Financia Opportunity Famiy Progress Making Your Dreams a Reaity
Financia Opportunity Famiy Progress Note: The content areas in this materia are beieved to be current as of this printing, but, over time, egisative and reguatory changes, as we as new deveopments, may date this materia. 2008 Nationa Endowment for Financia Education. A rights reserved.
Tabe of Contents Introduction... v Making the Most of Your Money... vi Understanding Money... vii Working Sums: Understanding Parts vs. Whoe... viii 1. Foow Your Dreams... 1 Setting Your Goas... 2 Action Pan... 4 Creating a Spending Diary... 4 Action Pan... 6 2. Deveoping a Spending Pan... 7 Writing Your Spending Pan... 9 Action Pan... 16 3. Spending Wisey... 17 Wants vs. Needs... 19 Stretching Every Penny... 21 Avoiding Spending Traps... 26 Other Spending Traps... 27 Action Pan... 30 4. Understanding Your Income... 31 Gross vs. Net Pay... 32 Pubic Benefits... 34 Action Pan... 34 ii 5. Understanding Credit... 35 Understanding Interest... 36 What Is a Credit Rating?... 38 Why Does It Matter?... 38 How Can I Find Out My Credit Rating?... 40 Estabishing Credit... 41 Action Pan... 42
6. Banks: Why Do You Need One?... 43 Savings and Checking Accounts... 45 Credit and Debit Cards... 48 Overdraft Protection... 49 ATMs... 49 Loans... 49 Action Pan... 50 7. Digging Out of Debt: Taking Contro... 51 Five Tips for Digging Out of Debt... 52 Bankruptcy... 53 Action Pan... 54 8. Buiding Your Assets... 55 Insurance to Protect Your Assets... 58 Protecting Against Identity Theft and Scams... 59 Action Pan... 60 9. Creating a Persona Financia Pan... 61 Saving Essentias: Starting NOW!... 62 My Net Worth... 63 What I Want to Have Next... 65 Action Pan... 66 Concusion... 67 Usefu Resources... 68 Gossary of Terms... 68 Acknowedgments... 70 iii
NEFE s Mission NEFE operates as a foundation dedicated to heping a Americans acquire the information and gain the skis necessary to take contro of their persona finances. NEFE accompishes its mission primariy by partnering with other concerned organizations to provide financia education to members of the pubic in particuar, to underserved individuas whose financia education issues are not being addressed by others. NCFL s Mission NCFL s mission is to create a iterate nation by everaging the power of the famiy. Famiy iteracy is an intergenerationa approach based on the indisputabe evidence that ow iteracy is an unfortunate and debiitating famiy tradition. Parents who are not iterate tend to have chidren who strugge academicay and who often do not achieve iteracy proficiency in aduthood. Educators, poicy makers and phianthropists rey on NCFL to mobiize famiy iteracy efforts, conduct research and deveop new, effective toos to everage the earning reationship between parents and chidren. Famiy iteracy, pioneered by NCFL, is a powerfu community strategy for raising educationa eves, improving workforce skis and breaking the cyce of poverty.
Introduction If you dream about a more secure future If you want to stretch your money further If you want to avoid going into debt This course is for you! It wi hep you ook at where you are financiay. It wi hep you buid from there. You have things of vaue. They incude your skis, your courage, and your determination to make a better ife. By getting an education, you are on the path to a better future for yoursef and your famiy. you are on the path to a better future! v
Life teaches us many things. One is that we have to take care of ourseves. Making the Most of Your Money Life teaches us many things. One is that we have to take care of ourseves. That means exercising, eating right, and getting enough seep. It aso means making good choices. Good choices about friends. Good choices about how we spend time. And good choices about money. Managing money isn t aways easy and sometimes it s very hard! It s especiay hard when you don t have enough money. It s hard when you strugge to make ends meet each day. This course can hep you. It can hep you make the most of the money you have. It can aso hep you make the most of your future. You have potentia You are a vauabe person, no matter how much money you have. You have friends, skis, and peope who care about you. You know many things. You have potentia. And by taking this course, you are on the path to a heathy financia future. You are taking charge of your ife. This is your start! vi
