Money Management - How To Make Your Money Go Further

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FCS5-101Money ManagementHow to Make Your Money Go FurtherWhat do you have to show for the money youmake each month? Do you have good health,two cars, a home, a large savings account?Or do you have a pile of debts and zero assets?The way you spend your money today willdetermine what you have six months from now, ayear from now, five years from now, and in yourlifetime. You control your financial destiny. Youare responsible for the amount of money you earnand for the amount of money you spend. Successfulmoney managers control the way they spend theirmoney. They use money to accomplish the thingsthat are important to them. Good money managersmanage their money rather than letting it dribbleaway from them.Do you have control of the way you spend yourmoney? Do you live within your income, or doyou have to borrow money or use savings to meetyour regular monthly expenses? Living within yourincome requires careful planning. It requires selfdiscipline and the ability to say no to unnecessaryspending.The ability to manage money has to be learned,developed, and practiced on a daily basis. There areeight steps to successful money management:1.2.3.4.5.6.7.Get organized.Decide what you want to do with your money.Look at all available resources.Decide how much money you are worth.Find out how much money you make.Find out how much money you spend.Set up a plan for spending your money andstick to it.8. Evaluate your spending plan.Following these eight steps will help you getcontrol of your spending habits.1. Get organized.Do you keep all of your bills and importantpapers in one location in your home? An organizedbusiness center will help you manage your familyfinancial matters. Keep all of your family recordsand business correspondence in one location. Whenyou receive any bill or important letter from acreditor, put the correspondence in its proper placein your business center. If you and a creditor disagree about how much you owe or the way you payyour bills, you’ll have your own records to provewhat has happened to date.Your business center may be elaborate or simple.The type of system doesn’t matter as long as youhave some way to organize your financial papers.Papers may be separated by using large envelopes orindividual file folders in a box or cabinet. Anotheralternative would be to use a three-ring notebookwith dividers. Dividers with pockets can be used tostore loose paper.Label your files or the dividers for your notebook according to the types of records you keep.For example, labels might be tabbed as follows: Net worth statement Record of earnings Record of expenditures Location of legal records Health records Real estate records Family papers Household inventory Employment records Automobile Housing Utilities Clothing care and information Credit card and installment payments Insurance Tax records General household information

Keep supplies needed for handling your businesstransactions in your business center. Keeping envelopes, stamps, pens, pencils, checks, a calculator, anda calendar at your fingertips will speed your monthlybill paying. If you have a computer, you may want touse a record keeping program. (You will still need tokeep your paper receipts.)As an individual, you may have trouble deciding which item is more important than another. It’seven more difficult when two or more people livetogether as a family unit and share money. Theymay not agree on what is important. Because ofthis lack of agreement, it is sometimes difficult todecide where money will be spent.Once you decide what is important to you, thislist will help you see what you want to work toward. For example, if you placed a “1” beside a newcar, your goal may be to buy a new car.Goal setting involves more than deciding what’simportant to you. To help identify goals, ask yourself the following questions: What do I want to do with my money? How much will it cost? How long will it take to get that muchmoney?When setting your goals, make a list. Writedown what you want to do with your money. Make your goals specific. Don’t say, “I wantfinancial security.” Financial security is notvery specific. Instead, ask yourself what ittakes to be financially secure. Your answermight be to have 20,000 in savings whenyou retire in 20 years. If so, then you need toput 44.30 a month in a 5 ¾% savings account each month for 20 years. Your specificgoal then is to save 44.30 a month from nowuntil you retire. This is a clearly defined goal. Your goal should be realistic, challenging,and achievable. Is it possible for you to take 44.30 out of your monthly budget and stillmeet your necessary living expenses? If youcan afford 44 a month, your goal is realistic,challenging, and achievable. If you can onlyafford to save about 20 a month then youmight have to reduce your long-term goalfrom 20,000 to 10,000. Goals should be measurable and reachablewithin a given time period. Specify the datewhen you want to reach your goal. You can’tput a date on reaching financial security, butyou can save 20,000 if you put 44.30 insavings for 20 years.Your goals should be yours. Don’t let someoneelse set your goals for you. You will be much morelikely to reach your goal if it is something you reallywant to do. Goals are different for each individual2. Determine your goals.Good money management begins with goalsetting. Goals give you direction. They give you apurpose for the way you spend your money. Goalsmotivate and encourage you as you work towarddoing things that are important to you. What aresome of the things you want to accomplish duringyour lifetime? Which of these cost money? Set up aplan for how you want to achieve these goals.How do you set goals for spending your money?First you need to think about the things that areimportant to you and your family. Read over thelist below. Pick out the things you and your family think are most important and place a “1” besidethem. Place a “2” beside the things that are somewhat important. Place a “3” beside the things thatare not very important to you and your family. Religion Education Family vacation Making lots of money Saving money Starting a new business Personal appearance (clothes, shoes, makeup, hair) Culture (theater, movies, dance, recitals) Job success Prestige Food Insurance Recreation Boat, fishing equipment Household furnishings Transportation (car, truck, cycle) New house/condominium, apartment) Health Family activities Friends Paying off debts Jewelry Attracting opposite sex Entertainment Other2

