Spending Plans Brown Family Lesson 2 2 5

Spending Plans Brown Family Lesson

2. 2. 5. G 1 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: Increase the amount of their emergency savings fund Pay more on their monthly car loan payment to pay the loan off faster • Develop a spending plan for the Brown family Spend less money dining out at restaurants Spend less money on clothing every month © 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

2. 2. 5. G 1 The Brown Family Step One: Track Current Income and Expenses Financial Advisor Information Kept all receipts for the month of January to create an Income and Expense Statement Your Job Review John and Tia’s January Income and Expense Statement for a realistic view of their income and expenses © 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

2. 2. 5. G 1 Personalize Your Spending Plan How will you develop a spending plan? What is the intended time period for your spending plan? What categories will your spending plan include? Step 5 - Evaluate and Make Adjustments Step 1 - Track Current Income and Expense Step 4 - Implement and Control Step 2 Personalize Your Spending Plan Step 3 - Allocate Money to Each Category © 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

2. 2. 5. G 1 How will you develop a spending plan? Paper and pencil Any written method that works for you Spreadsheet Money management computer software Applications How would you develop a spending plan? © 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

2. 2. 5. G 1 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? © 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

2. 2. 5. G 1 The Brown Family Step Two: Personalize Your Spending Plan Financial Advisor Information • Requested a spending plan for the month of February • Requested the same document and categories as the Income and Expense Statement Your Job • Find the column on the Income and Expense Statement where the Spending plan will be created © 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

2. 2. 5. G 1 Allocate Money to Each Category Reference tracking from Step One Step 5 - Evaluate and Make Adjustments Step 1 - Track Current Income and Expense Step 4 - Implement and Control Determine what changes to make Step 2 - Personalize Your Spending Plan Step 3 Allocate Money to Each Category © 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

2. 2. 5. G 1 When allocating money consider: Trade-offs and opportunity costs Goals Contractual expenses Contractual Non-contractual 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 © 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

2. 2. 5. G 1 Spending Plan Guide What variables may cause these percentages to be different? © 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

2. 2. 5. G 1 Net Gain or Net Loss? Income Expenses Net Gain? • Add more money to savings or another expense Net Gain or Net Loss? • Increase income • Decrease expenses • Both © 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

2. 2. 5. G 1 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 © 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

2. 2. 5. G 1 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 © 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

2. 2. 5. G 1 Implement and Control Make your planned spending decisions Use a control system to stay on track Step 5 - Evaluate and Make Adjustments Step 1 - Track Current Income and Expense Step 4 Implement and Control Step 2 - Personalize Your Spending Plan Step 3 - Allocate Money to Each Category © 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

2. 2. 5. G 1 Which control Control Systems system would help you stick to Money management computer software your spending plan? Internet-based spending plan program Depository institution programs Check register system Envelope system © 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

2. 2. 5. G 1 The Brown Family Step Four: Implement and Control Your Job Recommend a control system for John and Tia © 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

2. 2. 5. G 1 Evaluate and Make Adjustments How well did your spending plan work? Is your spending plan helping you reach goals? Do you need to make any adjustments? Step 5 - Evaluate and Make Adjustments Step 1 - Track Current Income and Expense Step 4 - Implement and Control Step 2 - Personalize Your Spending Plan Step 3 - Allocate Money to Each Category © 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

2. 2. 5. G 1 The Brown Family Step Five: Evaluate and Make Adjustments 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? How could creating a spending plan help you now and in the future? © 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

2. 2. 5. G 1 Summary • A spending plan is an important financial planning tool Step 5 - Evaluate and Make Adjustments Step 1 - Track Current Income and Expense ▫ Helps achieve goals • Make your spending plan work for you • Make sure to control, evaluate, and adjust your spending plan Step 4 - Implement and Control Step 2 - Personalize Your Spending Plan Step 3 - Allocate Money to Each Category © 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