budgeting essentials - umassfive essentials ... keep three months of your net income in reserve ......

Download Budgeting Essentials - UMassFive  Essentials ... Keep three months of your net income in reserve ... periodic expenditures and subtract that figure from your Total Net Income for the month

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  • 5 Basic Steps:

    AssessYourFinancialSituation

    SetFinancialGoals

    CreateaBudget

    UseCreditWisely

    CommittoaSavingsPlan

    You Can Do It

    Itwill take someeffort to follow these steps completely.Theprocessmayrequiremakingsomechanges,andthesechanges,whetherbigorsmall,mayseemdifficultorawkwardatfirst.Rememberthatinadditiontoremainingbothflexibleandrealisticduringthisprocess,youmustalsobehonestwithyourself,believeinyourself,andbeopentoalternatives.Youhavethepowertotakecontrolofyourmoney.

    Budgeting EssentialsOneofthegreatestsatisfactionsinlifeishavingasenseof

    controloveryourfinances.Throughcarefulplanninganduse

    ofmoneymanagementtechniquesthatanyonecanlearn,you

    andyour familycanfeelmoreconfidentaboutyourability to live

    withinyourmeans,handleemergencies,reducedebt,andsaveforthefuture.

    Financialawarenessisdefinedasunderstandingwhereyouare,whereyouwant

    togo,andwhatyouwanttodowithyourmoney.Understandinghowtomanage

    moneyandcredit,anddevelopingthedisciplinetodo itwell,canmakeareal

    differenceinyourlife.Thetips,guidelines,worksheets,andquizzesthatfollow

    aredesignedtohelpyouunderstandandimproveyourfinancialsituation.They

    are organized to help you take the five basic steps toward successful money

    management.

  • STEP 1

    Assess Your Financial Situation

    To start your self-assessment and motivate yourself to do better, complete the following quiz.

    CircleAfor Always, Sfor SometimesandNforNever.

    Asarule,doyou:

    1. Paytherent/mortgagepaymentandutilitybillsontime? A S N

    2. Save10percentofyournetincome? A S N

    3.Keepthreemonthsofyournetincomeinreserve

    foremergencies? A S N

    4.Planaheadforlargeexpensessuchastaxesandinsurance? A S N

    5. Setgoalsandkeepabudgetforyournetincome? A S N

    6. Spendnomorethan20percentofyournetincomefor

    creditpayments,excludinghomemortgage? A S N

    7.Comparisonshopforthepurchaseofmostitems? A S N

    8. Usecreditonlyforexpensivepurchasesorwhenyou

    havethemoneyinthebanktocoverthecharge? A S N

    9. Maintainacheckingaccountregisterandbalanceit

    everymonth? A S N

    10. Keepyourselffinanciallyupdatedbyreading

    consumerarticles? A S N

    TOTAL A:___S:___N:___

    Scoring: Add your points using the column provided.

    Never=0points,Sometimes=1Point,Always=2points.Howdoyourate?

    0 10 Points:Indicatesaneedtotakecontrolofyourfinances.Developandpracticebettermoneymanagementskills.

    11-15 Points:Reflectsgoodefforttomanageyourmoneyeffectively.Determinewhatchangescanbemadetoimproveyourfinancialwell-being.

    16 20 Points:Demonstratesabilitytomanageyourfinancessuccessfully.Continuetomakemoneymanagementapriorityinyourhousehold.

  • Calculate Net Worth

    Onyourfinancialjourney,knowingwhereyouarestartingfromsimplymeansknowingwhatyouown(assets)andwhatyouowe(liabilities).Assetsaredefinedasphysicalproperty,suchasahomeoracar,orintangiblerights,suchasmoneyowedyoubysomeoneelse.Liabilitiesaredebtsthatyouowetosomeoneelsesuchasamortgage,anautoloan,creditcarddebt,orothertypesofloans.Thesearetotals,notmonthlypayments.Belowyouwillfindachartdesignedtohelpestimateyournetworth.

    ASSETS LIABILITIES

    Cash and Equivalents Mortgage (principal only) $_____________

    Cash $_____________ Other Debt $_____________

    Checking/SavingsAccount $_____________ CarLoans $_____________

    CashValue:LifeInsurance $_____________ HomeImprovementLoans $_____________

    andAnnuities StudentLoans $_____________

    Other $_____________ OtherLoans $_____________

    Real Property (Market Value) CreditCards $_____________

    RealEstate $_____________ Taxes Owed

    Car $_____________ Federal $_____________

    PersonalProperty $_____________ StateandLocal $_____________

    Investments Contractual Obligations

    CertificatesofDeposit $_____________ eg.,leases,tuition $_____________

    Bonds $_____________

    MutualFunds $_____________ TOTAL LIABILITIES: $_____________

    Stocks $_____________

    Others $_____________

    Retirement Accounts

    IRA $_____________ ASSETS $_____________

    PensionFund(vestedbal.) $_____________ minus(-)

    Other $_____________ LIABILITIES $_____________

    Other $_____________ equals(=)

    TOTAL ASSETS $_____________ NET WORTH $_____________

    The OutcomeApositivenetworthindicatesthatyourassetsarelargerthanyourliabilities.Anegativenetworthindicatesthatyourliabilitiesarelargerthanyourassets.

  • STEP 2

    Set Financial Goals

    Short-term goals:

    Financialprioritiesthatcanbe

    accomplishedwithintwoyears.

    Mid-term goals:

    Financialprioritiesthatcanbe

    accomplishedwithintwoto

    fiveyears.

    Long-term goals:

    Financialprioritiesthatmaytakefive

    yearsormoretoaccomplish.

    Developingspecificfinancialgoalsandwritingthemdownisakeystepinthemoneymanagementprocess.Establishinggoalswillhelpyoudeterminewhereyouwanttogofinancially,andrecordingyourgoalswillmotivateyoutomakethechangesnecessarytoachievethem.Becauseeachfamilymemberhasadifferentperspectiveonwhattheyconsiderafinancialpriority,itisimportanttomakegoal-settingafamilyaffair.Create a list of financial priorities with your family and discuss the similarities and differences of thesepriorities.Then,decidetogetherwhichitemswillbecomeyourgoals.Itisessentialforeveryfamilymembertocommittotheagreedupongoals.

    FINANCIAL GOALS WORKSHEET Date:

    Amount Amount Needed Target Cost Already Per Month To

    Goal Date Estimate Saved/Paid Reach Goal

    1.

    2. 3.

    4.

    1.

    2.

    3.

    4.

    1.

    2.

    3.

    4.

  • STEP 3

    Create a Budget

    Nowthatyouhaveestablishedyourfinancialdestinationbysettinggoals,youarefacedwiththetaskofgettingthere.Creatingarealisticmonthlybudgetorspendingplanprovidesyouwiththevehicletogetyouonyourway.Tocreateabudget,youneedtoknowhowmuchmoneyisavailable,wherethemoneyisbeingspentandwhatadjustmentsneedtobemade.

    The Budget Process

    Recordmonthlyincome

    Recordmonthlyexpenses

    Compareincometoexpenses

    Record Monthly IncomeDocumentyourmonthlyincomeontheIncomeWorksheet.Followthedirections,rememberingtolistallsourcesofincomeyourhouseholdwillusetooffsetexpenses.

    Record Monthly ExpensesRecordingmonthlyexpensesmeansdocumentingandtrackingexactlywhatyouspendyourmoneyon.Yourexpensescanbedividedintooneofthesecategories:

    Fixed expensesusuallydonotfluctuateandrequireasetpaymentona weeklyormonthlybasis.Fixedexpensesaregenerallythemostdifficult tochange.Theseincludeexpenseslikerentormortgagepayment, insurancepremiums,andchildcare.

    Variable expensesvaryfromweektoweekormonthtomonth.Theyare themostflexibleandcanbeamultitudeofthings.

    Periodic expensesgenerallyoccuronceortwiceayearandcanbe unpredictable.Theyincludeitemssuchascarrepair,largegifts,taxes, andhomemaintenance.

  • Income Worksheet (monthly)

    Step 1: Sources of Paychecks.Listallsourcesofmonthlyearnedincomeofallindividualslivinginthehousehold

    involvedinthefamilybudget.Thisshouldincludefull-time,part-time,andselfemploymentincome.

    Step 2: Monthly Gross Income.Listtheamountofincomereceivedbeforedeductions.Ifpaidweekly,baseincome

    onfourpaycheckspermonth(48payperiods/year).Ifpaideveryotherweek(26payperiods/year),base

    incomeontwopaycheckspermonth(24payperiods/year).Theadditionalpaychecksineachcasewould

    belistedinStep6below.

    Step 3: Deductions.Listallmonthlydeductionsfromeachsourceofincome.Loansowedtoanemployerand/or

    creditunionshouldbelistedontheDebtLoadWorksheet,nothere.

    Step 4: Monthly Net Income.Subtractalldeductionsfromthemonthlygrossincometoarriveatthemonthlynet

    income.

    Step 5: Other Monthly Income.Listmonthlyincomefromothersources.Rememberthisisincomeyoureceiveon

    aregularbasiseventhoughitmaynotbefromemployment.Examples:SocialSecurity,Rentals,Disability

    Compensation, Temporary Assistance to Needy Families, Alimony, Industrial Compensations, Annuities,

    StockDividends,ChildSupport,Royalties,Allotments,Boarders,etc.

    Step 6: Additional Periodic Income.Listextrapaychecks,bonuses,incometaxrefunds,etc.(dividedintoamonthly

    amount).

    Step 7: Total Monthly Net Income.AddSteps4,5,and6 together foryour totalmonthlynet income. If total

    net incomefromallsources isnotsufficienttoaccomplishyourgoals, lookforwaysofrevising income

    and/ortheexpenseswhicharedeductedfromyourpay.Examples:Federalincometaxexemptions,insurance

    coverage,savings,etc.

  • Income Worksheet (continued)

    Household Household Household Paycheck #1 Paycheck #2 Paycheck #3 Total

    1. Sources of Paychecks

    2. Monthly Gross Income

    3. Deductions

    FederalIncomeTax

    FICA/Retirement

    MedicalInsurance

    LifeInsurance

    DentalInsurance

    Co.StockPurchase

    PayrollDeductionSaving(401k)

    UnionDues

    ChildSupport

    Other

    Other

    4. Monthly Net Earned Income

    5. Other Monthly Income

    6. Additional Periodic Income

    7. Total Monthly

    Net Income

  • Expense Worksheet (monthly)

    FIXED

    RentorMortgagePayment

    HomeEquity/2ndMortgage

    Health/HomeownersInsurance

    CarLoanPayment

    AutoInsurance

    ChildSupport/Alimony

    Savings

    Other

    Total Fixed Expenses

    VARIABLES

    FoodatHome(Groceries)

    Meals&SnacksonJob

    SchoolLunches

    MealsOut

    Electricity

    Gas/Heating

    Water/Sewer/Garbage/Recycling

    Phone/LongDistance/Cellular

    Cable/Satellite

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