and family. They change as you go through the different stages of life.Once you set your goals, picture your goals inyour mind. See yourself living in that apartment,for example, or on the beach enjoying your dreamvacation. Creative daydreaming puts your goalsinto your subconscious mind. Once your dream isin your mind, you start thinking of reaching thatdream in ways you don’t even realize. You automatically see ways to make your dream become areality. Fix in your mind the exact things you want.As you decide your goals, write down yourshort-term, intermediate, and long-term goals. (UseWorksheet A.) Short-term goals: the things you want toget done in the next week, next month, insix months, or a year. Intermediate goals: the things you want toget done in the next one to five years. Long-term goals: the things you want to doin the next five or more years.As you list your goals, decide which goals you wantto use your money for first. As you set dates forreaching your goals, ask yourself which goals arethe most important and which are the least important. Ask yourself the following questions as youdecide which goals you will work toward. How important is this to me and my familymembers? How urgent is this? If today is April 14 andyou owe 1,000 worth of taxes, paying yourtaxes is more urgent than paying off a 950charge-card debt. What will happen if I don’t work on thisgoal? If you owe a 700 credit card bill,paying it off 100 a month will cost you lessmoney in interest than paying 35 for 20months. It may squeeze your budget to pay itoff in seven months, but it won’t cost you asmuch money. What will I need to reach this goal in termsof money, time, energy, skills, knowledge,and ability?Goals are important keys to successful moneymanagement. They can help you make your dreamscome true within a specific period of time. Goalsguide you so you use your money to do the thingsthat are important to you.If you added up everythingyou own and subtractedeverything you owe, wouldyou own more than youowe? Or would you owemore than you own?3. Look at all available resources.To reach your goals, you’ll need to look at all theresources available to you. This will include yourown skills and income, as well as other communityresources. They may include time, energy, interests,knowledge, community service, or material goods.Many times, community resources offer financialhelp and/or free or low-cost alternatives for expenditures.Such things as the library, cultural events,health department, parks, and transportation facilities provide services and recreation for the wholefamily at little or no cost.4. Know how much you are worth.How much money are you worth? If you addedup everything you own and subtracted everythingyou owe, would you own more than you owe? Orwould you owe more than you own?Your financial net worth is determined bysubtracting all you owe (your debts) from the current market value of all you own (your assets). Thisinformation will be useful when determining yourinsurance needs and when applying for loans, settling a divorce, or planning your financial future.If you need to sell some assets to get cash to paydebts, your net worth statement will let you seewhat assets you have and how much they are worth.Use Worksheet B to calculate your net worth.Listed below are some guidelines to assist you incalculating your net worth: Have a real estate agent estimate the currentmarket value of your home or make note ofthe sale value of houses in your neighborhood.3

