Basic
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Contents
Introduction
4
The first step – realistic goals and objectives
5
The second step – strategies
6
Balancing a Checkbook ... 6 Training Exercise One ... 7
Creating a Spending plan
9
Part One ... 9 Part Two ... 9
Your net worth
11
Training Exercise Two ...12
Saving Money
13
Savings Accounts
15
Certificates of Deposit
16
Money Market Accounts
17
The third step – overcoming obstacles
18
Introduction
Budgeting is a word that is commonly associated with making financial sacrifices, not having what you want and being tight with your money. You may think that making a budget means that you have to deprive yourself of the things you want.
In reality, however, budgeting is really about creating a spending plan and deciding what is important to you. You may have a picture in your mind of your financial future: a nest egg for retirement, great vacations, and children who have graduated from college. But does your mental vision include the hard work it will take to realize this future?
You may see this future as nothing more than a dream, and doing what it takes to make it happen a nightmare. But with planning, discipline and the right information, you can make a budget that works. All you need to do is:
· Establish realistic goals and objectives.
· Start your journey by using specific strategies and tools to help you get where you want to go.
· Anticipate and overcome obstacles that get in your way. · Constantly remember that it takes small steps to get there.
The last bullet point is the key: taking small steps makes the process manageable and keeps you from getting frustrated with the journey. Each decision you make with your money is a step, and once your series of steps are completed, they will lead you to a secure financial future.
No matter where you are, you’ve probably made a few mistakes with your money in the past. Just start with the here and now, without looking behind you and agonizing over what you could have or should have done. Determine what you have, decide where you want to be, and make a sincere commitment. It’s up to you and, even though it may be difficult, your hard work will pay off in the end.
The first step – realistic goals and objectives
As a service member, you already know the importance of having clearly defined goals and objectives. Every military exercise has a defined end result, and a budget is no different. You will need to know what you want to do with your money, as well as what you want your money to do for you, before developing a plan.
Since every person is different, his or her goals and objectives will also be different. Remember that these are your goals and those of your family. They may change over time, so it’s a good idea to review these every year, each time you have a life-changing event (marriage, children, etc.) or whenever you feel it is necessary. They will also change once your military service has ended.
Fill out the “Financial Goals Worksheet” to see what your goals and objectives are. Once you have done so, you will have a better understanding of where you and your money are heading, and how to get there.
The second step – strategies
The first step in creating a successful budget is knowing exactly what you’re spending. This step is one that some people fail to take for a number of reasons— they may not want to take the time, think that they are too busy, or are just plain lazy. But if you want to have a successful financial future, you must know where your money is going.
Balancing a Checkbook
Checks are a common form of payment. Odds are you have a checking account and use it to pay your bills and to buy products and services. But how often do you balance your checkbook? Do you know exactly how much money is in your account, or do you just have a general idea, one that may be much different from what your bank says you have?
It is important to keep a running record of your checks, your ATM withdrawals and the debit card purchases you make, as well as deposits into your account. The easiest way is to record each transaction as it happens, or to record them at the end of each day, in your check register or ledger.
Training Exercise One
The following is an easy way to balance your checkbook. It is not the only way, and after a few months you will probably develop your own system. But it’s a place to start, and you should start it as soon as you receive your next bank statement.
Note: Most bank statements provide an area to enter information from your register to help you with this process. If not, or if you’re more comfortable using a computer, you can use one of the many inexpensive computer programs designed to help you balance your checkbook.
1. List any deposits that do not appear on your statement in the “outstanding deposit” column.
2. Total all of these unlisted deposits.
3. Mark off in your registry all checks, ATM withdrawals, debit card transactions and automatic payments that also appear in your statement.
4. Record all withdrawals (checks, debit card transactions, etc.) that do not show up in your bank statement in the “outstanding withdrawal” column. (Note: Do not worry about this – the timing between the mailing of the bank statement and recent purchases will often not match.)
5. Enter the balance shown on the bank statement in the space provided on the balance sheet.
6. Enter the total deposits recorded on the bank statement in the “outstanding deposits” column.
7. Total the balance on the statement and the outstanding deposits total. Write down the total.
8. Subtract the total withdrawals recorded in the “outstanding withdrawals” column from the total you have in step 7.
9. Subtract all account and ATM service charges on your statement from the total in step 8. This will reflect your current balance.
If you have a checking account and are having problems keeping it under control, then keeping it balanced will help tremendously. Sure, you may think it’s just because you don’t make enough money (and very few in the military truly do), but there is a chance that it’s because you are not keeping close enough tabs on your account. The following are quick and easy tips on how to keep your checking account under control:
Keep good records. – The more informed you are about your checking account, the better equipped you’ll be to read and analyze your bank statement. This means keeping track of account activity, whether by using a handwritten record of transactions, using the register that comes with your checks, or using a software program.
