Steps to Financial Success

1. By Celia Hayhoe, Ph.D., CFP® Family Resource Management Specialist Virginia Tech Steps to Financial Success Presentedby: http://www.ext.vt.edu

2. Will you live in a house, townhouse, apartment, mobile home? Will you live in a big city, town, or in the country? On a working farm? Will you be married? Have Children? Grandchildren? Great-grandchildren? Will you be employed by someone else, owning your own business, staying home with the children, or retired? How is you health? What will you be driving? Where will you go on vacation? Let’s Dream. What do you want your life to look like in ten years?

3. How to plan for financial success Evaluate Control Implement Decide Monitor, review, revise Organize Set goals Clarify Values

4. Values • Values are what is important to you • Those things you were willing to work hardest for are based on you values • What are some your values?

5. Need VS. Want • Need • Want

6. How to plan for financial success Evaluate Control Implement Decide Monitor, review, revise Organize Set goals Clarify Values

7. What are you willing to work for? • Look at your perfect life, what are you willing to work for to make sure it happens? • What are the most important things on your list? • Which things do you need someone else to share your dream to make it come true? Who?

8. S.M.A.R.T. Goals • Specific • Measurable • Attainable • Realistic • Timetable

9. Long Term Intermediate Short Term Purchase a used car Save for a down payment Review Credit report Types Of Goals

10. Money Problems Involve • Value Conflict • Unrealistic Goals • Emotional Uses of Money • Lack of Planning

11. Openly CommunicateCommunication Guidelines • Clearly identify issue(s) • Let everyone speak • Listen carefully • Negotiate

12. Child rearing Employment Spending Housing Transportation Recreation Vacations Gifts and contributions Future security Discussion For Couples

13. In Summary • Picture your perfect life • Clarify your values • Need VS. Want • Set Goals • Communicate and negotiate

14. How to plan for financial success Evaluate Control Implement Decide Monitor, review, revise Organize Set goals Clarify Values

16. Starting a Spending Plan • Identify your financial goals • Estimate monthly income & expenses • Track your expenses for a few months • Compare and make adjustments as necessary!

17. Determine your monthly income • Gross Income • income before deductions • Disposable (Net) Income • income after tax and other employer withholdings • If you are paid: • Monthly - 1 x gross or disposable income • Bi-monthly - 2 x gross or disposable income • Weekly - 4.33 x gross or disposable income • Every other week - 2.17 x gross or disposal income

18. How to plan for financial success Evaluate Control Implement Decide Monitor, review, revise Organize Set goals Clarify Values

19. TYPES OF EXPENSES • FIXED • FLEXIBLE • PERIODIC

20. Fixed Expenses • Housing • Pension contributions • Dependent Care • Installment loan payment • Savings and investment • Automobile Payment • Taxes

21. Food Utilities Transportation Medical Clothing Education Personal Care Contributions Credit payments Alcohol/Cigarettes/Lottery Tickets Home furnishings Entertainment Telecommunication Flexible Expenses

22. Periodic Expenses • Personal Property Taxes • Insurance • Gifts • Repairs • Auto license/inspections • Tuition/School expenses • Miscellaneous (postage, books, professional fees, etc.)

23. Reserve Fund is Crucial! • Total your periodic expenses for the year. • Take 1/12 of total amount $2400/12 = $200 monthly set aside • Keep a running balance

24. Reserve Fund Worksheet Sample Balance *Total annual irregular expenses $2292 / 12 months = $191

25. Set Spending Plan Amounts (%) • Use past records • Check other sources • Track expenses for 2 to 3 months

26. Balancing Your Spending Plan What if you spend more than you make? Three things you can do: • Increase Income • Reduce Expenses • Combination of Both

27. Guidelines to Save Money • Control buying on impulse • Pay cash • Buy at the right time • Don’t pay extra for a “Name” • Recognize the high price of convenience shopping • Use lifecycle planning for major purchases $

28. Before You See a Salesperson • Distinguish between wants and needs • Do the necessary pre-shopping research • Fit the purchase into your spending plan

