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  • 2019 Annual

    Retirement

    Conference

    Strategies to Effectively Manage

    Your Personal Finances

    Presented by: Andrew Smith

    MERS Benefit Education Specialist

  • Agenda

    • Budgeting basics and resources

    • Debt management strategies

    • Importance of having an emergency fund

    • Emergency fund best practices

    • Saving for future goals

    MERS of Michigan | 3

  • Budgeting Basics

  • Budget Benefits

    A budget can:

    Provide guidance and direction

    Facilitate planning

    Motivate and inspire action

    Help evaluate progress

    MERS of Michigan | 5

  • Building a Budget

    Income Expenses Debts

  • Building Your Budget

  • Complete a Household Budgeting Worksheet

    MERS of Michigan | 8

    Compare

    EXPENSES vs INCOME

  • Sources to Consider

    Savings

    • Pension

    • Supplement savings account (457)

    • 401(k) / 401(a)

    • IRA

    • Stocks and Bonds

    • Emergency fund

    Income

    • Current salary

    • Income from rentals

    • Side jobs

    MERS of Michigan | 9

  • Sources to Consider, cont’d

    Expenses

    • Housing (mortgage)

    • Transportation (gas, auto loans, insurance)

    • Insurance/Healthcare

    • Food

    • Miscellaneous  Personal care

     Clothing

     Hobbies

     Travel

    • Debts  Student loans

     Credit cards

     Medical bills

     Loans

    MERS of Michigan | 10

  • Identify Your Gaps

  • MERS of Michigan | 12

    Average Household Expense Ranges

    Source: US Bureau of

    Labor Statistics Consumer

    Expenditure Survey*

    * Includes emergency fund savings,

    retirement savings, etc.

  • Example: Meet Bill • Bill would like to establish a budget and set

    some spending goals for himself

    • Bill’s net monthly income is $4,688

    ($56,258 annually)

    • He is single with no children

    MERS of Michigan | 13

  • Determining Bill’s Gaps

    MERS of Michigan | 14

    Budgeted

    Expense

    Bill’s Goal Expense Target (net income x Bill’s

    goals %)

    Actual

    Expense

    Area of

    Concern?

    Housing

    (25 – 35%) % $ $

    Transportation

    (10 – 15%) % $ $

    Savings

    (10 – 20%) % $ $

    Food

    (5 – 15%) % $ $

    Medical

    (5 – 10%) % $ $

    Debt Payments

    (5 – 10%) % $ $

    All other

    (5 -20%) % $ $

    1,641$4,688 x .35

    703

    188

    281

    938

    234

    703

    $4,688 x .15

    $4,688 x .20

    $4,688 x .06

    $4,688 x .04

    $4,688 x .05

    $4,688 x .15

    35

    15

    20

    6

    4

    5

    15

    1,600

    600

    300

    700

    150

    100

    1,238

  • Determining Bill’s Gaps, cont’d.

    MERS of Michigan | 15

    Budgeted

    Expense

    Bill’s Goals Expense Target (net income x Bill’s

    goals %)

    Actual

    Expense

    Area of

    Concern?

    Housing

    (25 – 35%) 35% $1,641 $1,600

    Transportation

    (10 – 15%) 15% $703 $600

    Savings

    (10 – 20%) 20% $938 $300 Yes

    Food

    (5 – 15%) 6% $281 $700 Yes

    Medical

    (5 – 10%) 4% $188 $150

    Debt Payments

    (5 – 10%) 5% $234 $100

    All other

    (5 -20%) 15% $703 $1,238 Yes

  • Analysis

    Based on this analysis, Bill should take the following steps

    to adjust his monthly budget:

    1. Reduce his food and miscellaneous monthly expenses

    2. Consider increasing the amount he is setting aside for

    savings

    MERS of Michigan | 16

    Where are

    your gaps?