Understanding Money Hundreds of years ago, there was no money. If you wanted something you coudn t grow or make for yoursef, you had to trade for it. Peope who had cows traded mik and cheese for woo from peope who had sheep. And sometimes the trading was three-sided: n Peope who had grain wanted woo, but the peope who had woo didn t want their grain in trade. n Peope who had mik and cheese wanted grain, but the peope with grain didn t want mik or cheese. n So the peope with woo traded woo to the peope with mik and cheese. And the peope with cows then traded the woo for grain. It was awkward. It was tricky. How did anyone know if the trade was fair? Aso, mik and cheese spoi. And woo and grain can be heavy to carry. So trading wasn t aways easy. Money was deveoped to sove a these probems. Money is a token. It doesn t spoi. It usuay isn t heavy to carry around. It can be saved and used when you need it. Money is different in different countries. It can be caed a doar or a peso or a euro. But everywhere, money is a token that peope wi accept in exchange for what they have to se. It s a token that makes trading much easier. Money is a token. It doesn t spoi. It usuay isn t heavy to carry around. It can be saved and used when you need it. vii
Working Sums: Understanding Parts vs. Whoe Money is power. We a know that. And money is a about numbers. To manage your money, you need to know some basic math. But don t worry! Any math in this course wi be easy. When you know how numbers work, you wi know how money works. You have contro over your money. You have contro over that part of your ife. So et s ook at a few math symbos. Math uses symbos, such as + and and and to show actions. These symbos te you to do something with numbers. Another important symbo is =. This is caed the equa sign. The equa sign shows a reationship. It means theh same thing as the word is in a sentence. + = For exampe, different peope may have different names for you. n To yoursef, you may be Jan. n To your mother, you may be Jannie. n On your driver s icense, you may be Janet. You can put an equa sign between each of those names, because each name is correct for you. Jan = Jannie = Janet or Jan is Jannie is Janet You coud use arrows with two heads to say the same thing: Jan Jannie Janet You don t stop being Jan when your mother cas you Jannie. They are a different names for the same person: YOU! viii
The equa sign between the names means different name, same person. It means is. And the equa sign sti means is when it comes to math as we. For exampe, 5 = 3 + 1 + 1 5 = 2 + 2 + 1 5 = 2 + 3 5 = 2 + 1 + 1 + 1 A the numbers between the equa sign show the same amount (5) with a different name. To manage your money we, you need to use two kinds of math probems: whoe and part probems. Whoe Probems One kind of probem is to find the WHOLE. 3 + 2 =? The answer, of course, is 5, because 3 pus 2 = (is a different name for) 5. The receipt you get at the grocery store is a find the WHOLE math probem. The cash register adds up the prices of what you buy (a the PARTS). The bottom of the receipt tes how much you spent in tota (the WHOLE). Part Probems The other kind of math probem is to find the missing PART. 4 +? = 5 ix
And the answer is 1, because 4 pus 1 = (is a different name for) 5. The stub from your paycheck is a find the PART math probem. The tota money you earn is the WHOLE. The money taken out for taxes is a PART. What you get to take home is another PART. It is the PART that is eft after taxes. Whoes and Parts Working Together The key to understanding PARTS and the WHOLE is that they are aways there at the same time. Look at this face. You can see two eyes = two PARTS. But you know that under the mask there is aso a nose and a mouth. You know there are more PARTS. The PARTS are there even if you cannot see them. And those PARTS make up the WHOLE face. Or ook at this quit. A the squares (the PARTS) make up the WHOLE quit. You aways have the squares and the quit at the same time. Here s another exampe. Suppose Ramon has 10 $1 bis. He puts six of the bis in his pants pockets and four in his shirt pocket. The PARTS are in different pockets, but the WHOLE is sti the same. He sti has 10 $1 bis. PARTS and WHOLES are important ideas. We wi come back to them in ater casses. x
1Foow Your Dreams In this session, you wi focus on your future. You wi: 4 4 4 Identify your dreams and goas. Make a spending diary. See where you can stop eaking money. What are your greatest dreams for the future? 1
A of us have dreams for the future. A of us want things that we can t afford now. It can be hard to think of those dreams when you re strugging just to get by day to day. That may be the pattern of your ife now. But it doesn t have to be the pattern for your future. You can begin to eave money troubes behind. You can reach your dreams. The first step in making your dreams come true is to set goas. Write down the things you want. Those are your goas. Look at them often. The goas wi hep you spend your money wisey. Setting Your Goas Write down three short-term goas. These are for things you can have in three months or ess. Getting a new winter coat is an exampe. Short-term goa 1: Short-term goa 2: Short-term goa 3: 2 You can reach your dreams Now write down your one-year goas. These are things you want to have in one year. An exampe is buying a computer, taking a trip to see your famiy, or paying for a wedding or anniversary. One-year goa 1: One-year goa 2: One-year goa 3: What are your greatest dreams for the future?
