Managing Your Personal Finances
David A. Vail, Executive MBA
Our Philosophy…
Learning to manage your personal finances is critical to gaining control over your life!!
Japanese Business Paradigms
“You cannot control what you cannot see,” and
“You cannot improve what you cannot measure.”
What Are Your Challenges?
WISH YOU HAD MORE CONTROL?
YOUR BANK ATM
Personal Finance Involves…
Managing all this requires a method!
This Seminar…
1: The Basics
2: Budgeting
3: Understanding and managing credit
4: Tracking Your Money; Wrap Up
Personal Banking
Understanding your cash flow (income and expenses):
- Timing of electronic deposits, debit card transactions, automatic debits, paper checks, cash deposits & withdrawals
- Digital Banking - Invisible processing/posting delays can cause overdrafts and card declines due to insufficient funds
- Bank apps & ATMs cannot see in advance – invisible posting delays mean the balance shown on the app or at the ATM is often more than you actually have
- End-of-month bank statement
same day
same day
same day
2 days later
1 day later
8 days later!!
actual date
Posting date
Expense categories are critical to understanding your spending
What is a Budget?
A budget is a listing of expected cash flows (income and expenses) for a specified period of time (i.e. month or year):
Net Income: wages, salary, or pensions after deductions
Expenses: can be fixed amount (same every month) or variable amount (different every month)
- Mandatory expenses: food, housing and utilities, car, work-related, clothes, phone, medical, insurance, household supplies, credit card and loan payments
- Discretionary expenses: everything that is not mandatory like entertainment, restaurants, movies, video games, etc.
Net Income minus all expenses = what’s left for emergencies and savings
START HERE…
Example Budget (numbers notional)
Type | Item | Monthly | Annual |
Take Home Income | Full time job | 1733 | 20796 |
| Part time job | 400 | 4800 |
| Total Net Income | 2133 | 25596 |
Mandatory Expenses | Rent (1-bedroom apt) | 700 | 8400 |
| Electric, gas, water | 250 | 3000 |
| Groceries (for 1) | 300 | 3600 |
| Cell Phone | 75 | 900 |
| Internet service | 30 | 360 |
| Clothes | 100 | 1200 |
| Loans (car, credit cards) | 300 | 3600 |
| Sub-total (mandatory) | 1755 | 21060 |
| Emergencies & Savings | ??? | ??? |
Discretionary Expenses | Subscriptions, gifts, travel, entertainment, eating out | 378 | 4536 |
Typical Types of Consumer Credit
Secured credit: Something can be repossessed if borrower defaults on loan
Normally lower interest rates, fixed monthly payments, longer payment terms
Unsecured credit:
- Revolving credit: – store cards (very high interest rates); bank-issued credit cards like Visa or MasterCard (interest lower than store cards, but higher than secured credit)
- Student loans – deferred start for payments, low minimum payments, longer terms
Credit Ratings
All banks, stores, and credit companies report your payments to credit bureaus in the USA like Equifax, Experian, and TransUnion who rate your financial reliability in a credit score.
Credit rating affects:
Credit scores (300 – 850) are calculated using following factors:
35% Payment history – on-time, any collections, bankruptcy
30% Amount owed (account balances vs max credit allowed)
15% Length of credit history
10% Different types of credit in your history
10% Number of new credit inquiries/applications
Credit Scores
Monitor your score for free at: creditkarma.com
VantageScore Credit Scores
FICO Credit Scores
Banks, credit cards companies, loan companies, etc. report your payment history to credit reporting agencies. The top 3 are Equifax, Experian, and TransUnion. They report your credit history to lenders and businesses.
Managing Credit
Building or Rebuilding Your Credit Rating:
Build your credit rating for the future when you will need to make a major purchase like a car or home.
TIPS:
Your credit rating can be repaired, but it takes time and dedication
Know Your Credit Score – use Credit Karma – it’s totally free
Tracking Your Money
Use ledger to record:
- Deposits, Checks
- Debit card transactions
- ATM & bank teller cash transactions
WHEN THEY OCCUR!
This old-fashioned method prevents overdrafts and debit card rejections!
Tracking Your Money With Apps
What you need to know about all money applications:
Data entry requires commitment and discipline.
Data Entry = Writing your financial history.
Data can be stored locally on your computer.
Reports in Money Apps Enable You To See AND Control
Cash Flow
Spending
Budgets
Wrap Up
Banking - Timing difference between purchases and posting of transactions affect what you see online.
Budget - A budget is a plan for controlling your spending based on expected income. Build your budget to set spending priorities and control spending.
Understanding and Managing Credit - Secured and unsecured credit have different interest rates, and your credit score determines rates for loans, credit cards, car insurance, etc. Know your score.
Tracking Your Money - Requires continuous commitment to entering your financial data. Reports in money applications help you see and control your personal finances! Remember the Japanese paradigm – you cannot control what you cannot see, and tracking your money enables you to see it!
Managing Your Personal Finances�- Critical to gaining control over your life!
David A. Vail, Executive MBA