strategies to effectively manage finances effectively manage your personal finances presented by:...

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

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Budgeting Basics

Budget Benefits

A budget can:

Provide guidance and direction

Facilitate planning

Motivate and inspire action

Help evaluate progress

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Building a Budget

Income Expenses Debts

Building Your Budget

Complete a Household Budgeting Worksheet

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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

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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

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Identify Your Gaps

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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.

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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

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Where are

your gaps?

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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

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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

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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

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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

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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

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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

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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

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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

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Planning for the Unexpected – Establishing an Emergency Fund

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Importance of Having an Emergency Fund

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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

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Emergency Fund Best Practices

Don’t Touch!

• Should be accessible on short notice

• Not so convenient you’re tempted to spend it

elsewhere

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Consider Your Spending Habits

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Ask Yourself

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Unplanned Income

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457 Hardship Withdrawal Feature

• Emergency withdrawal option in the event of a

severe financial hardship

• You do not pay back an emergency withdrawal

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Roth IRA Features

Tax-free earnings

Emergency savings

Estate planning

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Saving for Future Goals

Determine Your Goals

Future

Goals

Retire Comfortably

Buying a House

Saving for College

First Priority? You!

Saving