Look at your goas often. Look at them before you buy something big. Write down your five-year goas. These might incude buying a new car or house or saving enough money for coege. Five-year goa 1: Five-year goa 2: Five-year goa 3: Finay, write three many-years-from-now goas. These might incude your goas for retirement. Many-years-from-now goa 1: Many-years-from-now goa 2: Many-years-from-now goa 3: 3
Look at your goas often. Look at them before you buy something big. Draw a picture of your most important goas and keep the picture on your refrigerator or in your waet. The goas wi remind you of what is reay important so you don t spend money on things not reated to your goas. Action Pan Based on what I earned today, before the next cass I wi: n Write down my short-term goas. n Write down my one-year goas. n Write down my five-year goas. n Write down my many-years-from-now goas. Creating a Spending Diary Do you wonder where your money goes? Does it sometimes fee ike it just vanishes? On Monday you have $50 in your pocket. By the end of the week, it s gone! Where did it go? Sometimes you re not sure. It fees ike your money just eaks out. There s an easy way to see where money eaks out. Start a spending diary right now. It wi show you where your money goes. Across the top of a piece of paper, write the days of the week. Under each day, write what you spent. Did you spend $3.50 on a cup of coffee? Write it down. Did the bus to a job interview cost $3? Write it down. Write everything down, no matter how sma. Add up the totas for each day. At the end of the week, add up a the totas. You may be surprised. Sma amounts of money reay can add up, but because they re sma amounts, you may not notice the eaks. 4
Spending Diary Worksheet What Maria bought this week Monday Tuesday Wednesday Thursday Friday Saturday Sunday Latte $3.50 Makeup $12 Magazine $4 Lunch $5 Bouse $20 Movie $10 CD $18 Lunch $5 Bus $3 Soda $2 Lunch $5 Haircut $40 Lunch $5 Lunch $5 Daiy Tota $26.50 $17 $12 $7 $25 $50 $0 Weeky Tota = $137.50 There were a number of PARTS to Maria s spending in one week. But the WHOLE that she spent was $137.50. As you can see, sma amounts of money reay add up. If you spend $5 for unch five days a week, in a month, you have spent about $100. And in a year, you have spent more than $1,300! $5 unch 5 days a week = $25 a week $25 a week 52 weeks in a year = $1,300 spent in a year Is that reay how you want to spend your money? Woud you rather have more money to send to famiy members in another country? Woud you rather save more for a wedding or anniversary? Woud you rather use it to get more education? 5
Can you stop eaking money by making some simpe changes? Perhaps you coud make unch at home and take it to work or schoo, for exampe. Write down your ideas here. Write down how much each idea woud save you. Ways I can stop eaking money Amount I woud save in a week Action Pan Based on what I earned today, before the next cass I wi: n Start a spending diary. n Write down ways I can stop eaking money. 6
2Deveoping a Spending Pan In this session, you wi find ways to baance your income and spending. You wi: 4 4 4 Make a spending pan. Think of ways you can make more money. Think of ways you can cut back on spending. What are your pans? 7
Many peope run out of money before their next payday. That is frustrating. It is discouraging. If this happens to you, a spending pan can hep. It can hep you find out where your money goes. It can hep you to spend more wisey. And it can hep you get out of debt and stay out. Most famiies don t have a spending pan. They don t know where they spend $3 out of every $10 they have. That s ike osing 30 cents (30 percent) of every doar of their income. Their money just eaks out. Just think. If you earn $300 a week and ose 30 cents out of each doar, you coud ose $90 every week! $300 weeky saary 30% = $90 oss each week Good panning can make a difference 8
Writing Your Spending Pan There are four steps in making a spending pan (budget): 1. Write down the money coming in each month (your income). 2. Write down the money going out each month (your expenses). 3. Compare your income and expenses. 4. Make changes if the money going out is more than the money coming in. Step 1. Let s ook at your income. Write down a the money you get each month on the form on page 10. Some peope for exampe, seasona workers and sef-empoyed peope have income that is higher some months and ower in others. If income from your job goes up and down, write down how much you expect to make each month. Add up the months. Then divide the tota by 12. That wi hep you see the average income you have from your job each month. Write that amount in the your job ine on the form. Then use the form to figure out a your income put together. 9