Money received from relatives, friends, orthe government in the form of transfer payments such as Social SecurityUse Worksheet C to help you list your sourcesof income.Find Out Your Monthly Spendable IncomeFind out how much money you have availableeach month by completing the following steps. Find your most recent pay stub. Look at the amount of gross pay. Gross payis the amount of money you earn beforedeductions. Look at the amount of money going to eachdeduction. How much of your gross pay goesto each deduction (what percentage)? Look at the amount of your take-home pay.Your take-home pay is your gross incomeminus your deductions. Look for your total spendable income. Totalspendable income is your take-home pay plusmoney from other sources. (Use Worksheet Dto figure your spendable income.)If you have an irregular income, estimate thetotal you expect to make for the entire year anddivide by 12. Keep your estimate low. Workers suchas salesmen, farmers, artists, and writers have irregular incomes.Make a spending plan for each month. Thenwhen you get a check, spend it according to yourbudget. If you get a larger-than-expected check,stick with the original spending plan and put theextra in savings.Your net worth gives you anoverview of your overallfinancial future. Use it tohelp you identify financialgoals you would liketo work toward. Have an expert appraise current marketvalue of your furniture, antiques, art, jewelry,and other valuables. Use a general merchandise catalog to estimate the value of other household items ifyou have lost the original sales receipts. Check the financial page in a newspaper toestimate the current value of any stocks andbonds that you own. Read your life insurance policy to determinethe cash value. Determine the cash value of your retirementplan(s). Remember to include IRA accounts,as well as employer plans. Include the value of savings accounts andcertificates of deposit.Get the appraised value of valuables in writingand ask the expert to sign the appraisal letter. Forinsurance purposes, these values need to be updatedregularly. There may be a charge for the appraisal,but it will be worth it if you need to file an insurance claim or when you settle an estate.Your net worth gives you an overview of youroverall financial future. Use it to help you identifyfinancial goals you would like to work toward. 6. Know how much you spend.How much money do you spend for food, housing, transportation, clothing, personal care, andother things? If you don’t know how much youspend each month for these items, keep a record ofyour spending. Write down everything you spendevery day for a month. When you make a purchase,write the amount down. The amount doesn’t haveto be exact, but close enough to help you see whereyour money is going. Use Worksheet E to help yousee where you are spending your money.After you have a written record of where all ofyour money is going, divide your spending into categories: fixed, flexible, and miscellaneous expenses.Spending can also be divided into daily, weekly,5. Know how much you make.How much money do you have to spend eachmonth to meet basic living expenses and help youreach your goals? The money spent each monthcomes from various places. Money is usually obtained from one or more of the following sources: Earnings from wages, salary, tips, commission, rent, interest, dividends, Social Security, retirement benefits4

