Building a Financial Success Plan

Woman holding check from employment earnings.Financial success is all about planning. Developing that plan includes understanding how you value your money, tracking your expenses, and setting goals. The final step in building a financial success plan is to develop a spending and savings plan that identifies spending leaks and corrects them by reducing your spending.

Building financial success is a process. In these presentations, you will learn about each step needed to develop a financial success plan and the tools to keep it on track.

Financial Success Plan: Making a Spending and Savings Plan Transcript

Part 2: Building a Financial Success Plan: Making a Spending and Savings PlanVideo
Idaho Assistive Technology Project (IATP)
July 2014

Slide 1:

Financial success is all about planning. Developing that plan includes understanding how you value your money, tracking your expenses, and setting goals. The final step in building a financial success plan is to develop a spending and savings plan that identifies spending leaks and corrects them by reducing your spending.

Slide 2:

The presentation, Building a Financial Success Plan: Tracking Your Expenses, discussed information about budgeting and tracking your expenses. You learned about the importance of knowing how and where you spend your money. You also learned about five methods that you can use to track your expenses.

Slide 3:

In this presentation, we will learn about how to make a spending and saving plan. There are five things to think about in the process of creating your plan. They include: income sources, a spending and savings plan, fixed and flexible expenses, identifying and plugging spending leaks, and decreasing your spending.

People often think of a spending plan negatively. They think it’s “something I’ve tried but cannot follow,” or “it’s something that limits my fun, or it’s something that limits my freedom or a combination of all of them.”

All too often, these feelings come from frustration. With the right tools, a plan can go from a negative to a positive in a short amount of time. Financial tools can motivate you to spend less than you make, help you achieve goals, and improve communication.

The first topic we will discuss is income sources.

Slide 4:

To make your SMART goals a reality, you need to know how much money you have each month, and how you spend it. Let’s begin by looking at how much money you receive each month from income sources such as: paychecks, tips, commissions, overtime, child support and alimony, public assistance (TANF), advanced earned income credit (EIC), social security and pensions, unemployment and disability compensation, veteran’s benefits, interest and dividends, and other income not listed here.

Slide 5:

Take a moment and think about your income. Where does it come from? Do you only have income from a job? Do you receive regular income from another source? Make a list of your income sources and the monthly amounts of each.

Slide 6:

Now, let’s talk about how to make a spending and savings plan and how it helps you control your money. To take charge of your finances, you must understand your spending patterns. Expenses fit into two categories – fixed (which are regular expenses) or flexible (which are changing) expenses. First, we will focus on fixed expenses and then flexible expenses.

Slide 7:

A fixed expense is a set amount of money that must be paid at a regular time each month. Fixed expenses include things like rent, utilities, and car payments. Late or missed payments can cause money problems such as late fees, legal action, utility shut offs, or even eviction. Think about what you learned earlier about wants and needs. Do you remember the discussion about buying a car? A car payment is a fixed expense until you pay off the loan. Do you really need a car? Do you have access to other forms of transportation?

Slide 8:

A flexible expense is one that you can adjust. It is much easier to cut spending in the flexible expenses category. You can decide how much to spend and when to spend it. Flexible expenses are not frivolous or unimportant, though.

Flexible expenses can include: food, clothing, education, recreation and entertainment, transportation, phone or cell phone, household maintenance and furnishings, personal expenses (such as make-up, tanning, hair-cuts), and cable TV or internet.

Slide 9:

Once you have tracked your income and expenses, the next step is to develop a plan for future spending as well as savings.

Slide 10:

You will need to take control of your money when you create a spending and savings plan. It helps you get more for your money, make your money last longer, spend wisely, work toward your goals, pay your bills on time, and set aside money each month for savings and emergencies.

Slide 11: (Interactive)

  1. Total Monthly Income. Make a list of all of your monthly income and total it.
  2. Total Fixed Expenses. Add all of your fixed expenses for one month.
  3. Subtotal. Subtract the total amount of your fixed expenses from your monthly income. The remainder is what you have left for flexible expenses.
  4. Total Flexible Expenses. Add up your flexible expenses.
  5. Subtotal. Subtract your flexible expenses from the total you have left after paying for your fixed expenses.
  6. Grand Total. This amount should be less than your monthly income on line number one. How much do have left at the end of the month? The amount you plan to spend monthly should not be greater than your monthly income.

Slide 12:

Take a moment and think about your expenses. If you did not follow along in the previous slide, use the ideas we have discussed and make a list of your fixed expenses and subtract them from your income. Now list your flexible expenses. Do you have enough left over to pay for the flexible expenses? Where do you need to cut back?

Slide 13:

Now let’s talk about how you can save more money. Savings should be a fixed expense because it is so important to your spending and savings plan. In this next topic we will focus on savings and why it is important.

Slide 14:

Pay Yourself First (or PYF) means that when you get paid, you will place money into a savings account for emergencies, goals, and future needs, before paying your other expenses. PYF ensures that savings isn’t just the amount left over at the end of the month. Make saving for emergency expenses and family goals part of your spending plan.

One savings needed is an emergency fund which is cash that you can easily access in case of an emergency such as an accident, illness, or unexpected repairs. Ideally, a guideline is to have an emergency fund equal to two to six months of expenses. If you receive SSI or SSDI, it is a good idea to talk to a benefits planner to see how savings may impact your benefits.

