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

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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<ul><li><p>5 Basic Steps:</p><p> AssessYourFinancialSituation</p><p> SetFinancialGoals</p><p> CreateaBudget</p><p> UseCreditWisely</p><p> CommittoaSavingsPlan</p><p>You Can Do It</p><p>Itwill take someeffort to follow these steps completely.Theprocessmayrequiremakingsomechanges,andthesechanges,whetherbigorsmall,mayseemdifficultorawkwardatfirst.Rememberthatinadditiontoremainingbothflexibleandrealisticduringthisprocess,youmustalsobehonestwithyourself,believeinyourself,andbeopentoalternatives.Youhavethepowertotakecontrolofyourmoney.</p><p>Budgeting EssentialsOneofthegreatestsatisfactionsinlifeishavingasenseof</p><p>controloveryourfinances.Throughcarefulplanninganduse</p><p>ofmoneymanagementtechniquesthatanyonecanlearn,you</p><p>andyour familycanfeelmoreconfidentaboutyourability to live</p><p>withinyourmeans,handleemergencies,reducedebt,andsaveforthefuture.</p><p>Financialawarenessisdefinedasunderstandingwhereyouare,whereyouwant</p><p>togo,andwhatyouwanttodowithyourmoney.Understandinghowtomanage</p><p>moneyandcredit,anddevelopingthedisciplinetodo itwell,canmakeareal</p><p>differenceinyourlife.Thetips,guidelines,worksheets,andquizzesthatfollow</p><p>aredesignedtohelpyouunderstandandimproveyourfinancialsituation.They</p><p>are organized to help you take the five basic steps toward successful money</p><p>management.</p></li><li><p>STEP 1</p><p>Assess Your Financial Situation</p><p>To start your self-assessment and motivate yourself to do better, complete the following quiz.</p><p>CircleAfor Always, Sfor SometimesandNforNever.</p><p>Asarule,doyou: </p><p>1. Paytherent/mortgagepaymentandutilitybillsontime? A S N</p><p>2. Save10percentofyournetincome? A S N</p><p>3.Keepthreemonthsofyournetincomeinreserve</p><p> foremergencies? A S N</p><p>4.Planaheadforlargeexpensessuchastaxesandinsurance? A S N</p><p>5. Setgoalsandkeepabudgetforyournetincome? A S N</p><p>6. Spendnomorethan20percentofyournetincomefor</p><p> creditpayments,excludinghomemortgage? A S N</p><p>7.Comparisonshopforthepurchaseofmostitems? A S N</p><p>8. Usecreditonlyforexpensivepurchasesorwhenyou</p><p> havethemoneyinthebanktocoverthecharge? A S N</p><p>9. Maintainacheckingaccountregisterandbalanceit</p><p> everymonth? A S N</p><p>10. Keepyourselffinanciallyupdatedbyreading</p><p> consumerarticles? A S N</p><p>TOTAL A:___S:___N:___</p><p>Scoring: Add your points using the column provided. </p><p>Never=0points,Sometimes=1Point,Always=2points.Howdoyourate?</p><p>0 10 Points:Indicatesaneedtotakecontrolofyourfinances.Developandpracticebettermoneymanagementskills.</p><p>11-15 Points:Reflectsgoodefforttomanageyourmoneyeffectively.Determinewhatchangescanbemadetoimproveyourfinancialwell-being.</p><p>16 20 Points:Demonstratesabilitytomanageyourfinancessuccessfully.Continuetomakemoneymanagementapriorityinyourhousehold.</p></li><li><p>Calculate Net Worth</p><p>Onyourfinancialjourney,knowingwhereyouarestartingfromsimplymeansknowingwhatyouown(assets)andwhatyouowe(liabilities).Assetsaredefinedasphysicalproperty,suchasahomeoracar,orintangiblerights,suchasmoneyowedyoubysomeoneelse.Liabilitiesaredebtsthatyouowetosomeoneelsesuchasamortgage,anautoloan,creditcarddebt,orothertypesofloans.Thesearetotals,notmonthlypayments.Belowyouwillfindachartdesignedtohelpestimateyournetworth.