Spending Plans Advanced Level

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 2 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Where’s My Dough?

What expenses do

you have?

How much do you spend on

each expense?

Play dough = income

Divide your play dough to

show how much is spent

on each expense

Write a personal

financial goal

Based upon your current

spending, is it realistic to

achieve your goal?

Adjust your play dough to

reach your goal

You have begun to develop a spending

plan!

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 3 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

What is a Spending Plan?

Spending Plan for: Time Period:

Planned Amount

Actual Amount

Income Earned Income

Wages or salary before deductions

Unearned Income Money from savings and investments to help pay expenses during this time period

Received Income from Government Programs Total Income $ $

Expenses Deductions Often Taken from Paychecks

Contributions to retirement programs (401k,

403b, pension, IRA)

Federal income tax and state income tax

Social Security and Medicare

Saving and Investing (Pay Yourself First) Contribution to savings and investments Insurance Premiums

Health, automobile, home or renters, life

Housing Costs Transportation Costs Food Costs Family Member Care Communication and Computers

Telephone landline, cell phone, Internet,

cable/satellite television

Medical Costs Not Covered by Insurance Clothing and Personal Care Educational Expenses Pet Care Entertainment Gifts and Charitable Contributions Credit Costs

Student loan, credit card, other loan payments

Total Expenses $ $ Net Gain or Net Loss (Income less Expenses) $ $

An income and expense statement sometimes referred to as a budget which records both planned and actual income and expenses over a period of time

A budget

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 4 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Why is a Spending Plan an important part of financial planning?

Analyze the opportunity costs of your trade-offs

to maximize financial well-

being

Helps set and reach goals

Help manage your money in a positive manner

Increase net worth

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 5 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Money Management Tools

Statement of Financial Position

Income & Expense Statement

Spending Plan

What is my financial position

today?

What is my future money

management plan?

How have I managed my

money in the past?

Make changes

Determine what changes to make

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 6 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

A forward-looking Income and Expense Statement

May use the same template for both the Income and

Expense Statement and the Spending Plan

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 7 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Spending Plan Development Process

Step 1 - Track Current Income and

Expense

Step 2 - Personalize Your Spending Plan

Step 3 - Allocate

Money to Each Category

Step 4 - Implement and

Control

Step 5 - Evaluate and Make

Adjustments

Develop the spending plan

Maintain the spending plan

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 8 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Track Current Income and Expenses

Completed by developing an

Income and Expense Statement

Step 1 - Track Current Income and

Expense

Step 2 - Personalize Your Spending Plan

Step 3 - Allocate

Money to Each Category

Step 4 - Implement and

Control

Step 5 - Evaluate and Make

Adjustments

Ensures spending plan is realistic

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 9 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Congratulations! You have been hired as a financial

advisor for John and Tia Brown

Financial Advisor Information

Your Job

• Developed a Statement of Financial Position and Income and Expense Statement

• Identified the following goals:

• Develop a spending plan for the Brown family

Increase the amount of their

emergency savings fund

Spend less money on

clothing every month

Pay more on their monthly car loan payment to pay

the loan off faster

Spend less money dining out at restaurants

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 10 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

The Brown Family Step One: Track Current Income and Expenses

Income and Expense Statement for: John and Tia Brown

Time Period: January

Amount

Income

Earned Income

Wages or salary before deductions 5500.00

Total Income $5,500.00

Expenses

Deductions Often Taken from Paychecks

*Contribution to a retirement program (401k, 403b) 385.00

*Federal income tax 1,100.00

*Social Security 317.13

*Medicare 74.17

Saving and Investing (Pay Yourself First)

Contribution to savings and investments 250.00

Insurance Premiums

*Health insurance, Medicaid and Medicare 250.00

*Renters or homeowners insurance 15.00

*Automobile insurance 70.00

Housing Costs

*Housing payment (rent or mortgage) 800.00

*Utilities (gas, electricity, water, garbage) 100.00

Transportation Costs

*Automobile payment 200.00

*Fuel (gasoline/diesel) 100.00

*Automobile repairs and maintenance 50.00

*Public transportation fees 50.00

*Automobile license and registration (yearly fee) 20.00

Food Costs

Food at the grocery store 300.00

Meals at restaurants 350.00

Snacks away from home (coffees, treats) 30.00

Non-food kitchen supplies (plastic wrap, dish soap) 30.00

Communication and Computers

*Cell phone 110.00

*Internet 60.00

*Cable/satellite television 40.00

Medical Costs Not Covered by Insurance

*Medical care 100.00

Clothing and Personal Care

Clothing 250.00

Personal care (shampoo, haircuts, cosmetics, laundry, etc.) 150.00

Entertainment

Movies, books, and other entertainment 200.00

Total Expenses $5,401.30

Net Gain or Net Loss (Income less Expenses) $98.70

Financial Advisor Information

Your Job

Kept all receipts for the month of January to create an Income and Expense Statement

Review John and Tia’s January Income and Expense Statement for a realistic view of their income and expenses

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 11 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Personalize Your Spending Plan

Step 1 - Track Current Income and

Expense

Step 2 - Personalize Your

Spending Plan

Step 3 - Allocate

Money to Each Category

Step 4 - Implement and

Control

Step 5 - Evaluate and Make

Adjustments

How will you develop a

spending plan?

What is the intended time period for your

spending plan?

What categories will your spending

plan include?

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 12 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

How will you develop a spending plan?

Any written method

that works for you

How would you develop a

spending plan?