Another savings need is for future expenses. Future expenses may include things like college education or a vacation. Saving money by reducing expenses will require motivation and self-discipline. Some individuals find it difficult to save. Many people save by removing change from their pockets or wallet at the end of each day and placing it into a savings jar. Another method is to have money automatically deducted from their paycheck and put into a savings account. They never missed the money they didn’t see. Whatever method you use, start saving today! Small amounts saved regularly can add up to large amounts. By saving as little as $20 a month, you can build considerable savings.

Slide 15:

There are many ways that you can increase your income or reduce your expenses. Be creative! Consider eating out less, going to the library instead of buying books, take the bus instead of driving your car, adjust the heating and cooling temperatures in your house.

Try talking to friends or relatives to get ideas. Chances are, they have needed to cut their expenses or increase their income too.

Slide 16:

A spending leak is money you spend on a want when you should have spent it on a need. This is how spending leaks happen. When you do this, you may be unable to pay for an item in your budget. It is important to understand spending leaks and how to stop them. In the next slides we will discuss why it is important to understand spending leaks.

Slide 17:

Let’s think back to the cup of coffee example from Building a Partnership with Your Money. In that example we figured out that stopping at the local coffee stand for coffee would cost about $2 every day. We realized this added up very quickly. You would be spending $60 every month; $730 every year; $3,650 every 5 years; $7,300 every 10 years; and $14,600 every 20 years; on just coffee alone.

Spending leaks can be easy to overlook, but can cost you a lot in both the short and long term so it is very important to plug those leaks.

Slide 18:

Another example of a spending leak is unnecessary fees and extras that you may be paying for. Some of these extras may be on your checking and savings accounts, your cell phone services, phone bills, internet services, cable or satellite services, tax preparation, when buying a car, or unnecessary insurances (for example, appliances and technology devices).

You need to learn to say no and not give in to sales person pitches. Look through your bills carefully to make sure you’re not paying extra fees, call your service providers and ask for discounts if applicable; say no to extra insurance when you buy appliances or technology devices.

Slide 19:

One last example of a huge spending leak is impulse spending. If you were to look around your house and pile up all of the wants that you turned into needs, how much of it is just collecting dust in your home? Think about how much money you would have had if you didn’t buy all of that stuff.

Some simple ways to avoid impulse spending is to not use shopping as a form of recreation, wait 24 hours before making a large purchase, or set a dollar limit to purchases. You can literally place your credit card into a container of water and freeze it. Only thaw it out to use it when you absolutely need it.

Slide 20:

Take a moment and think about where you spent your money during this past week. Did you spend your money on things you need? Did you make a purchase on impulse that you didn’t necessarily need? Understanding what types of things you have purchased on impulse will help you understand your habits and change them!

Slide 21:

So, you’ve tracked and found out that you’re not able to always pay for things you’ve put in your budget. What can you do now? There are two choices, either increase your income or decrease your expenses. Not having enough money for savings or regular monthly expenses creates stress and uncertainty. Some ways to help increase your income include getting a second job, volunteering to work overtime, renting out an unused bedroom or garage, having a yard sale, or selling unused items on Craigslist.

Slide 22:

Another way to balance your spending plan is to decrease expenses. Four ways that you can decrease your expenses is by stop turning wants into needs, paying your bills on time, identify and plug spending leaks, or step-down your spending. Think about other things you can do to reduce expenses. Are there ways you might be able to simplify your life, share items with others, or use cost saving substitutions?

Slide 23:

In the last part of this module, we will go over what the “step-down” principle is and how you can use it when making a spending and savings plan.

Slide 24:

In this example you’ll see how the step-down principle works.

Think about going out to dinner and a movie. The most expensive method (which is the top step of the staircase) might be going to a sit-down restaurant and a movie theater and paying around 40 to 50 dollars for the night. The next step down would be to go out to a fast food restaurant that’s cheaper and to a movie theater; you’ll probably pay around 20 dollars. Go down another step on the staircase and decide to go to a fast food restaurant and a dollar movie theater; this option will cost you approximately 15 dollars. The second to last step down might be to get delivery or take-out and rent a movie; this may cost about 10 dollars. The last step on the staircase would be the cheapest method of all, which would be preparing food that you already have in your home and watching a movie that you already own, but haven’t watched in a while. The groceries are already in your house as part of the weekly shopping and you already have the movie—this option is FREE!

Stepping down your spending in this way can help you reduce how much you spend on certain things you may want. This in turn helps you save your money for your needs and for any future goals you may have.

Slide 25:

Take a moment and think about another way you can step down expenses in your life. How much can you save by stepping down expenses? For instance, can you buy a used car instead of a new car? Can you take the bus instead of driving a car? Can you carpool?

Slide 26:

Making ends meet from month to month can be a challenge. You can stretch your money by determining what’s most important, tracking expenses, setting financial SMART goals, developing a spending and savings plan, and finding ways to increase income and decrease expenses. Each of us make important money decisions every day so make your money decisions help you achieve your goals.

Slide 27:

Thank you for taking the time to participate in this module; we hope you found it useful and relevant to your life!