29. Comparison Shop • Use the “Rule of Three” • Best Buy • Service Contracts • Buyer Protection Plans

30. Negotiating & Decision Making • Negotiating • Have accurate information • Be prepared to walk out • Decision Making • Make your final decision at home • Beware of “lowballing”

31. Tips for a Better Spending Plan • Include savings in plan • Include some discretionary spending • Carry less cash and plastic • Stay away from ATM machines • Use spending plans • Withhold taxes correctly • Check your math

32. How to plan for financial success Evaluate Control Implement Decide Monitor, review, revise Organize Set goals Clarify Values

33. Practical Ways to Track Expenses • Receipts • Pocket Tracker/Wallet • Checking Account • Calendar • Financial notebook • Computer program

34. What format do I use? • Weekly • Monthly • Yearly • Whatever you like the best!! • Whatever makes sense to you • Whatever is easiest for you • Whatever you are willing to do!

35. Envelope Method: • Create an envelop for each category • On the envelopes, write the amount from each paycheck that goes into the envelope • Each payday place the amount listed in the envelope • Take money out of the envelope to pay for things from that category • When there is no money in the envelope you can make no more spending in that category • Do not take money from another category or you may not have the money for periodic expenses when you need it

36. Running Balance Method: Example: “Food Account” Balance 3/31: $250 April 1: -100 $150 April 8: -100 $50 April 13: + 250 (targeted amount from paycheck) $300 April 15: - 100 $200

37. Spreadsheet Method: Target Actual Income Amount: Amount: Salary #1 $ 900 $ 1,000 Salary #2 1,2001,200 $ 2,100 $ 2,200 Expenses Savings - $ 250 $ 250 Mortgage - 755 755 Utilities - 235 295 Loan/credit - 245 260 Insurance - 130 130 Food - 300 265 Reserve Account - 100 280 $ 2,015 $ 2,235 Surplus/Deficit $85<$35>

38. Develop worksheets Spending plan Reserve fund Track expenditures Control Sheet Summary of Spending Plan Tools

39. How to plan for financial success Evaluate Control Implement Decide Monitor, review, revise Organize Set goals Clarify Values

40. Tips for a Better Spending Plan • Review and Revise • Keep it simple • Avoid “quick fixes” • Add a “fudge factor” • Give it time

41. Another Financial Decision - Credit • Credit occurs when goods, services, or money are received in exchange for a promise to repay that money (usually with interest) at a future date.

42. Disadvantages of Credit Use • Interest is costly • Temptation to overspend • Privacy Issues • Payment term may exceed life of purchase • Less flexibility in future spending plans • High priced add-ons • Liability for lost credit cards

43. Types of Credit Accounts • Revolving Accounts • Unsecured • Secured Credit Cards • Collateralized credit card • Secured by amount of deposit • Higher interest card • Build credit record

44. Types of Credit Accounts • Charge Cards • Installment Accounts

45. Credit Card Shopping • What is the Annual Percentage Rate (APR) of interest? • Is a lower interest rate available? • Is there a grace period? • What are the annual fees? • What are the charges for late payments, over-the-limit purchases, and cash advances?

46. What Does Credit Cost You? • Situation • Principal owed is 5,000 • Minimum payment of 2% • 18% interest rate • No other purchases are made • In Time and Money • 37 years, 6 months • $17,673.70 • Cost of credit $12,673.70

47. Computing Credit Card Interest • Average daily balance • Excluding new purchases • Including new purchases with a grace period • Including new purchases without a grace period • Two cycle billing

48. Average Daily Balance

49. When to Use Installment Credit • For big-ticket purchases • For education • Rollover higher interest loans • For big-ticket purchases • For education • Rollover higher interest loans • For big-ticket purchases • For education • Rollover higher interest loans • For big-ticket purchases • For education • Rollover higher interest loans • For big-ticket purchases • For education • Emergencies • For big-ticket purchases • For education • Rollover higher interest loans

50. Shopping for Installment Loans • Annual percentage rate (APR) • Total cost of loan in dollars • principal, interest, term, down payment • Amount of payments • Due date of payments