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How Does Your Cash Flow?
This document provides guidance on creating and managing a personal spending plan. It discusses the importance of having a spending plan, common errors to avoid, and strategies to improve cash flow. Key steps for preparing a spending plan are outlined, including tracking income and expenses over time, accounting for irregular expenses, and setting financial goals. Behavior change strategies are proposed, such as finding small amounts of "found money" by reducing everyday costs. The document also addresses managing savings, taxes, and budgeting methods.
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How Does Your Cash Flow?
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- 2. Discuss reasons to have a spending plan Discuss common errors in spending plans Discuss strategies to improve cash flow Discuss how to prepare a spending plan Discuss how to manage large irregular expenses Discuss financial goals in a spending plan Discuss simple behavior change strategies Q and A 2
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- 5. Case Example: At theage of 21 (1933), Woolworth heiress Barbara Hutton (1912-1979) had almost $50 million at her disposal. Married seven times, she lived above her considerable means. She died at age 66 in a Los Angeles hotel with about $3,500 to her name. 5
- 6. To determine where money is currently being spent To decide where to spend your money in the future Helps you save money Puts you in control of your financial future 6
- 7. No allowance for large, irregular expenses Unrealistic figures Vague expense categories No allowance for the unexpected No allowance for inflation 7
- 8. Summary of incomeand expenses for a given period Positive Cash Flow: Income > Expenses Negative Cash Flow: Expenses > Income Total cash Cash outlays Cash received - during time = surplus or during time period deficit period 8
- 9. Increase income Decrease expenses Do both Analogy: weight control (diet, exercise, both) 9
- 10. Adjust tax withholding/use tax benefits (EITC) Add a second job or work overtime Start a small business Increase/collect child support/alimony Access public benefits Sell assets Upgrade job skills Charge adult children room and board Bartering Other? 10
- 11. Taxes are deductedfrom your paycheck are based on your W-4 form 11
- 12. 0 allowances =max taxes deducted* = Smaller take home pay = Larger tax refund + allowances = less taxes deducted = Larger take home pay = Smaller tax refund * Can add extra withholding beyond “0” allowances; e.g., +$50 more) 12
- 13. Housing Food Transportation Clothing Utilities Other expenses 13
- 14. It’s not just about giving up pricey coffee It’s about “finding” money to save by reducing everyday expenses What are your “lattes”? _______________ _______________ _______________ _______________ 14
- 15. $5 a day = $1,825/year $10 a day = $3,650/year 15
- 16. Budget = Spending Plan Avoid the “Three Cs” Cut back Cut out Can’t Avoid the “Three Ds” Denial Deprivation Don’t 16
- 17. Add up take-home income Total fixed expenses (e.g., rent or mortgage) Total flexible expenses (e.g., food, clothing) Pro-rate (1/12 per month) occasional expenses Include money for emergencies Include money for financial goals Balance the bottom line: income = expenses Take action! 17
- 18. Source: Personal Financeby Garman & Forgue, Houghton Mifflin 18
- 19. Mental Budget Appropriate if financial resources and responsibilities are limited Physical Budget Envelopes, folders or containers Written Budget On notebook paper Computerized Budget Spreadsheet or specialized software Online Budget Examples: www.mint.com and www.mvelopes.com 19
- 20. Envelope/Mvelope Method Cash from paycheck = $1,200 Mortgage Gas Electrical Vehicle Groceries Savings Misc. $400 $25 $75 $100 $150 $75 $25 Medical Gifts Donations Taxes Education Vacation $90 $25 $25 $125 $75 $10 Sum of Envelopes = $1,200 Sum of paycheck is equal to sum of envelopes 20
- 21. Put a set amount into savings Do regularly – each pay View savings as a FIXED expense It’s not what you earn; it’s what you keep! To become wealthy, “act your wage.” Better still, live below your means. 21
- 22. 1. Write a check each payday and deposit in savings account (or transfer automatically) 2. Use payroll deduction to deposit a certain amount into savings (direct deposit) 3. Save loose change 4. Automate investment deposits 22
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- 24. Set SMART goals with a time deadline and a price Example: “Save $8,000 toward the down payment on a new car in 4 years” Buildthe required savings amount into your spending plan as a fixed expense 24
- 25. Personal beliefs about what is important Guide how people spend time Guide how people spend money Examples: family togetherness religion/faith job success education 25
- 26. Source: Personal Financeby Garman & Forgue, Houghton Mifflin 26
- 27. Short-Term- Under 3 years Medium-Term- 3 to 10 years Long-Term- 10 or more years 27
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- 29. Health: Decreaseportion sizes of favorite foods by 1/3 to 1/2 and/or increase exercise Eat half as much as you do now…gradually Take leftovers from restaurant meals home Finances: Reduce discretionary spending by 1/3 to 1/2 and/or increase income Spend less than you do now Look for less expensive options 29
- 30. Health: How many hours of exercise are needed to burn off extra food? Is eating a certain food “worth the calories?” Finances: How many hours of work are needed in order to buy something (use after- tax dollars)? Is buying something worth the time worked? 30
- 31. • Don’t cutout something completely • Find a less expensive alternative 31
- 32. Paymore on Ramp up physical outstanding credit activity card balances Workup to 10,000 Automatically steps/day increase savings at regular intervals Increase fruits and vegetables in diet Add 1/12 of mortgage payment Domore of anything (P and I) monthly positive! Domore of anything positive! 32
- 33. “People don’t planto fail…they fail to plan” A spending plan helps you take charge of your money 33
- 34. “Happiness is positive cashflow” 34
- 35. “There is no independencequite so important as living within your means” Calvin Coolidge, U.S. President 35
- 36. Thank you foryour participation. Be healthy, wealthy, and happy. 36