Money coming in each month (Income) Your job (after deductions) Second job (after deductions) Jobs of others in your home (after deductions) Bonuses/tips Aowance Food stamps Housing subsidy Temporary Aid to Needy Famiies (TANF) Chid support Unempoyment compensation Gifts Tax refund Interest on savings Interest on investments Other Add up a your income: Tota income each month = Each different way that money comes in is one PART of your income. The WHOLE of your income is a of those PARTS put together. 10
Step 2. Next, write down a the money you spend in a month. Look through past bis, receipts, and your spending diary to figure out where your money goes each month. On this worksheet, savings is isted first so you get in the habit of paying yoursef first. You earn more about this ater. Don t forget bis that ony come in once in a whie. If your car insurance is $750 every six months, divide $750 by six months ($750 6 = $125 each month). That wi give you the monthy cost. Money going out each month (Expenses) Savings Credit card payments Loan payments Groceries Snacks and meas eaten out Rent or house payments Property tax (if you own your home) Sef-empoyment tax (if you own your own business) Heat Eectricity Water Sewer Trash coection Teephone and/or cephone Long-distance phone charges More on the next page 11
12 Home improvements and repairs Transportation (car payments, repairs, gas, insurance; or bus) Cothes, shoes Chid support or support to other famiy member Chid care Schoo fees and suppies Medica (doctor, dentist, medicines) Heath insurance Life insurance Persona property or renter s insurance Union or professiona dues Cabe or sateite TV Internet connection Movies, fun Coege/training (tuition, books, fees) Tobacco Acoho Trave/vacation Pet care Dry ceaning Laundry More on the next page
Persona care (haircut, manicure, pedicure, etc.) Hobbies Gifts Donations Money given to famiy members Other Add up a your expenses: Tota expenses each month = Your individua expenses are the PARTS. The PARTS added together are your WHOLE expenses. Step 3. Compare the WHOLE money coming in and the WHOLE money going out. Money coming in (income) Money going out (expenses) Which number is bigger? Is the money coming in bigger than the money going out? Good for you! That means your income is more than your expenses. Or is the money going out bigger than the money coming in? If yes, that s not good. You don t have enough to pay for your expenses. How can you make changes? That s the next step. 13
Step 4. Make changes. When your expenses are more than your income, it s time to make changes. You can get more income. You can cut back on your costs. Or, you can do some of both. Can you think of ways to add to your income? Coud you: n Get your GED or take courses or training to get a better job or a promotion in your job so that you woud make more money? n Look for a better-paying job? n Get a second job? n Work overtime? n Have other famiy members work and hep pay for food, rent, etc.? n Turn a hobby into extra income? n Do chores, baby-sit, or take care of pets for other peope? n Se things you don t need at a garage sae or consignment store? How ese coud you get more money? Write your ideas here: 14
Can you think of ways to cut back on spending? n Coud you move to a ess expensive house or apartment? n Can you share your house or apartment with someone ese and have them pay part of the costs? n Can you save money by not eating out so often? n Can you take snacks and unches to schoo and work, instead of buying them? n Can you swap chid care? n Do you reay need a new car? Woud a used car work just as we? Or coud you use the bus or a bicyce to get around? n For a wedding, can you make the dress? Can friends and famiies hep by bringing food? n Can you put off buying new shoes or cothes? n Can you have a friend cut your hair or do your nais? n Can you take advantage of free days at museums, zoos, and other paces of entertainment? n Coud you shop at a grocery store (with a friend who has a car) instead of buying at a more expensive convenience store? How ese can you cut back on spending? Write your ideas here: 15
One way or another, it s important to get your income and spending in baance! Sheri s Story Sheri needed to ook carefuy at her money. Her husband was sick and coudn t work. Her daughter and grandbaby had moved back in. Money was tight! Sheri added up her tota income. She added up her tota expenses. Her expenses were a ot higher than her income. Sheri needed to make changes. She sat down with her daughter and taked about money. She tod her daughter she had to get a job. Her daughter got a job. Now she pays for part of the food and rent. Sheri and her famiy are abe to get by without going into debt. Action Pan Based on what I earned today, before the next cass I wi: n Make a spending pan. n Write down ways I can get more money. n Write down ways I can cut back on spending. 16