monthly, seasonal, or yearly expenses. Know whattype of expenses you have. Know when and whereyou spend money so you can build a sound moneymanagement program. Fixed expenses. The expense items you paya specific amount of money for every monthfor a certain period of time. These obligations are usually enforced through a signedcontract. Some examples are rent or mortgage payments, life insurance, long-term careinsurance, home insurance, and installmentpayments such as your car note. For most ofthese items, you cannot change the amountof the monthly payment. Flexible expenses. The expense items youhave more control over. You decide howmuch you will buy and how much you willspend. Flexible expenses include food, clothing, gas, electricity, water, phone, transportation, gasoline, car maintenance, carinsurance, personal care, medical expenses,furnishings, household expenses, education,and professional expenses. Miscellaneous expenses. The extra itemsyou purchase that may not be absolutelyneeded. Some examples are music CDs,reading materials such as magazines, andrecreational activities such as theater ormovie tickets.We’re lucky that all our expenses don’t have tobe paid at the same time. We spend some moneyon a daily basis. We spend some on a monthly,quarterly, semiannual, or annual basis. UsingWorksheet F, write down when these expenses aredue. Then set aside enough money so you can coverthe expenses when the bills come due.Some examples of seasonal expenses are property taxes; car, home, life and health insurance;license plate renewal fees; and vacations. Monthlyexpenses may include house payment, car note, andutility payments. Daily expenses include transportation and snacks.7. Plan your spending.Do you have a written plan to guide your spending? If not, use Worksheet G to help you plan yourmonthly spending.First, write down the amount of money youhave to spend each payday.Use your information from Worksheet E tofind out your monthly expenses. Compare themto the average annual expenditures of Americansaccording to the most recent Consumer Expenditure Survey Results in Table 1. This table plus yourrecord of expenses can help you decide how muchto spend each month. Use Worksheet H to identifysome ways to adjust your spending.On Worksheet G, record how much you wouldlike to spend for each item. As you develop yourplan, see if you have allowed money for the following items: Major expenses and future goals, such asadding rooms to your home, buying a car,getting braces for your children’s teeth, paying for your child’s education, and buying aboat, gifts, or furniture Emergencies, such as replacing a flat tire,medical expenses, car accident, unemployment, car repairs, dental bills, house repairs,and appliance repairs Seasonal expenses, such as school suppliesand clothes; house, car, health, life, anddisability insurance; real estate taxes; registration fees for children such as for sportsactivities; family vacation; birthday andChristmas gifts; and taxes Debts or past-due bills, such as credit cardbalances, installment loans, and mortgage Monthly expenses, such as savings orinvestments, rent or mortgage, utilities,household supplies, food, contributions,installment payments, and medications Daily expenses, such as school lunches andsupplies, tobacco, snacks, and meals out Miscellaneous expenses, such as civic clubdues; newspaper or magazine subscriptions;laundry; clothing purchases and repairs; theater tickets, movie tickets, and other recreational activities; and personal careKnow when and whereyou spend money so youcan build a sound moneymanagement program.5

Do you control where yourmoney goes, or does it gohere, there, and everywhere?Continually look for ways to reduce your spending.Do something every day that will help you savemoney. You may cut one coffee break at work. Youmay take your own instant coffee to work ratherthan buying coffee at the company cafeteria.Finally, develop a reward system for successfullyfollowing your spending plan. If you save 600 bythe end of six months, then put most of the moneyin a savings account and keep a small amount tobuy yourself a special treat.Write down how much you plan to spendthroughout the pay period, and try to stick withyour plan. Remember to write down how muchyou spend and what you buy. Use those figures tocalculate how much you actually spend. When youstart the next pay period you can compare what youplanned to spend and how much you actually spent.That will help you decide how you will spend yournext pay check.Stick to Your Spending PlanOnce you have put a dollar figure on what youwill spend each pay period, what can you do to stickto your spending plan? Before you spend your nextdollar, ask yourself these questions: Will this purchase help me reach myfinancial goals? If your goals are importantenough to you, they will motivate you tostick with your plan. Is this purchase listed on my spendingplan? What will I have to give up if I spend mymoney on this purchase? Do I really needthis new pair of shoes, or do I need thismoney to buy groceries or gas for the car?Make your new spending plan a part of yourdaily life. Use it as a guide to help decide whereyou can cut your expenses. For example, you maywant to save 50 on clothing expenses and put thatmoney in savings. Look for ways you can spend lessmoney. Start using your spending plan today. Don’tput it off until tomorrow. Tell others what you’retrying to do, so they can encourage you along theway. Write down your new plan so it will be firmlyplanted in your mind.Don’t let an exception get in the way of yournew spending habits. If you start taking your lunchto work so you can cut food expenses, eating outone day will discourage your new habit and keepyou from reducing your food bill. Stay away fromtempting situations.Take advantage of every opportunity to breakyour old buying habits and encourage the new ones.8. Evaluate your spending plan.After you live with your spending plan a while,look it over. If you put 100 in savings at the first ofthe month and took out 50 before the end of themonth, then maybe you can afford to save only 50a month. That’s OK. At least you know what youare able to save. Reviewing your spending helps youdecide exactly how much you can spend or save.Review your spending plan regularly and revise itso that it works for you. Ask yourself the followingquestions when you decide to spend your money: Is this the best use of my money right now? Will this purchase help me reach my financial goals? Is there something else I need to use thismoney for?If you have trouble reaching your goals, work ondisciplining yourself to follow your spending plan. Asincere commitment and dedication to your spendingplan can help you manage your money better.SummaryDo you control where your money goes, or doesit go here, there, and everywhere? Guide yourmoney so it goes where you want it to go by using aspending plan.You can build a sound money management program if you complete the following steps.1. Get organized.2. Know what you want to do with your money.3. Look at all available resources.4. Know how much money you are worth.5. Know how much money you make.6. Know how much money you spend.7. Plan your spending and stick to it.8. Evaluate your spending plan.Remember, what you have in the future willdepend on what you do with your money today.6