</p><p>ASSETS LIABILITIES</p><p>Cash and Equivalents Mortgage (principal only) $_____________</p><p> Cash $_____________ Other Debt $_____________</p><p> Checking/SavingsAccount $_____________ CarLoans $_____________</p><p> CashValue:LifeInsurance $_____________ HomeImprovementLoans $_____________</p><p> andAnnuities StudentLoans $_____________</p><p> Other $_____________ OtherLoans $_____________</p><p>Real Property (Market Value) CreditCards $_____________</p><p> RealEstate $_____________ Taxes Owed</p><p> Car $_____________ Federal $_____________</p><p> PersonalProperty $_____________ StateandLocal $_____________</p><p>Investments Contractual Obligations</p><p> CertificatesofDeposit $_____________ eg.,leases,tuition $_____________</p><p> Bonds $_____________ </p><p> MutualFunds $_____________ TOTAL LIABILITIES: $_____________</p><p> Stocks $_____________ </p><p> Others $_____________</p><p>Retirement Accounts </p><p> IRA $_____________ ASSETS $_____________</p><p> PensionFund(vestedbal.) $_____________ minus(-)</p><p> Other $_____________ LIABILITIES $_____________</p><p>Other $_____________ equals(=)</p><p>TOTAL ASSETS $_____________ NET WORTH $_____________</p><p> The OutcomeApositivenetworthindicatesthatyourassetsarelargerthanyourliabilities.Anegativenetworthindicatesthatyourliabilitiesarelargerthanyourassets.</p></li><li><p>STEP 2</p><p>Set Financial Goals</p><p>Short-term goals: </p><p>Financialprioritiesthatcanbe</p><p>accomplishedwithintwoyears.</p><p>Mid-term goals: </p><p>Financialprioritiesthatcanbe</p><p>accomplishedwithintwoto</p><p>fiveyears.</p><p>Long-term goals: </p><p>Financialprioritiesthatmaytakefive</p><p>yearsormoretoaccomplish.</p><p>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.</p><p> FINANCIAL GOALS WORKSHEET Date: </p><p> Amount Amount Needed Target Cost Already Per Month To</p><p> Goal Date Estimate Saved/Paid Reach Goal</p><p> 1. </p><p> 2. 3. </p><p> 4. </p><p> 1. </p><p> 2. </p><p> 3. </p><p> 4. </p><p> 1. </p><p> 2. </p><p> 3. </p><p> 4. </p></li><li><p>STEP 3</p><p>Create a Budget</p><p>Nowthatyouhaveestablishedyourfinancialdestinationbysettinggoals,youarefacedwiththetaskofgettingthere.Creatingarealisticmonthlybudgetorspendingplanprovidesyouwiththevehicletogetyouonyourway.Tocreateabudget,youneedtoknowhowmuchmoneyisavailable,wherethemoneyisbeingspentandwhatadjustmentsneedtobemade.</p><p>The Budget Process</p><p> Recordmonthlyincome</p><p> Recordmonthlyexpenses</p><p> Compareincometoexpenses</p><p>Record Monthly IncomeDocumentyourmonthlyincomeontheIncomeWorksheet.Followthedirections,rememberingtolistallsourcesofincomeyourhouseholdwillusetooffsetexpenses.</p><p>Record Monthly ExpensesRecordingmonthlyexpensesmeansdocumentingandtrackingexactlywhatyouspendyourmoneyon.Yourexpensescanbedividedintooneofthesecategories:</p><p> Fixed expensesusuallydonotfluctuateandrequireasetpaymentona weeklyormonthlybasis.Fixedexpensesaregenerallythemostdifficult tochange.Theseincludeexpenseslikerentormortgagepayment, insurancepremiums,andchildcare.</p><p> Variable expensesvaryfromweektoweekormonthtomonth.Theyare themostflexibleandcanbeamultitudeofthings.</p><p> Periodic expensesgenerallyoccuronceortwiceayearandcanbe unpredictable.Theyincludeitemssuchascarrepair,largegifts,taxes, andhomemaintenance.</p></li><li><p>Income Worksheet (monthly)</p><p>Step 1: Sources of Paychecks.Listallsourcesofmonthlyearnedincomeofallindividualslivinginthehousehold</p><p>involvedinthefamilybudget.Thisshouldincludefull-time,part-time,andselfemploymentincome.</p><p>Step 2: Monthly Gross Income.Listtheamountofincomereceivedbeforedeductions.Ifpaidweekly,baseincome</p><p>onfourpaycheckspermonth(48payperiods/year).Ifpaideveryotherweek(26payperiods/year),base</p><p>incomeontwopaycheckspermonth(24payperiods/year).Theadditionalpaychecksineachcasewould</p><p>belistedinStep6below.</p><p>Step 3: Deductions.Listallmonthlydeductionsfromeachsourceofincome.Loansowedtoanemployerand/or</p><p>creditunionshouldbelistedontheDebtLoadWorksheet,nothere.</p><p>Step 4: Monthly Net Income.Subtractalldeductionsfromthemonthlygrossincometoarriveatthemonthlynet</p><p>income.</p><p>Step 5: Other Monthly Income.Listmonthlyincomefromothersources.Rememberthisisincomeyoureceiveon</p><p>aregularbasiseventhoughitmaynotbefromemployment.Examples:SocialSecurity,Rentals,Disability</p><p>Compensation, Temporary Assistance to Needy Families, Alimony, Industrial Compensations, Annuities,</p><p>StockDividends,ChildSupport,Royalties,Allotments,Boarders,etc.</p><p>Step 6: Additional Periodic Income.Listextrapaychecks,bonuses,incometaxrefunds,etc.(dividedintoamonthly</p><p>amount).</p><p>Step 7: Total Monthly Net Income.AddSteps4,5,and6 together foryour totalmonthlynet income. If total</p><p>net incomefromallsources isnotsufficienttoaccomplishyourgoals, lookforwaysofrevising income</p><p>and/ortheexpenseswhicharedeductedfromyourpay.Examples:Federalincometaxexemptions,insurance</p><p>coverage,savings,etc.</p></li><li><p>Income Worksheet (continued) </p><p> Household Household Household Paycheck #1 Paycheck #2 Paycheck #3 Total </p><p>1. Sources of Paychecks </p><p>2. Monthly Gross Income </p><p>3. Deductions </p><p> FederalIncomeTax</p><p> FICA/Retirement</p><p> MedicalInsurance</p><p> LifeInsurance</p><p> DentalInsurance </p><p> Co.StockPurchase</p><p> PayrollDeductionSaving(401k)</p><p> UnionDues</p><p> ChildSupport</p><p> Other </p><p> Other </p><p>4. Monthly Net Earned Income </p><p>5. Other Monthly Income </p><p>6. Additional Periodic Income </p><p>7. Total Monthly </p><p> Net Income </p></li><li><p>Expense Worksheet (monthly)</p><p>FIXED</p><p>RentorMortgagePayment</p><p>HomeEquity/2ndMortgage</p><p>Health/HomeownersInsurance</p><p>CarLoanPayment</p><p>AutoInsurance </p><p>ChildSupport/Alimony</p><p>Savings </p><p>Other </p><p>Total Fixed Expenses </p><p>VARIABLES</p><p>FoodatHome(Groceries)</p><p>Meals&amp;SnacksonJob</p><p>SchoolLunches </p><p>MealsOut </p><p>Electricity </p><p>Gas/Heating </p><p>Water/Sewer/Garbage/Recycling</p><p>Phone/LongDistance/Cellular</p><p>Cable/Satellite </p><p>InternetCharges</p><p>Gasoline </p><p>BusFares/ParkingTolls</p><p>FamilyClothing</p><p>DryCleaning/Laundromat</p><p>CleaningSupplies/PersonalItems</p><p>Barber&amp;BeautyShop</p><p>ChildrensAllowance</p><p>VARIABLES (cont.)</p><p>CharitableContributions</p><p>BabySitter </p><p>School/Tuition/Activities</p><p>Tobacco/Alcohol</p><p>Recreation </p><p>Books/Newspapers/Magazines</p><p>Videos/Books/Tapes/CDs</p><p>Hobbies/Lessons </p><p>Dentist </p><p>Medicine/Co-pays</p><p>BankCharges/ATM</p><p>Postage </p><p>PetExpenses </p><p>Total Variable Expenses </p><p>PERIODIC</p><p>Taxes(Property,Excise,etc.)</p><p>Backtoschool </p><p>CarRepairs/Tires</p><p>Inspection/Registration</p><p>Gifts/HolidayExpenses </p><p>Maintenance/Repair</p><p>HomeMisc. </p><p>Total Periodic Expenses </p><p>TOTAL MONTHLY EXPENSES </p><p>(-) MONTHLY NET INCOME </p><p>(=) SURPLUS/DEFICIT </p></li><li><p>Compare Income to Expenses</p><p>Youarenowreadytocompareyourmonthlyincometoyourmonthlyexpensesanddeterminewhat,ifany,changesarenecessary.Onthebottomsectionoftheworksheet,totalallofyouractualfixed,variable,andperiodicexpendituresandsubtractthatfigurefromyourTotalNetIncomeforthemonth.</p><p>Ifyour result isapositivenumber, this indicates thatexcess incomeexistsandyour income is sufficient tosupportthemonthlyexpensesyouhavedocumented.Ifyourresultisanegativenumber,thisindicatesthatashortageexistsandyourincomeisnotsufficienttosupportyourmonthlyexpenses.Withashortage,youhavethreeoptions:increaseyourmonthlyincome,decreaseyourmonthlyexpenses,ordoacombinationofboth.</p><p>Decreasingyourmonthlyexpensesmaybetheeasiest,andprovidesthemostimmediatesolution.Reviewmonthlyexpensesusingthesepointers:</p><p> Eatoutless.Theconvenienceoffastfoodandrestaurantscancosthundredsofdollarsamonth; thousandsofdollarsayear.</p><p> Curbhabits.Thedailyroutineofbuyinga$3cupofcoffeecanadduptoover$1,000ayear.</p><p> Comparisonshop.Forhouseholdgoodsandgroceries,checktheunitper-servingprice.Lookforsaleson itemsyouneedtopurchase.</p><p> Shopwithalist.Resistimpulsivebuying.</p><p> Tradeinyourcarforamorefuel-efficientvehicleorcarpooltoreducegasexpenses.</p><p> Evaluatetheimportance(andtrueneed)ofeverydayluxuriessuchascellphones,cableTV, entertainment,nonessentialclothing,anddesignerhaircuts.</p><p>Asyoumakereductions,listthemintheadjustedcolumnoftheExpenseWorksheet.Onceyouhavebalancedtheequationsotheincomecoversyourexpenseseachmonth,makeablueprint.THISISYOURBUDGET!</p></li><li><p>Budgeting Works</p><p>Successfulmoneymanagementbeginswithcreatingahouseholdbudget.Althoughtheprocessmayseemdifficultandtime-consuming,itisvitaltogainingcontrolofyourfinancesaswellasreachingyourfinancialgoals.</p><p>Aworkingbudget ismore than ablueprint for the spendingof future income. It becomes the familys planforsavingaswellasspendingandaroadmapforreachingyourgoals.Whileitrequiresyoutoestimateyouravailable incomeandtomakedecisionsaboutspendingthosefunds,yourbudgetwillhelpyou implementamoneymanagementplanforyourfuture.</p><p>Asuccessfulbudgetshould:</p><p> Helpincreasesavings</p><p> Preventimpulsivespending</p><p> Determinewhatyoucanafford</p><p> Identifyexpensesthatcanbereduced</p><p> Helprepaydebt</p><p>There isno singlebudget formula that is successful forallhouseholds. Everyhousehold chooses to spendmoneyinitsownway,tomeetitsownneeds.Thesecrettosuccessfulbudgetingistodeveloparealisticplanthatisworkableforyourfamilyanduniquecircumstances,andthenfollowit.</p><p> Budget Allocation Guide</p><p> Category Range </p><p> Personaldebt 10-20%</p><p> Housing 35-45%</p><p> Food 15-30%</p><p> Transportation 6-20%</p><p> Utilities 7-15%</p><p> Clothing 3-10%</p><p> Misc.Items 1-4%</p><p> Savings 5-10%</p><p> Insurance 4-6%</p><p> Personalcare 2-4%</p><p> Health 2-8%</p></li><li><p>Is your credit use under control?</p><p>Creditisoneofthemostimportantfinancialtoolsyouhave.Usedwisely,creditcanbeagreattool,butmismanagedcreditcancausefinancialhardshipandseverestress.Toassessyourskillatmanagingcreditanddebt,takethefollowingquiz.</p><p>1. Areyouborrowingmoneyorusingcreditcardstopayforitemsthatyou formerlypurchasedwithcash? YES NO</p><p>2. Ismorethan20percentofyournetincomegoingtopaydebts(excluding homemortgagepayment)? YES NO</p><p>3. Areyoupayingbillswithmoneyintendedforsomethingelse? YES NO</p><p>4. Areyoudippingintoyoursavingstopaycurrentbills? YES NO</p><p>5. Ifyouoryourspouselostyourjob,doyouhavelessthanthree monthstake-homepayinasavingsaccount? YES NO</p><p>6. Canyouusuallymakeonlytheminimumpaymentonyourcreditcards? YES NO</p><p>7. Areyouextendingrepaymentschedules?(i.e.payingbillslateor requestingdeferments)? YES NO</p><p>8. Areyounear,at,oroverthelimitonyourcreditcards? YES NO</p><p>9. Doyoutakeoutanewloanbeforetheoldoneispaidoffortakeouta newonetopayoffanexistingloan? YES NO</p><p>10.Areyouunsureofhowmuchyouowe(within$50)? YES NO</p><p>11.Doyouhabituallypayyourbillslate? YES NO</p><p>12.Doyouchargemoreeachmonthoncreditcardsthanyoumakeinpayments? YES NO</p><p>13.Doyouuseacashadvanceononecreditcardtomake paymentsonothercreditcards? YES NO</p><p>14.Hasacollectionagencycalledrecentlyaboutanoverduebill? YES NO</p><p>15.Areyoubeingthreatenedwithrepossessionofyourcar,cancellation ofyourcreditcards,orotherlegalactions? YES NO</p></li><li><p>STEP 4</p><p>Use Credit Wisely</p><p>Havingtheuseofcreditcanbeagreatfinancialadvantageandcanbearealbenefitinemergencysituations.Itincreasesfinancialflexibilityandcanhelpyouobtainsomeoftheluxuriesthatimprovethequalityofyourlife.Eventhoughtheseareallpositiveaspectsofcredit,youmustguardagainstpoor credit management. Mismanagement can negatively impact your credit history, and lead tofinancialhardshipandseverestress.</p><p>AvoidCreditDilemmas</p><p> Shoparoundforthebestinterestratesbycomparingtheratesofvariouslendersandmakesureto checkforhiddenfeesandcharges.</p><p> Makeyourpaymentontime,everytime.</p><p> Keepbalanceslowoncreditcardsandrevolvingcreditaccounts.</p><p> Strivetopaymoreeachmonththanjusttheminimumoncreditcardbalances.</p><p> Contactcreditorsimmediatelyifyoucannotmakeascheduledpayment.</p><p> Avoidborrowingmoneytocoverbasicexpensessuchashousingorfood.</p><p> Refrainfromusingcredittobuythingsyoudonotreallyneed.</p><p> Donttakeonmonthlypaymentsthatyoucannotafford,anddontborrowtomakepaymentson existingdebts.</p><p> Dontletyourcreditcardlimittrickyouintospendingwhatyoucantafford.</p><p>Beforeapplyingforneworadditionalcredit,reviewyourcurrentfinancialsituationandconsideryourfuturefinancialplans.Thenaskyourselftheimportantquestion,HowmuchdebtcanIcomfortablyhandle?</p><p>Remember: Credit is not an extension of income.</p></li><li><p>Debt Load Worksheet</p><p>Ifyou think thatyourdebt load ispreventingyoufromreachingyourgoals, startnowto reduceyourdebt.Determineexactlyhowmuchyoucurrentlyo...</p></li></ul>

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