Pentegra Basics of Budgeting


Presentation Description

Budgeting is really the foundation of everything in our financial lives. It can help you achieve your financial goals while saving for retirement. Pentegra’s basic guide for budgeting can turn your strategy from complicated to effortless.


Presentation Transcript

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Financial You Personal Finance Education THE BASICS OF BUDGETING

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1 THE BASICS OF BUDGETING THE BASICS OF BUDGETING For many people the idea of budgeting can be challenging. Days are taken up with work friends family and the energy and activities required just to manage your life. There never seems to be enough time to focus on fnances. However budgeting is really the foundation of everything in our fnancial lives. Developing a budget can do more than track your spending and savings. It can help you achieve your fnancial goals.

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THE BASICS OF BUDGETING 2 6 Steps for Creating a Realistic Budget The following steps can help you build a budget that works for your life so you can focus more attention on working toward your fnancial goals. Step 1: Start With Your Goals Take the time to think about your fnancial goals and actually write them down. They can be as simple as building up an emergency fund saving for a new car or home starting a college education fund for a child or vowing to increase your retirement savings by 1 a year. Make sure the goals are measurable so include the actual dollar amounts and time frames for reaching the goals. Here are two examples of measurable fnancial goals: ƒ “Have a 1000 emergency fund built up by April 1.” ƒ “Pay off 5000 credit card debt in 18 months.” Divide the dollar amount by the number of months in your time frame to fgure out your monthly goal. If your goal is to build up a 1000 emergency fund in 6 months your monthly goals is 1000 divided by 6 which equals a 167 monthly contribution to the fund. Step 2: Know Your Income Before you can establish a budget you have to know exactly how much money you have coming in every month from your employer and other sources. Make sure to include only the money you actually receive for example the exact amount of your net paycheck not your gross pay before taxes and other deductions. ƒ Groceries ƒ Rent or Mortgage ƒ Car loan payment ƒ Cable/Broadcast provider payment ƒ Credit card payments ƒ Cell phone service ƒ Student loan payment ƒ Entertainment and eating out Step 3: Total Your Monthly Expenses You can’t budget until you know how much money you’re spending each month. When fguring out your monthly expense number be sure to include the following: Also remember to include occasional expenses such as doctor and dentist visits as well as car and other insurance payments. It’s also important to look through past bank and credit card statements to get a realistic picture of your spending. Step 4: Create a Realistic Budget To take your frst stab at a budget add your monthly expenses from Step 3 to the monthly goals you calculated in Step 1. Then subtract that total from your monthly income calculated in Step 2. If the balance is positive you’ve created a budget that works for your current lifestyle. Here’s an example: Monthly income from Step 2 3000 Monthly living expenses from Step 3 -2100 Monthly fnancial goals from Step 1 -750 Total left over 150 If the balance is negative you have some more work to do. That leads us to Step 5.

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3 THE BASICS OF BUDGETING Know the Budgeting Mantras Overspending is a common barrier to achieving fnancial goals. The more you give in to unplanned or excessive purchases the more harmful they can be to your fnancial life. Instead of caving in to impulses use these three mantras to help you avoid your compulsion to buy stuff Sleep on it. Try forcing yourself to delay purchases by at least one day so you have more time to consider if you really need them. For instance you might wait 30 hours before buying anything over 30. Or you might impose a spending threshold such as 250 over which you must discuss a potential purchase with a spouse partner or friend. Stay away from your favorite stores. If there’s an online retailer or a local shopping avenue where you can’t resist buying something avoid it. Understanding what tempts you the most will help you avoid making purchases you can’t afford. Remember past spending mistakes. If you feel compelled to buy something you don’t need or that is not in your budget think about the last bad buying decision. It’s amazing how effective this particular mantra can be Step 5: Revisit Your Goals and Expenses If the frst swipe at your budget came out negative rework the numbers and try again. For example you can revisit expenses and decide which ones are top priority and need to stay in your budget and which you can do without. You can also consider changing the amount of time needed to meet your fnancial goals. Or you can fgure out a way to increase your income. Step 6: Stay Connected Budgeting isn’t a one-and-done exercise. To help you move forward in your budgeting process check out The site features lots of money-saving ideas as well as other tips on setting fnancial goals and making a plan to achieve them.