Table1. Average annual expenditures and percent of income by category.IncomeAnnual 9,974Monthly 831CategoryIncomeFood3,193Food at home2,138-Cereals and bakery products276-Meats, poultry, fish, and eggs532-Dairy Products227-Fruits and vegetables370-Other food at home733Food away from home1,055Housing8,128Shelter4,805-Owned Dwelling1,719-Rented Dwelling2,946-Other Lodging140Utilities, fuels, and public services2,090Household Operations310Household supplies331Household furnishings and equipment591Apparel and Services845Transportation3,038Vehicle purchases (net outlay)987Gasoline and motor oil991Other vehicle expenses879Public transportation182Health Care1,485Personal Insurance and Pensions517Life and other personal insurance97Pensions and Social Security420All Other3,203Alcoholic beverages213Entertainment879Personal care products and services262Reading51Education505Tobacco products and smoking supplies266Miscellaneous454Cash contributions573Total Expenditures 20,409Percent328183015532203a 44,933 149,963 3,744 12,497Income Percent Income 03 41,43192 94,15063Source: The 2006 Consumer Expenditure Survey, Bureau of Labor Statistics, U.S. Department of Labor, Table1. Quintiles of income before taxes.Notes: Annual income and expenses are shown for the lowest, middle, and highest 20% segments of consumer income.aIndicates monetary assistance in the form of food stamps, subsidized housing, and other sources beyond actual income; useof equity; or indebtedness.7

Worksheet AFamily GoalsGoalShort-term (within the year)WhenIntermediate (1 to 5 years)Long-term (more than 5 years)8TotalCostAmountper MonthCompleted

Worksheet BNet Worth Statements for Three YearsAssets OwnedCash on handCash in checking accountsCash in savings accountsCash value of life insuranceSavings bonds*Money other people owe youFurniture and appliancesMiscellaneous personal property(furs, jewelry, antiques, heirlooms, boats, art, etc.)202020Cars*Home*Other real estate*Stocks*Bonds*Mutual funds*Government securities*Annuities and other retirement plansOther assets*Total Assets Liabilities OwedMortgage and liensCar loanInstallment debtsPersonal loansLife insurance loansCharge accountsOther unpaid billsTotal DebtsYOUR TOTAL NET WORTH20Total LiabilitiesNet Worth Assets minus Liabilities*Current market value92020

Worksheet CDetermine IncomePaycheck #1Per WeekgrossnetAMOUNTBiweeklyPer MonthgrossnetgrossnetPaycheck #2Paycheck #3Paycheck ial SecurityRetirement benefitsChild supportAlimonyPublic assistanceVeterans benefitsOtherTotals10Per Yeargrossnet

Worksheet DDetermine IncomePaycheck #1 Amount%Gross PayDeductions:Federal taxesState taxesSocial Security (FICA)RetirementPlan #1Plan #2Plan therMiscellaneousSavingsCredit UnionUnion duesUniformsPaycheck #2 Amount%Paycheck #3 Amount %Paycheck #4 Amount %Total Deductions (gross pay) - (total deductions) (net pay)*To find out what portion of gross pay is used for deductions, divide your deductions by gross pay and multiply by 100. 529.85 (total deductions) 1541.67 (gross income) 4.4% (.344 x 100) 1011.82 (spendable income) 1541.67 (gross income) 65.66% (.656 x 100)If your total deductions are 529.85 and your gross pay is 1541.67, then 34.4% of your income goes to deductionsand you get to keep 65.6%, or 1011.82 to spend.11