Paper and pencil

Spreadsheet

Money management computer software

Applications

2.2.5.G1

© Take Charge Today – August 2013– Spending Plans – Slide 13 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

What is the intended time period for your spending plan?

What categories will your spending plan include?

• Usually concurrent with pay period

• Reference tracking from the Income and Expense Statement

• Do any categories need added, changed, or removed?

What time period would you choose for your spending

plan?

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 14 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Income and Expense Statement for: John and Tia

Brown

Time Period: January

Amount Planned Amount

for February

Income

Earned Income

Wages or salary before deductions 5500.00

Total Income $5,500.00 $

Expenses

Deductions Often Taken from Paychecks

*Contribution to a retirement program (401k, 403b) 385.00

*Federal income tax 1,100.00

*Social Security 317.13

*Medicare 74.17

Saving and Investing (Pay Yourself First)

Contribution to savings and investments 250.00

Insurance Premiums

*Health insurance, Medicaid and Medicare 250.00

*Renters or homeowners insurance 15.00

*Automobile insurance 70.00

Housing Costs

*Housing payment (rent or mortgage) 800.00

*Utilities (gas, electricity, water, garbage) 100.00

Transportation Costs

*Automobile payment 200.00

*Fuel (gasoline/diesel) 100.00

*Automobile repairs and maintenance 50.00

*Public transportation fees 50.00

*Automobile license and registration (yearly fee) 20.00

Food Costs

Food at the grocery store 300.00

Meals at restaurants 350.00

Snacks away from home (coffees, treats) 30.00

Non-food kitchen supplies (plastic wrap, dish soap) 30.00

Communication and Computers

*Cell phone 110.00

*Internet 60.00

*Cable/satellite television 40.00

Medical Costs Not Covered by Insurance

*Medical care 100.00

Clothing and Personal Care

Clothing 250.00

Personal care (shampoo, haircuts, cosmetics, laundry, etc.) 150.00

Entertainment

Movies, books, and other entertainment 200.00

Total Expenses $5,401.30 $

Net Gain or Net Loss (Income less Expenses) $98.70 $

The Brown Family Step Two: Personalize Your Spending Plan

Financial Advisor Information

Your Job

• Requested a spending plan for the month of February

• Requested the same document and categories as the Income and Expense Statement

• Find the column on the Income and Expense Statement where the Spending plan will be created

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 15 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Allocate Money to Each Category

Reference tracking from Step One

Determine what changes to make

Step 1 - Track Current Income and

Expense

Step 2 - Personalize Your Spending Plan

Step 3 - Allocate

Money to Each Category

Step 4 - Implement and

Control

Step 5 - Evaluate and Make

Adjustments

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 16 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

When allocating money consider:

Contractual Non-contractual

Trade-offs and opportunity

costs Goals

Contractual expenses

Required to pay expense for a specific amount of time - not easy to reduce or eliminate

Easy to reduce or eliminate

Rent, Internet, Cell phone Food, entertainment

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 17 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Spending Plan Guide 10%

7%

30%

20%

15%

18%

Saving and Investing10%

Insurance 7%

Housing 30%

Transportation 20%

Food 15%

Other 18%

What variables may cause these percentages to be different?

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 18 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Net Gain or Net Loss?

Income Expenses Net Gain

or Net Loss

Net Gain? Net Loss?

• Add more money to savings or another expense

• Increase income

• Decrease expenses

• Both

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 19 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

The Brown Family Step Three: Allocate Money to Each Category

Financial Advisor Information

• Indicated a * next to expenses that are either contractual or they are unwilling to decrease

• Remember goals • Consider trade-offs • Must have a net gain or a zero

balance

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 20 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

The Brown Family Step Three: Allocate Money to Each Category

Your Job

• Develop a spending plan for the family

• Explain each change made • Re-write goals into SMART

goals using their new spending plan

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 21 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Implement and Control

Make your planned spending decisions

Step 1 - Track Current Income and

Expense

Step 2 - Personalize Your Spending Plan

Step 3 - Allocate

Money to Each Category

Step 4 - Implement and

Control

Step 5 - Evaluate and Make

Adjustments

Use a control system to stay on track

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 22 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Control Systems

Money management computer software

Which control system would

help you stick to your spending

plan? Internet-based spending plan program

Depository institution programs

Check register system

Envelope system

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 23 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

The Brown Family Step Four: Implement and Control

Your Job

•Recommend a control system for John and Tia

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 24 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Evaluate and Make Adjustments

How well did your spending plan

work?

Step 1 - Track Current Income and

Expense

Step 2 - Personalize Your Spending Plan

Step 3 - Allocate

Money to Each Category

Step 4 - Implement and

Control

Step 5 - Evaluate and Make

Adjustments

Is your spending plan helping you

reach goals?

Do you need to make any

adjustments?

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 25 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

The Brown Family Step Five: Evaluate and Make Adjustments

How could creating a

spending plan help you now

and in the future?

Financial Advisor Information

Your Job

• John and Tia realized that if they dine out at restaurants less often they will need to increase their monthly grocery expense

• Increase their grocery budget by $20.00

• How has developing a spending plan helped the Brown family?

2.2.5.G1

© Take Charge Today – August 2013 – Spending Plans – Slide 26 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Summary

• A spending plan is an important financial planning tool ▫ Helps achieve goals

• Make your spending plan work for you

• Make sure to control, evaluate, and adjust your spending plan

Step 1 - Track Current Income and

Expense

Step 2 - Personalize Your Spending Plan

Step 3 - Allocate

Money to Each Category

Step 4 - Implement and

Control

Step 5 - Evaluate and Make

Adjustments