Emergency Fund

Single Individual


Three months’ worth of expenses
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Six months’ worth of expenses


 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…

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Tracking Spending

 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.

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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

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These seemingly trivial expenses add up

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Setting Goals

 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


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Setting Goals

 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?

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 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.

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Availability of Credit

 Reduced access to credit
 Shrinking credit limits  Minimum payments no longer sufficient  Keep an eye on your “debt to credit ratio

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Credit and Building Wealth

6.25 % - $1,539 Monthly Payment Total Interest: $304,200

8.5 % - $1,922 Monthly Payment Total Interest $441,720

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It is estimated that 210,000,000 consumers’ reports contain incorrect information.

Check Credit Reports
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Ordering your Credit Reports

 

Telephone: 877-322-8228 Mail: Annual Credit Report Request Service P.O. Box 105281 Atlanta, GA 30348-5281
Your must download form from

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Learning = Earning

US Department of Labor - 2007

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“Knowledge” is Key

Forester Research Inc. - 2004

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Social Media: Everyone is Using It

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