Worksheet EEXPENSESDate DueItemSavings, investmentsHousing – rent or mortgageUtilitiesElectricityGas or other fuelWaterTelephoneGarbageHome furnishings and equipmentHousehold maintenance and repairChild careHousehold helpTransportationAutomobile paymentsGasMaintenanceBus, taxi, etc.Food and groceriesMeals eaten outAlcohol and tobaccoClothingPersonal careLaundry/dry cleaningHair careSpa or health ion or entertainmentCable or satellite televisionBusiness expensesTaxesGiftsContributionsEducation or self-improvementMonthly installmentsDepartment storesBank charge cardsOil MonthYear

Worksheet FSeasonal SeptemberOctoberNovemberDecember13

Worksheet GPaycheck and Planning SheetDate of checkAmount of checkItemSavings, investmentsHousing – rent or mortgageUtilitiesElectricityGas or other fuelWaterTelephoneGarbageHome furnishings and equipmentHousehold maintenance and repairChild careHousehold helpTransportationAutomobile paymentsGasMaintenanceBus, taxi, etc.Food and groceriesMeals eaten outAlcohol and tobaccoClothingPersonal careLaundry/dry cleaningHair careSpa or health ion or entertainmentCable or satellite televisionBusiness expensesTaxesGiftsContributionsEducation or self-improvementMonthly installmentsDepartment storesBank charge cardsOil ntPlanSpentPlanSpent

Worksheet HThe Balancing ActFamily spending must often be adjusted to stay within income limits.Take a few minutes to complete the exercise below.Can your family:Reduce grocery expensesCut down on meals eaten outCut consumption of non-nutritious beveragesMaintain current homeFind more economical living quartersTake on more home maintenance and repair jobs yourselfEliminate hired help inside or outUse utilities and household supplies more carefullyAvoid buying new home furnishings unless neededConsider buying used furnitureSelect easy-care household fabrics and appliancesSpend less for clothing and personal careCut down on trips to beauty shop or barber shopPurchase a more economical carCut down on vacation travelUse public transportation moreCut down on expensive hobbies or activitiesTake advantage of free activitiesMake use of the public library instead of subscriptions and purchased booksUse public recreational facilitiesReduce contributions or make them proportionate to incomeGive fewer gifts or spend less on giftsCut back on face value of life insuranceConvert some life insurance into annuityKnow what income is not taxedKeep present group health insuranceList some of your own ideas for cutting expenses:15YESNO

Adapted for use in Kentucky with permission of the University of Georgia. Ester McAfee Maddux. 1989. “MoneyManagement: How to Make Your Money Go Further.” Athens: The University of Georgia, Cooperative Extension Service.Approved for use in Kentucky by Suzanne Badenhop, Family Resource Management Specialist.Educational programs of Kentucky Cooperative Extension serve all people regardless of race, color, age, sex, religion, disability, or national origin. Issued in furtherance of Cooperative Extension work, Acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture, M. Scott Smith, Director of Cooperative Extension Service, University of Kentucky College ofAgriculture, Lexington, and Kentucky State University, Frankfort. Copyright 2009 for materials developed by University of Kentucky Cooperative Extension. This publication may be reproducedin portions or its entirety for educational or nonprofit purposes only. Permitted users shall give credit to the author(s) and include this copyright notice. Publications are also available on the WorldWide Web at www.ca.uky.edu.Revised 1-2009

The ability to manage money has to be learned, developed, and practiced on a daily basis. There are eight steps to successful money management: 1. Get organized. 2. Decide what you want to do with your money. 3. Look at all available resources. 4. Decide how much money you are worth. 5. Find out how much money you make. 6. Find out how much .