Money Management & Savings Basics

Transcription

1 Money Management & Savings Basics Financial Education

2 Taking the first step is always the hardest. Many workers want to learn more about financial planning and budgeting, but they don t know where to start, how to improve their habits, or even understand the language that is being used. Concordia Plan Services wants to help workers learn more about proper money management so that they can spend more time with their families and ministry and less time worrying about finances. Be sure to take time to pray and reflect on yourself and, if applicable, your household. Remember our ultimate goal as children of God is serving Him and spreading His message. Part of that goal is to be financially responsible so that we can focus on His ministry. Be as honest and accurate as possible. You are not trying to impress anyone and you want an honest picture of your finances good or bad. Market Value means what the item is worth today. For example: For your vehicle, you would want to use the current blue book value, rather than what you paid for the vehicle several years ago. Likewise, your home may have increased in value due to home improvements or decreased due to market fluctuations. Who Owns/Owes It allows you to indicate if an item is one individual s or a joint item. A student loan may be owed by one person, while a home may be owned jointly. Where do I begin? Before you start working on goals, you need to understand your current financial situation. What is your overall financial picture? You might be surprised by what you find. One great way to learn about your current financial state is to complete a Personal Net Worth Statement (located on the opposite page of this book). Just like a balance sheet for a business, this worksheet will help you compare what you currently have (your assets) to what you owe (your liabilities) to establish your net worth. Pencils ready? Here are some helpful hints for completing the Net Worth Statement: Take some time to gather your financial information before you begin filling out the form so that you can complete most of the form in one sitting, without stopping to search for documents. Pencils down. OK. How did you do? Were you surprised by your Net Worth? Now take a deep breath and a few minutes to just absorb how the big picture of your finances looks. Now take a break. You don t want to get discouraged or frustrated and quit. Whether this is the first time that you have looked at your finances in this format or you are updating your statement, you ll need time to consider what the numbers mean and what you ll want to do next. If you re married, make sure that you and your spouse work together to complete financial worksheets and set goals. Open communications about finances is an important part of a healthy marriage. Remember, you may not fill in all the lines with information, or you may need to create some new lines for items specific to your financial situation. You can find out more about your projected Concordia Retirement Plan and Concordia Retirement Savings Plan benefits with the Retirement Connection website, available through the benefits portal: mycps.org For assistance with Retirement Connection or mycps.org, visit ConcordiaPlans.org for video tutorials.

3 PERSONAL NET WORTH STATEMENT Date Prepared: ASSETS (What Is Owned) MARKET VALUE WHO OWNS/OWES IT Checking account Checking account Savings account in a bank Savings account in a bank Savings account in a credit union Money owed to you by family or friend Money Market account (Bank or company name): LCEF Steward Account LCEF Certificates Certificate(s) of Deposit Certificate(s) of Deposit Government Savings Bond(s) Government securities Individual stocks Individual stocks Individual bond(s) Individual bond(s) Mutual funds Mutual funds Annuity(ies) Annuity(ies) Business interests Individual Retirement Account (IRA) Individual Retirement Account (IRA) Concordia Retirement Savings Plan or other TSA or 403(b) Concordia Retirement Savings Plan or other TSA or 403(b) Concordia Retirement Plan Concordia Retirement Plan Supplemental Retirement Account Balance Other vested pension Other vested pension Deferred compensation Profit sharing account Residence Other real estate: description Personal property: description Collectibles: description TOTAL ASSETS (Total Owned) LIABILITIES (What Is Owed) Mortgage Loans: description Credit card (total of all cards) Outstanding bills Outstanding taxes TOTAL LIABILITIES (Total Owed) NET WORTH (Difference between Owned & Owed)