  • MERS of Michigan | 17

  • Budgeting Tools and Tips

  • Manage Your Day-to-Day Spending

    • Spend “within your means”

    • Know your income and expenses by creating a budget

    • Budgeting is a tool that tells your money where to go

    ahead of time

    MERS of Michigan | 19

  • Budgeting Tools

    • Online tools through your bank

    • Microsoft Office templates

    • Organizations such as:

    – National Credit Union Administration (mycreditunion.gov)

    – Visa (practicalmoneyskills.com)

    • Apps

    – Mint

    – You Need a Budget

    – Wally

    MERS of Michigan | 20

  • Ideas to Reduce Expenses

    Household

    • Shop around for better rates

    • Consider refinancing your mortgage

    • Improve water and energy efficiency

    MERS of Michigan | 21

  • Ideas to Reduce Expenses, cont’d

    Transportation

    • Consider carpooling or public transportation

    • Shop around for a better auto insurance rates

    • Avoid unnecessary repairs with routine maintenance

    • Reduce or eliminate car payments

    MERS of Michigan | 22

  • Ideas to Reduce Expenses, cont’d

    Other Discretionary Expenses

    • Cancel memberships

    • Shop around for a better deal on TV/cable, or reduce your

    current package

    • Shop second hand stores for clothing and home goods

    • Make your own coffee and bring your lunch to work

    MERS of Michigan | 23

  • Debt Management Strategies

    MERS of Michigan | 24

  • Debt Management • Debt can come in many forms and includes:

    – Credit cards

    – College or student loans

    – Other types of loans

    • Debt management is simply creating a plan to repay

    debt in a meaningful way

    MERS of Michigan | 25

  • Debt Payoff Strategies Two primary strategies:

    1. Pay off debt with the highest interest rates first

    2. Tackle the smallest debts first then move on to the

    second smallest, and so on

    MERS of Michigan | 26

  • DID YOU KNOW?

    Paying even just $25 over your minimum monthly payment can have a

    big impact on the time it takes you to pay off your bill.

    Paying More Than the Minimum Has an Impact

    MERS of Michigan | 27

    Monthly Payment Time to Pay Off Card (if no additional purchases made) Total Interest Paid

    First Payment of $120, then

    Minimum Payment (3% of balance or $25 whichever is greater)

    Over 11 years $2,513

    $145 2 years 6 months $935

    $220 1 year 9 months $566

    Example: Joe has $4,000 in credit card debt with a 15% interest rate

  • Debt Consolidation

    Plans involve combining debts into one loan in an

    attempt to lower monthly payments and interest

    charges

    MERS of Michigan | 28

    National Debt Relief: www.nationaldebtrelief.com

  • Debt Settlement • Avoid companies which:

    – Charges fees before it settles your debts

    – Touts a "new government program"

    – Guarantees it can make your debt go away

    – Guarantees your debts can be paid off for pennies on the dollar

    – Tells you to stop communicating with your creditors, but doesn’t

    explain the serious consequences

    – Tells you it can stop all debt collection calls and lawsuits

    MERS of Michigan | 29

  • Planning for the Unexpected – Establishing an Emergency Fund

    MERS of Michigan | 30

  • Importance of Having an Emergency Fund

    MERS of Michigan | 31

  • Emergency Savings

    MERS of Michigan | 32

    • Money set aside to cover life's unexpected events

    • Should be able to access quickly and easily

    • Ideally should be a fund separate from other things

    you are saving for

  • How Much Should You Save?

  • Other Important Considerations

    MERS of Michigan | 34

  • Emergency Fund Best Practices

  • Don’t Touch!

    • Should be accessible on short notice

    • Not so convenient you’re tempted to spend it

    elsewhere

    MERS of Michigan | 36

  • Consider Your Spending Habits

    MERS of Michigan | 37

  • Ask Yourself

    MERS of Michigan | 38

  • Unplanned Income

    MERS of Michigan | 39

  • 457 Hardship Withdrawal Feature

    • Emergency withdrawal option in the event of a

    severe financial hardship

    • You do not pay back an emergency withdrawal

    MERS of Michigan | 40

  • Roth IRA Features

    Tax-free earnings

    Emergency savings

    Estate planning

    MERS of Michigan | 41

  • Saving for Future Goals

  • Determine Your Goals

    Future

    Goals

    Retire Comfortably

    Buying a House

    Saving for College

  • First Priority? You!

  • Saving