Open your bank statement. – When the bank statement arrives, you should check it immediately for two reasons:
· If there are any mistakes, reporting them to your bank quickly will ensure they get corrected.
· It’s less confusing and easier to balance your bank statement if you do it as soon as you get it.
If you’re pressed for time, scan the statement quickly. – Look over the summary of information and see if the figures are in the ballpark. For example, you can see if the balance is roughly what you think it should be or whether the amount of withdrawals is too high. Look for any unusual or unexpected fees.
NOTE: This should only be done when you first get your statement. In order to maintain a successful budget, you will still need to balance your checkbook once a month.
Call your bank immediately if you find a problem. – If you do discover a problem with your account, you’ll be glad that you balance it every month because it will be easier to prove that anything has been reported incorrectly. It will also be easier to prove fraud. And by being prompt, you show the bank that you are trying to stay on top of your finances, which may make them more willing to help you solve the problem.
out-Creating a Spending plan
Budgeting is the most commonly used word for what is essentially a “spending plan.” Even though the title of this e-book is Budgeting, for some people that word has a negative meaning. This is why it’s important to change your mindset and to start thinking of managing your finances as a plan on how to spend the money you have. And the amount of money you have is not important – whether your bank account has millions of dollars or tens of dollars, having a workable solution for spending is critical.
When looking at what you spend, a good place to start is to track every expense for a month. This includes items as large as a car payment and rent, and as small as snacks from vending machines and change put in parking meters. The process itself is time-consuming but not difficult. After all, you can have the best budget in the world, but if you don’t track your spending, what good does it do?
Tracking every nickel you spend takes time, which is the reason a lot of people don’t do it. But writing down where the money actually goes can be a major eye-opener for many families – seeing the amount that you spend on a monthly basis may be just the motivation you need to quit doing something (like smoking or playing the lottery) because you suddenly see it as a large amount. You never thought of buying lottery tickets as costing $100 a month; you just saw it as a couple of bucks a day.
Part One
The first part of this exercise is a daily expenses form, and will help you fill out the second part of this Training Exercise dealing with monthly expenses. Click here for the “Daily Spending Worksheet.”
Part Two
The second part involves listing your monthly expenses. This will give you a clear picture of where your money is going.
1. Start by creating two charts, one for income and one for expenses.
a. On the income chart, list all of the money you have coming in each month.
2. On the expenses chart, write all of your expenses. You can break these into categories as well:
a. Fixed expenses (such as house and car payments) b. Flexible expenses (such as the phone and electric bills) c. Discretionary expenses (such as gifts and recreation)
Click here to view an example of an expenses worksheet. Again, remember that yours may be different.
3. Total each category, and also each chart.
4. As you compare the two charts, look for gaps. You may be surprised at what you’ll find.
As you look at your income and expense charts, you will see certain things you absolutely need, such as food, housing and clothing. You will also see a lot of things you merely want, such as a new video game, rims for your car and 150 channels on digital cable. The key is to find what you really need and compare that to what you just want. If you would prefer to have those new rims now, rather than a secure financial future later, then you probably wouldn’t have read past the first page of this e-book. Since you’ve made it this far, it’s now time to make the tough decisions.
If you have more expenses than you do income, then you need to prioritize what you really, truly need. Obviously, the rent needs to be paid, you need a car so you get to duty on time, and everyone needs to eat. But can you live someplace less expensive, perhaps on base? Should you look into refinancing your car payments, or perhaps even getting a less expensive car (either one that’s more fuel efficient or one with a lower monthly payment)? Would eating at home save you money over eating out several times a week?
Your net worth
You may think that only rich people have assets that are worth anything. You would, however, be wrong. Every single person – rich or poor, military or civilian, old or young – has items that are worth something.
By figuring your net worth, you are getting a snapshot of your assets and will be able to clearly see where you stand, perhaps even converting some of those assets into cash in case of an emergency. Listing your assets also gives you a good place to start your investment plan, or might fill in the areas needed to give you a better balance to your investments if you already have them. Remember that it’s impossible to move forward until you know exactly where you are right now.
The following Training Exercise will help you determine your net worth. You will also need to fill out the liability spreadsheet, which is not as much fun but is necessary to get the answers needed to move forward.
Training Exercise Two
Filling out the following worksheets will help you determine just how many assets you currently have. This is something that you should consider doing once a year, no matter whether you are in or out of the military. You will also be able to use the spreadsheet if you ever seek advice from a professional financial advisor.