4 What changes do I need to make? The best place to start is often looking at where your money is coming from and where it is going on a monthly basis. Collect all of your and your spouses receipts, bills, and paystubs for a month. That includes asking for receipts when you purchase convenience items like a candy bar at a gas station or a coffee on your way to work. Likewise, you ll want to write down any donations or purchases that you make for which you don t get receipts. Keep paper in your car or by your bedside and write down cash purchases $10 toward raffle tickets for your niece s soccer team, $5 for the bake sale at your church, or $6 to pay back your coworker who bought your lunch. If you re married, you ll need your spouse to do the same thing. Often people don t realize how much they spend eating out or how much they are paying annually in interest on their credit cards. All those things can really add up. Using the Income Statement on the facing page will help you see how you re spending your money. Completing the form will be more beneficial if you break out the taxes, premiums, and savings that are automatically taken from your paycheck rather than just using your net income. You want to give yourself a clear picture of where your money is going. After you ve completed the income and expense sections of the form, subtract the total to find the difference. Now that you re looking at a smaller monthly picture remember: Think Positive... If your difference is zero or positive, you re spending about what you earn or a little less. This can mean that you are doing a good job of living within your means. That doesn t mean your work is done! There may still be room to make improvements to your household finances to improve your net worth. Don t Be Too Negative... If the difference is less than zero or negative, you ve spent more than you earned. Don t be too hard on yourself, or your spouse, for your spending habits. This may be the first time that you ve looked at your spending habits in this way. The important thing is to look at the numbers together and work together to make them better. Now Break It Down... Looking at your expenses for the month can help you get a quick handle on where your money is going. There are two kinds of expenses those that you can control and those that you can t. Don t dwell on the things that are out of your control: yes, Uncle Sam takes a pretty good chunk; yes, medical care can be expensive; but no, there isn t much you can do about it. Focus on what you can change and how you can improve your finances. Total monthly income: Total monthly expenses: What is the difference? $ - $ $ Change: To make a future course different from what it is or from what it would be if left alone.

5 PERSONAL INCOME STATEMENT Date Prepared INCOME Monthly salary Mileage compensation Honoraria and other income Spouse s monthly salary Mileage compensation Honoraria and other income EXPENSES ESSENTIALS TAXES SHELTER TRANSPORTATION ENTERTAINMENT INSURANCE INVESTMENTS SPENDING DEBT SERVICE TOTAL MONTHLY INCOME Stewardship gifts Other charitable gifts Groceries Cleaning supplies Clothing Medical and dental Childcare/Education/Pet Care Hygiene Federal Income Tax State Income Tax Social Security Tax Property tax Mortgage (principal & interest) Rent Utilities Telephone (local & long distance) Cell phone Home maintenance/repair Other Auto loan payments Gasoline Auto maintenance/repair Vacation (saving or spent) Gifts (birthday and/or Christmas) Dining out Newspaper/periodicals Cable television Internet Miscellaneous Life insurance Auto insurance Umbrella policy (excess liability) Home owner/renter s insurance Medical (privately paid) Disability (privately paid) Long-term care coverage Money market savings CRSP 403(b) IRA contributions LCEF investments Education savings Miscellaneous Cash ATM withdrawals Credit card payments Personal loan payments Installment loan TOTAL MONTHLY EXPENSES

6 What should I do next? Start with a plan... First you will want to work toward controlling your spending. Work on spending less money on nonessentials so that you can work toward balancing your monthly income statement. Then you will want to work on saving more. The good, the bad, and the ugly... First list your expenses into two categories needs and wants. Not all debt is created equal, so you will want to divide your debt into two categories: good and bad. Good debt helps you achieve better net worth, like your mortgage or your car loan (within reason). This debt is often backed by tangible assets that can serve as collateral for the loan. They may also provide you with other financial benefits, e.g., often the interest you pay on your mortgage is tax deductible. Unsubstantiated debt, like credit card debt or vacation or wedding loans, does not provide any benefits to your net worth. Credit cards especially can have high interest rates and fees. They can cause a decrease in your net worth and cause havoc with your credit score. This debt you will want to pay off quickly. This is the kind of debt that is robbing you of your future instead of supporting your dreams. Baby steps... Try to take steps toward cutting expenses and don t rush to any extreme. You are more likely to stick with a budget if you make it realistic. For example, don t set a goal to quit eating out all together. That s not realistic, and it is certainly not fun for you! Instead take baby steps toward your goal. If eating lunch out is eating away at your money, limit yourself to once a week, or a certain dollar amount. Or instead of cutting out a date night to reduce expenses, see if you can find another couple to trade nights with so that you don t have to pay a sitter. Maybe one year do a stay-cation instead of an expensive family vacation, hitting local tourist attractions, parks, and events. Then complete a new Income Statement the following month, and start the process again. Hopefully you will see a change in your spending and improvement in your financial situation. It may take time to change habits just keep working at it. Me? Save? Creating and contributing to a savings account is critical for increasing your net worth. You ll be in a much better financial situation if you can pull money from your savings for an unexpected expense, like unforeseen medical expenses, or tires for your vehicle, than you will be placing them on your credit card at a high interest rate. Don t put it under the mattress... There are several places you can save that will provide you with fairly easy access to your money and provide you with interest. Savings Account These accounts let you set aside some of your money while earning interest (a monetary return). There are usually no limits on what you put into your savings account (you could put in $20 one week and $120 the next), but there may be limits on how often you withdraw money from the account without receiving a nominal fee. Money Market Accounts These accounts usually earn more interest than regular savings accounts but still allow easy access to your funds. Sometimes there is a minimum deposit required to open the account, or limits on the amount of transfers from the account you can make in a given period of time. Certificates of Deposit (CDs) These accounts provide a higher interest rate than the other savings vehicles but come with more restrictions on how you can access your money. You usually agree to a set dollar amount of a CD for a fixed period of time (from 6 months to several years).

