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

InternetCharges

Gasoline

BusFares/ParkingTolls

FamilyClothing

DryCleaning/Laundromat

CleaningSupplies/PersonalItems

Barber&BeautyShop

Children’sAllowance

VARIABLES (cont.)

CharitableContributions

BabySitter

School/Tuition/Activities

Tobacco/Alcohol

Recreation

Books/Newspapers/Magazines

Videos/Books/Tapes/CDs

Hobbies/Lessons

Dentist

Medicine/Co-pays

BankCharges/ATM

Postage

PetExpenses

Total Variable Expenses

PERIODIC

Taxes(Property,Excise,etc.)

Backtoschool

CarRepairs/Tires

Inspection/Registration

Gifts/HolidayExpenses

Maintenance/Repair

HomeMisc.

Total Periodic Expenses

TOTAL MONTHLY EXPENSES

(-) MONTHLY NET INCOME

(=) SURPLUS/DEFICIT

Compare Income to Expenses

Youarenowreadytocompareyourmonthlyincometoyourmonthlyexpensesanddeterminewhat,ifany,changesarenecessary.Onthebottomsectionoftheworksheet,totalallofyouractualfixed,variable,andperiodicexpendituresandsubtractthatfigurefromyourTotalNetIncomeforthemonth.

Ifyour result isapositivenumber, this indicates thatexcess incomeexistsandyour income is sufficient tosupportthemonthlyexpensesyouhavedocumented.Ifyourresultisanegativenumber,thisindicatesthatashortageexistsandyourincomeisnotsufficienttosupportyourmonthlyexpenses.Withashortage,youhavethreeoptions:increaseyourmonthlyincome,decreaseyourmonthlyexpenses,ordoacombinationofboth.

Decreasingyourmonthlyexpensesmaybetheeasiest,andprovidesthemostimmediatesolution.Reviewmonthlyexpensesusingthesepointers:

• Eatoutless.Theconvenienceoffastfoodandrestaurantscancosthundredsofdollarsamonth; thousandsofdollarsayear.

• Curbhabits.Thedailyroutineofbuyinga$3cupofcoffeecanadduptoover$1,000ayear.

• Comparisonshop.Forhouseholdgoodsandgroceries,checktheunitper-servingprice.Lookforsaleson itemsyouneedtopurchase.

• Shopwithalist.Resistimpulsivebuying.

• Tradeinyourcarforamorefuel-efficientvehicleorcarpooltoreducegasexpenses.

• Evaluatetheimportance(andtrueneed)ofeverydayluxuriessuchascellphones,cableTV, entertainment,nonessentialclothing,anddesignerhaircuts.

Asyoumakereductions,listthemintheadjustedcolumnoftheExpenseWorksheet.Onceyouhavebalancedtheequationsotheincomecoversyourexpenseseachmonth,makeablueprint.THISISYOURBUDGET!

Budgeting Works

Successfulmoneymanagementbeginswithcreatingahouseholdbudget.Althoughtheprocessmayseemdifficultandtime-consuming,itisvitaltogainingcontrolofyourfinancesaswellasreachingyourfinancialgoals.

Aworkingbudget ismore than ablueprint for the spendingof future income. It becomes the family’s planforsavingaswellasspendingandaroadmapforreachingyourgoals.Whileitrequiresyoutoestimateyouravailable incomeandtomakedecisionsaboutspendingthosefunds,yourbudgetwillhelpyou implementamoneymanagementplanforyourfuture.

Asuccessfulbudgetshould:

• Helpincreasesavings

• Preventimpulsivespending

• Determinewhatyoucanafford

• Identifyexpensesthatcanbereduced

• Helprepaydebt

There isno single“budget formula” that is successful forallhouseholds. Everyhousehold chooses to spendmoneyinitsownway,tomeetitsownneeds.Thesecrettosuccessfulbudgetingistodeveloparealisticplanthatisworkableforyourfamilyanduniquecircumstances,andthenfollowit.

Budget Allocation Guide

Category Range

Personaldebt 10-20%

Housing 35-45%

Food 15-30%

Transportation 6-20%

Utilities 7-15%

Clothing 3-10%

Misc.Items 1-4%

Savings 5-10%

Insurance 4-6%

Personalcare 2-4%

Health 2-8%

Is your credit use under control?

Creditisoneofthemostimportantfinancialtoolsyouhave.Usedwisely,creditcanbeagreattool,butmismanagedcreditcancausefinancialhardshipandseverestress.Toassessyourskillatmanagingcreditanddebt,takethefollowingquiz.

1. Areyouborrowingmoneyorusingcreditcardstopayforitemsthatyou formerlypurchasedwithcash? YES NO

2. Ismorethan20percentofyournetincomegoingtopaydebts(excluding homemortgagepayment)? YES NO

3. Areyoupayingbillswithmoneyintendedforsomethingelse? YES NO

4. Areyoudippingintoyoursavingstopaycurrentbills? YES NO

5. Ifyouoryourspouselostyourjob,doyouhavelessthanthree months’take-homepayinasavingsaccount? YES NO

6. Canyouusuallymakeonlytheminimumpaymentonyourcreditcards? YES NO

7. Areyouextendingrepaymentschedules?(i.e.payingbillslateor requestingdeferments)? YES NO

8. Areyounear,at,oroverthelimitonyourcreditcards? YES NO

9. Doyoutakeoutanewloanbeforetheoldoneispaidoffortakeouta newonetopayoffanexistingloan? YES NO

10.Areyouunsureofhowmuchyouowe(within$50)? YES NO

11.Doyouhabituallypayyourbillslate? YES NO

12.Doyouchargemoreeachmonthoncreditcardsthanyoumakeinpayments? YES NO

13.Doyouuseacashadvanceononecreditcardtomake paymentsonothercreditcards? YES NO

14.Hasacollectionagencycalledrecentlyaboutanoverduebill? YES NO

15.Areyoubeingthreatenedwithrepossessionofyourcar,cancellation ofyourcreditcards,orotherlegalactions? YES NO

STEP 4

Use Credit Wisely

Havingtheuseofcreditcanbeagreatfinancialadvantageandcanbearealbenefitinemergencysituations.Itincreasesfinancialflexibilityandcanhelpyouobtainsomeoftheluxuriesthatimprovethequalityofyourlife.Eventhoughtheseareallpositiveaspectsofcredit,youmustguardagainstpoor credit management. Mismanagement can negatively impact your credit history, and lead tofinancialhardshipandseverestress.

AvoidCreditDilemmas

• Shoparoundforthebestinterestratesbycomparingtheratesofvariouslendersandmakesureto checkforhiddenfeesandcharges.

• Makeyourpaymentontime,everytime.

• Keepbalanceslowoncreditcardsandrevolvingcreditaccounts.

• Strivetopaymoreeachmonththanjusttheminimumoncreditcardbalances.

• Contactcreditorsimmediatelyifyoucannotmakeascheduledpayment.

• Avoidborrowingmoneytocoverbasicexpensessuchashousingorfood.

• Refrainfromusingcredittobuythingsyoudonotreallyneed.

• Don’ttakeonmonthlypaymentsthatyoucannotafford,anddon’tborrowtomakepaymentson existingdebts.

• Don’tletyourcreditcardlimittrickyouintospendingwhatyoucan’tafford.

Beforeapplyingforneworadditionalcredit,reviewyourcurrentfinancialsituationandconsideryourfuturefinancialplans.Thenaskyourselftheimportantquestion,“HowmuchdebtcanIcomfortablyhandle?”

Remember: Credit is not an extension of income.

Debt Load Worksheet

Ifyou think thatyourdebt load ispreventingyoufromreachingyourgoals, startnowto reduceyourdebt.Determineexactlyhowmuchyoucurrentlyowe.Usethespacebelowtolistalloutstandingdebt:creditunion,car,student,andpersonalloans,includinganywhichyouhavestoppedpaying.Arrangeyouraccountsinorderfromthehighesttothelowestannualpercentagerate(APR)charged.Includemortgageorrentpayments,butexcludehomeownersinsuranceandpropertytax.

If you are able to commit extra income to accelerate your debt repayment, add this to the total minimumpayments.Whenoneaccountispaidoff,usethatmoneytoincreasethepaymentoftheaccountatthetopofthelist.Makeatleasttheminimumpaymenteachduedateonalloutstandingaccountsandcontinuethisprocessuntilalldebtsarepaidinfull. Current Minimum

Creditor Account # APR Balance Payment Date

1

2

3

4

5

6

7

8

9

10

Debt To Income Ratio

Howdoyoudeterminewhatlevelofdebtisreasonabletocarryatyourincomelevel?Aneasywayistolookat the relationship between your monthly debt and your income. Use this simple formula to calculate your

debttoincomeratio.Fillinyouramountsonlinesbelow.

Your Total Monthly Debt Payments ÷ Your Total Monthly Net Income = Your Debt to Income Ratio

If your resulting percentage is:

Under40% Yourdebttoincomeratioiswithinanacceptablerange.

Over42% Youmaywanttoreduceyourcurrentdebtloan.

Over51% Youmaybeheavilyindebtedandshouldconsiderwhetherotnottotakeonadditionaldebt.

STEP 5

Commit to a Savings Plan

Savingbyregularlysettingasidepartofyourincomeisanessentialpartofanymoneymanagementplan.Inadditiontothemoneysetaside,savingprovidestheopportunitytoearnmoneythroughcompoundinterest.Savingscanprovidethemoneyneededtomanageregularfinancialobligations,andincreasefinancialsecurityandasenseofwell-being.Developandcommittoasavingsplanthatincludesmoneyforthesesituations:

• Periodiclivingexpenses–eachpayperiod,setasidetheamountthatisbudgetedforanexpense butnotactuallyspentduringthatpayperiod.Useasavingsaccountorinterest-bearingchecking accountinwhichfundscanbeeasilydepositedandwithdrawn,andwillyieldsomeinterest.

• Anemergencyfund–eachpayperiodsetasidetheamountthatisbudgeteduntilthegoalofa 3–6monthlivingexpensecushionisachieved.Putintoashort-termCertificateofDeposit (CD)orMoneyMarketaccount.

• Short-,mid-,andlong-termgoals–setasidemoneyeachmonthtofundfinancialgoals.Select an interest bearing account for the short range goals, and a savings instrument, such as a CDforsavingbetween9monthsandtwoyears.Ifsavingformorethantwoyears,consultan investmentadvisorformoreoptions.

Moneycanbesavedor invested–andtherearedifferencesbetweenthetwo.Bothallowyourmoneytoworkforyou.Butthedifferenceinsavingsandinvestmentproductsarisesintherateofreturnandamountofriskinvolved.Questionsthatshouldbeconsideredwhenevaluatingasavingsandinvestmentinstrumentare: • Whatistheinterestrate? • ForhowlongmustIinvestthemoney? • CanIhaveaccesstoitatanytimeoristhereapenaltyifitiswithdrawnearly? • AretheretaxpenaltiesifIwithdrawthemoneyearly?

• Whatriskswillbeassociatedwithmyinvestment?

Howdoyoucalculatehowfastyourinvestmentswillgrow?UsetheRuleof72:Anyinterestratedividedintothenumber72willgiveyouthenumberofyearsnecessarytodoubleyourmoney:

72dividedby3%=24years 72dividedby6%=12years 72dividedby12%=6years$2,000 initialinvestment $2,000 initialinvestment $2,000 initialinvestment$4,000 24years $4,000 12years $4,000 6years$8,000 48years $8,000 24years $8,000 12years

$16,000 36years $16,000 18years

$32,000 48years $36,000 24years $64,000 30years

$128,000 36years$256,000 42years$512,000 48years

Take Control

You’vedeterminedyourbudgetandyouknowhowtogetwhereyouwanttobefinancially.Tohelpensuresuccess,askeveryoneinyourhouseholdtofollowthispersonalmoneymanagementcommitment:

Communicate:Takethetimetotalkabouteachother’sneedsandwantssothateveryonefeelsapartoftheplan.

Cooperate:Beprepared to compromiseandworkcooperatively.Agreewithin the family thateveryonewilltaketurnsgettingwhathe/shewantsandevengivingupsomethingthatiswanted.Worktowardafinancialpartnership.

Control:Everyfamilymembermustexercisecontrolandavoidunnecessaryspending.Strivetolivewithinthefamily’sincome,andlimittheuseofcredittopresetlimits.Makesavingsafamilypriority.Thentogether,youcantakecontrolofyourfinancialfuture.

Internet Site Addresses

SomeofthemostusefulInternetsitesprovidingcurrentinformationonvariouspersonalfinancetopicsareincludedonthelistbelow.

Credit Counseling: www.moneymanagement.org

Credit Report Information: www.annualcreditreport.com

www.equifax.com

www.experian.com

www.transunion.com

To be taken off credit card solicitation list: www.dmachoice.org/consumerassistance.php

www.optoutprescreen.com

Web sites for general penny pinching: www.stretcher.com

www.cheapskatemonthly.com

Tolearnmore,visitouronline“LearningCenter”atumassfive.org

Ifyouhaveanyquestionsorconcernsaboutthistopic,pleasecallusat800.852.5886ordropbyanybranchforassistance.AnyUMassFiverepresentativewillbeabletohelpyou.

200WestgateCenterDrive•Hadley,MA01035800.852.5886•www.umassfive.org

Notes

Some content from Money Management International (MMI)