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THE BASICS OF BUDGETING 4 Four Ways to Move Forward Here are four ways to build the momentum you need to help you move forward in your budgeting process: Build an emergency fund Probably the most important rule of budgeting is to have an emergency fund to help when something unexpected comes up such as a car refrigerator or dishwasher breaking down. Here are the key features of an emergency fund: ƒ Aim to have 3-6 months of living expenses saved ƒ Keep separate from your checking account ƒ No or very low transaction fees ƒ Easy access ƒ No penalties for withdrawals ƒ Interest earnings on the balance Pay yourself frst Besides building an emergency fund you next most important rule with budgeting is to make sure you are contributing to a retirement savings account. Whether it’s a plan offered through your employer or an Individual Retirement Account IRA make sure you pay yourself frst through an automatic payroll deduction via your employer or through an automatic monthly transfer of funds from a personal bank account in the case of an IRA. Stop eating out so much Occasionally treating yourself to an evening at a brewpub with friends is totally fne but the savings can really add up if you start cooking at home more. Strive to plan out a weekly dinner menu and make sure you make enough for lunch leftovers. Before you head out to the grocery store make a shopping list. Only buy the items on the list Find cheaper gas and entertainment Consider using a good gas locator app such as Gas Buddy which helps you fnd the cheapest gas anywhere you are. To get the best discounts on local entertainment and attractions consider Living Social or Groupon. And if you like concerts consider getting a ticketing app such as Ticketmaster or Live Nation. Becoming a member of these services can get you access to valuable presales and exclusive money offers. Budgeting “Ap”titude Whether it’s a New Year’s resolution a spring clean-up or a mid-summer or fall project it’s always a good time to look closely at what you need to do to improve your budget. If you need help getting organized there are several budgeting apps available out there such as: ƒ PocketGuard ƒ YNAB You Need a Budget ƒ Wally ƒ Goodbudget

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5 THE BASICS OF BUDGETING Use Your Net Worth to Benchmark Your Progress As you get better with your budgeting you’ll fnd you have more money for investing and paying off debts. But just how much better are you getting with your budgeting Calculating your net worth is a good way to gauge your current fnancial health and your progress over time. It is simply taking the value of what you currently own your assets and subtracting what you currently owe your debts. Just think of it as a snapshot that shows where you are fnancially at a given point in time. Here’s an example: ASSETS everything you own: LIABILITIES everything you owe: Savings and investments.......................15000 Mortgage..............................................256000 House.....................................................325000 Student loans...........................................33000 Retirement funds....................................35000 Car loan.....................................................7500 Car...........................................................15000 Credit card debt....................................10000 TOTAL ASSETS 390000 TOTAL LIABILITIES 306500 Total Assets 390000 – Total Liabilities 306500 83500 Your Current Net Worth To help gauge the current value of your home you can check out online resources such as Zillow Redfn or For your car you can try Consumer Reports Edmunds or Kelley Blue Book. If you took a picture of your fnances a year ago today and a year in the future you could probably see a trend. Assuming you are doing all the right things your net worth should grow year by year. As you save and invest money that money has the potential to grow in a good year and you continue to pay down your debts including your home mortgage. Your fnancial services professional at LPL Financial can be very valuable in helping you calculate your net worth and offer advice on how to build it up over time. In addition there are several online net worth calculators that you can access for free on sites such as NerdWallet Simple Dollar or Kiplinger.

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THE BASICS OF BUDGETING 6 ASSETS Monthly amount Cash Equivalents Checking Savings Money Market CDs Cash on Hand Total __________________ __________________ __________________ __________________ __________________ __________________ Physical Assets Primary Home Second Home Rental Properties Furniture Jewelry Collectibles Household Goods Clothing Automobile 1 Automobile 2 RVs Boats Etc. Other Total __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________ Long-Term Assets 401ks IRAs Brokerage Accounts Mutual Funds Business Equity Cash Value Life Insurance Other Total __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________ TOTAL ASSETS __________________ Net Worth Worksheet As of date: _____________________ LIABILITIES Monthly amount Mortgages Primary Home Second Home Rental Properties Total __________________ __________________ __________________ __________________ Revolving Debts Visa Mastercard American Express Discover Other Credit Cards Total __________________ __________________ __________________ __________________ __________________ __________________ Installment Debts Automobile 1 Automobile 2 RVs Boats Etc. Student Loans Personal Loans 401k Loans Other Total __________________ __________________ __________________ __________________ __________________ __________________ __________________ __________________ TOTAL LIABILITIES __________________ Total Assets – Total Liabilities ____________________

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