7 Usually the longer the term of the CD, the higher the interest rate, but also the higher the penalties that you may pay if you withdraw the money from the CD before the fixed time period has ended. LCEF StewardAccount the StewardAccount is an interest-bearing investment account with access to your funds. The more you save in your account the higher the interest rate you ll receive. You have access to the funds in your account and online services. See LCEF.org for more information. Save for retirement. The earlier you start saving for your retirement, the better. Even if you can only set aside a small amount now, say a couple of dollars a day, it will provide you with needed retirement savings income in the future. Don t put off saving for retirement until you feel you re able to save you ll miss out on valuable compounding and several tax advantages. There are several savings vehicles available to help. Here are two options to consider: Employer-Sponsored Savings Plans One option is an employer-sponsored, retirement savings plan also known as a 401(k) or a 403(b). Worker contributions can be withheld by your employer on a pre-tax basis or an after-tax basis with a Roth option. Your employer remits the funds directly to the plan administrator. Pre-tax contributions are remitted before income and SECA taxes are withheld. The money and any investment gains compound on a tax-deferred basis. Income taxes are only paid when funds are withdrawn. After-tax contributions to a Roth option allow for tax free distributions in retirement as long as the Roth acount has been held for a minimum of 5 years, and the workers has: reached age 59 1/2, is disabled or is deceased. The Concordia Retirement Savings Plan (CRSP), a 403(b) plan, is available to workers whose employer has adopted the Plan. The CRSP has very low administrative fees and offers investment allocation services through ProManage. Both pre-tax and aftertax savings options are available through the CRSP. Ask your employer or call Concordia Plan Services to see if you are eligible to participate in the CRSP! Individual Retirement Account Individual Retirement Accounts (IRAs) are available for all taxpayers with earned income, and they can be set up through most banks and financial institutions. A traditional IRA is an account that is used to save pre-tax (income tax) dollars for use in retirement. The money in the account can generally be invested in stocks, bonds, mutual funds, or CDs, subject to the availability of products within your account. Contributions to a Roth IRA are made with money that has already been taxed. This can be a valuable savings tool if your employer doesn t offer an employer-sponsored match or for your personal tax planning. Earnings are not taxable, and at retirement time the account funds may be available tax-free. The Roth IRA is available to eligible individuals and is dependent upon income level. A wise person should have money in their head, but not in their heart. - Jonathan Swift Helpful Websites mycps.org Sign into your benefits portal to access Retirement Connection and see your retirement program benefits and take steps to begin planning your retirement. Visit our website for information and e-learning presentations on financial planning. Create a profile and log in to see your reported income and projected benefits. The Financial Literacy & Education Commission website that provides financial planning information. Obtain important tax information and forms, contribution limits, and the latest news. The U.S. Department of Labor has a Retirement Saving Education Campaign that contains helpful information on retirement savings for employers and workers. The website endorsed by the Federal Trade Commission to get your free annual credit reports.

8 Concordia Plan Services The Lutheran Church Missouri Synod 1333 South Kirkwood Road; St. Louis MO Toll-free: Fax: Website: