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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
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Determining Bill’s Gaps
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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
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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
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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
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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
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• 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
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