Budgeting and Savings

Jacoby Kroll - Founder of Finance for Athletes, Dwight-Englewood 23’ (Jacoby@financeforathletes.com)

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Golden Rule Of Budgeting

• Never spend more than what you earn; don’t buy stuff you cannot afford
• This habit is essential for every stage in your life, every level of income, and every job
• Low income individuals and multi-millionaires can go broke because of this

Why is the golden rule so hard?

• Sometimes you have one-time expenses that are really big
• When a tree falls on your house
• When there’s insect infestation
• Your income may be unsteady too
• You can make money for a long time then suddenly it drops, or you can make a lot of money in a short period of time and little money for a long time
• It depends on your job
• Credit cards
• Easy method for people to spend more than they make; you have to use them wisely
• Temptation
• When all your friends are buying expensive accessories or you just want to show off success

Setting Goals For Budgeting

• Setting goals can make the difficult budgeting decisions a little easier
• When you create a budget, you should set short, medium, and long term goals and track your progress toward achieving them
• Budgeting is about:
• How much you earn
• How much you spend
• How much you save
• Possible goals:
• I want to earn more (or less)
• I want to spend less (or more)
• I want to save more (or less)
• If you want to make a change in one of these three components, it’s wise to know how the other two will be affected

3 Ways To Think About Budgets

• Incremental budget
• Budgets can change over time
• Taking the current budget and using it as a base to then increase or decrease the new budget by small amounts
• Activity based budgeting (ABB)
• Chunks for different activities: vacation, gas, clothing, etc.
• Set a budget for each activity ahead of time based on how much $$$ you will have that month
• 50/30/20
• The goal is spend 50% on needs, 20% on wants, and save 20%
• Numbers are flexible

How Much Should You Save?

• Income - spending = savings
• The U.S. savings rate is 5.4%
• For every $100 an american earns on average, they keep $5.40
• Your savings rate increases when you spend less or earn more

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• What percent of your income would you save?
• Take into account all the expenses you could have
• The percent that you save of your income is the only money that you keep after your expenses

Common Recommendations For Savings

• It depends on the lifestyle you want and what goals you have
• Most people will agree that a 20% savings rate is pretty reasonable. You can go below 20% but be careful
• If you can save a lot of money, do it. The sky's the limit

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How do you save money??

Which Type Of Savings Account Is The Best?

• Money in your piggy bank is an option, but there’s zero return
• You can deposit savings into a savings account at a bank that offers you some financial returns
• Putting some saved money into these accounts allows you to make money with minimal effort
• High-yield savings accounts are savings accounts that produce a high APY (annual percentage yield)
• In the past 10 years, the annual percentage has been low (around .001%)
• Today, a good percentage is 1%
• This means that after 1 year, if you put $100 in your account, you will have $101

Why Is A Savings Account A Good Idea?

• Basically free money
• Low risk - the money is safe in a bank
• If it gets stolen, the government guarantees it and will give it to you (up to $250,000)
• You can easily withdraw the money

You can do other things with your savings, such as invest them

• This is higher risk, but can offer higher % returns
• The money could be lost, or hard to get back in some cases

Most people put their savings in a mix of low-risk savings accounts and higher-risk investments

Let’s make a $4,000 budget

Let’s make a $4,000 budget - but surprise! Debt