1.15.2.G1 The Essentials of Take Charge of Your Finances Spending plan Essentials.

1.15.2.G1

The Essentials of Take Charge of Your Finances

Spending plan Essentials

© Family Economics & Financial Education –September 2010– The Essentials to Take Charge of Your Finances– Spending Plans Essentials – Slide # 2

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Having a plan Financial planning is a

process individuals engage in to achieve long-term financial success while having a quality standard of daily living

A spending plan is a paper or electronic document used to record both planned and actual income through expenditures over a period of time

Spending Plan

Development Process



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Each individual has a unique spending plan Based

upon the following elements:

What do you value? How do these values affect your spending?

What are your perceptions of needs versus wants? How do these

perceptions influence spending?



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Financial Goals Financial goals are the foundation of

a financial plan Goal- the end result of something a

person intends to acquire, achieve, do, reach, or accomplish in the near or distant future

Financial goals- specific objectives to be accomplished through financial planningHow do values, need, wants, and goals relate

to spending plans?



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Components of a Spending Plan Income, Expenses, Net

Gain/Loss Gumball machine represents

components of the financial planning process

Income is money earned Gumballs going into the

machine Wages from a job, allowance,

gifts What are your sources of income?



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Components of a Spending Plan Expense is money spent Money going out of the

gumball machine Fixed expenses may

have a fixed amount due each month and are contractual

Flexible expenses can vary each month in the amount owed and are not contractual

What are two fixed expenses and two

flexible expenses you currently have?



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Spending plan activity-Decide if each item is income, a fixed expense, or a flexible expense

Rent

Fixed expense

Wages

Income



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Spending plan activityGroceries

Flexible expense

Internet bill

Fixed expense



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Spending plan activityTips

Income

Utilities

Fixed expense



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Spending plan activityGift from family

Income

Savings

Fixed expense



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Spending plan activity

Eating out/Snacks

Flexible expense

Why is it important to distinguish between income, fixed expenses, and flexible

expenses?



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How to Develop and Maintain a Spending Plan

Steps 1-3 help develop a spending plan

Steps 4-5 help maintain a spending plan

Once a spending plan is developed it should be continually evaluated and adjusted to meet personal needs and adapt to life changes

Spending Plan

Development Process



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Step 1: Track Current Income and Expenses

Necessary to creating a realistic spending plan



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Taxes Compulsory charges imposed on citizens

by local, state, and federal governments Provide public goods and services Income taxes are taken out of gross income

What are two items or services you use that are

paid for by taxes?



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Typical Spending Plan Expenses

What variables may cause these percentages to be

different?

• A reference• Provides

guidance• Based upon

net income



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Costs Associated with Housing



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Costs Associated with Transportation



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Costs Associated with Food



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Types of Insurance Home/renters and auto are included

in their major expenditure categories Insurance also includes the following:

Health – pays a portion of health care expenses if one is sick or injured

Disability – provides financial support if an individual is injured and cannot work

Life – provides financial support to an individual’s beneficiaries upon death



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Savings and Other Expenses Savings and investing

10-20 % of net income Save at least 6 months worth of expenses for

emergencies Continue to invest

Other Expenses Any additional needs and wants

Clothing Personal Care Entertainment

Determine which of these expenses relate to your

spending plan on the spending plan template.



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Step 2: Create Personalized Income and Expense Categories

Reference tracking from Step One

To determine personalized income and expense categories

for your spending plan



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Step 3: Allocate money to each category

Reference tracking from Step One to fill in “Planned Amount” column for each

category

Use categories created in Step Two

Refer to goals and determine if any changes in spending needs to be

made

A spending plan is now developed!



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Spending Plan Creation



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Components of a Spending Plan: Net Gain or Net Loss?

Net gain - there is remaining money to either save, spend or invest

Net loss an individual is spending more money that he/she is earning

A spending plan should have income and expenses matching one another (reach zero)



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Step 4: Implement and control Implement:

Put plan into action! Control:

Fill in the “Actual Amount” column Continued monitoring of spending

allows an individual to know if they are spending too much in a category

Helps avoid credit and savings use Utilize control systems



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Control Systems Envelope systems – individuals place the

actual budget amount of cash from a paycheck into a specific envelope system for the expense

Check register system – This helps consumers to track all expenditures in a checkbook register which has been divided into spending plan categories

Electronic spending plan systems – Multiple types of software are available for consumers to use to help keep track of their financial recordsWhich control system do you

think would work best for you and why?



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Step 5: Evaluate and make adjustments Assess if spending plan is working

Are goals being met? Are the dollar amount allocations in each

category accurate? Is money being saved or invested? Is credit being used? If so, then the spending plan

needs to be adjusted (by increasing income or decreasing expenses)

Make changes to spending plan if necessary Begin the process again!Why is evaluating and

adjusting a spending plan important?



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Why is it important to create a spending plan?

Income (money in)Wealth (money remaining)Flexible Expenses (money out)Fixed Expenses (money out)

To help set and reach financial goals An effective spending plan creates wealth

Wealth- a measurement of how much a person or household owns once all debts have been paid



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Summary A spending plan is a financial planning

tool that records planned and actual income through expenditures over a period of time

Everyone has a different spending plan because of unique values, needs, wants and goals

A spending plan includes three sections: income, expense, and net gain or loss.

A spending plan should be continually evaluated

and adjusted



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Summary Steps to develop a spending plan:

Step 1: Track current income and expenses Step 2: Create personalized income and

expense categories Step 3: Allocate money to each category Step 4: Implement and Control Step 5: Evaluate and Make Adjustments

An effectively managed spending plan allows an individual to begin creating wealth for long-term security

1.15.2.G1 The Essentials of Take Charge of Your Finances Spending plan Essentials.

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