· Click here for your Net Worth Worksheet.
· Click here for your Record of Assets Worksheet.
· Click here for your Special Inventory Worksheet.
· Click here for your Record of Liability Worksheet.
Saving Money
Part of any good budget – and one that many individuals fail to account for – is how much is set aside for savings. This is a vital step on your journey to financial freedom.
There are countless reasons to save money, but some of the basic ones are: · A future purchase (car, stereo, etc.)
· Emergency funds
· Sending you or your children to college
A list of reasons could easily fill 100 pages, but the point is clear: saving money is always a good idea.
Before you tell yourself that you don’t make enough to start saving anything, the truth is that you don’t need a lot. It doesn’t matter if you put $20, $10 or even $5 aside a week, because any amount is more than nothing. Just make sure to put the money into an account separate from your usual spending account. By doing so, it will be less tempting to dip into it, and will allow the money to collect interest.
You can also treat saving money like you would a bill, but instead of paying the utility company, your landlord or a car dealer you are paying yourself. If your budget allows for it, you may want to consider paying yourself first, before you pay your other bills.
So how should you divide up your savings strategy? There are several key categories:
Short-term: A night out next Saturday is an example of a short-term savings goal. This can be achieved by just dropping your loose change in an empty coffee can.
Medium-term: Good examples of items you can buy using medium-term savings are a down payment on a car, furniture, or a new TV or stereo. By saving for purchases such as these, you’ll avoid paying interest and finance charges.
Emergencies: A new carburetor for your car, an unexpected bill, and a new roof for your house are all examples of why you should have 3 to 6 months of your salary put away. Just make sure you have quick access to it so it’s easy to get to.
Retirement: The key here is long, long-term patience and investing. You will want to save your money in a way so that it will outperform both taxes and inflation.
Once you decide to save, where are you going to put your money? Some simple ways to start are:
· Savings accounts · Certificates of Deposit · Money Market accounts · Savings bonds
Savings Accounts
A savings account is a simple way to save, and allows you easy access to your money. Most accounts offer an average of 3 percent interest on your deposits, and are insured up to $100,000 by the Federal Deposit Insurance Corporation (FDIC) so you know your money is safe from loss.
The good thing about a savings account is that it is stable, safe and easy to use. The bad thing is that it usually offers a low interest rate. But if you’re saving for a future purchase, or are putting aside money in case of an emergency (which is discussed later in this e-book), a savings account is a good choice.
Certificates of Deposit
If you want to earn a higher interest rate than a savings account offers, you can choose a Certificate of Deposit (CD). With a CD, your interest rate is based upon the length of time of the investment. This could be as short as three months or as long as several years, and the interest rate will vary by several percentage points, with the longer the time the higher the interest rate. The rate of return is still lower than investing in stocks or bonds, but a CD carries less risk for loss.
Money Market Accounts
A money market account is basically a fund that invests in and manages a variety of short-term bonds (ones that take less than a year to reach full maturity) and other interest-paying investments. This interest is calculated on a daily basis and the interest is credited to your account on a monthly basis.
The advantage is that you can buy and sell this security without trying to time the market – in other words, you don’t need to worry about the price on a day-to-day basis since the unit, or “share,” price is always $1.00 whether you are buying or selling. This makes a Money Market account a very easy-to-manage way of saving.
The third step – overcoming obstacles
There is not enough space in this e-book to list all of the obstacles you will face, nor is there space for all of the strategies to overcome them – they both could fill an entire series of e-books. There are a few tips, however, that you can use to face almost any roadblocks you encounter as you try to reach your financial goals.
Use Discipline
Being a service member, you have been taught that discipline is the key to a successful and organized military. You should take that discipline and apply it to your finances. Sure, it would be nice to have those new rims for your car or the latest high-definition television set, but are those more important than having money in case of an emergency? Are they more important than retiring early and comfortably?
If you planned for such purchases, and if they fit in with your budget, then you are on the right track. But if you buy them on a whim you need to look at your goals and objectives to remind yourself of the bigger picture.
Be Patient
There will be times when you may think you’ll never get your finances under control. The key is to stay the course and, if you get off track, to not dwell on it. Odds are that something will come up for which you failed to plan, or you will make some impulse buy that you probably shouldn’t have. Again, do not dwell on it! Just use it as a chance to learn and then refocus your efforts on getting where you want to be financially.
You should view your budget as a long-term, lifelong process that will take time to get completely right. Once you get in the habit of sticking to it, however, you’ll be surprised at how easy it is.
The End of the Journey
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Personal Finance for Military Families
Debt
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Personal Finance for Military Families The Psychology
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Personal Finance for Military Families
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