Personal budgeting and planning: Every stage and every age

Personal budgeting and financial planning is different for everyone. It may mean getting to the next paycheck, or it may mean monitoring investments on a daily basis. Regardless of your financial status, it is important that everyone manage his or her expenses and take steps to prepare for certain events in life that are common, but not always predictable. This is called “life cycle” planning and should also include goals about where you are and where you want to be financially, spiritually and emotionally.

Use the checklist below as a guideline, and see how many steps you’ve completed for your age category. Keep this checklist in a personal file that you can pull out each year to review your progress and make adjustments.

How to build a personal budget Time Required: 30–60 minutes Record all your sources of income. Create a list of all the expenses you incur over the course of a month. (Include your mortgage payment, car payments, auto insurance premium, groceries, utilities, entertainment, dry cleaning, auto insurance, retirement or college savings, etc.) Gather every financial statement you can. Include bank statements, investment accounts, recent utility bills and any information regarding a source of income or expense. Your goal is to create a monthly average of your income and expenses. Break your expenses into two categories: fixed and variable. Fixed expenses are those that stay relatively the same each month and are required for your way of living (your mortgage, car payments, utilities, credit card payments, etc.). Variable expenses are those that will change or items you could reduce if necessary (groceries, gasoline, entertainment, dining out and gifts). Total your monthly income and monthly expenses. If your end result shows more income than expenses, you are off to a good start. This means you can prioritize and pay more to eliminate debt or reserve more for your emergency fund and retirement savings. If you are showing a higher expense column than income, some changes will have to be made. Make adjustments to expenses. If you are in a situation where expenses are higher than income, look at your variable expenses to find areas to cut to bring you closer to your income. Review your budget monthly. It is important to review your budget on a regular basis to make sure you are staying on track. After the first month, take a minute to sit down and compare the actual expenses to what you created in the budget. This will show you where you did well and where you may need to improve.       Solutions   Helping make members lives better at every stage of life! NEA Group Term Life Insurance (800) 523-5877 NEA Preferred Term Life Insurance (877) 814-4350 A+ Auto and Home Insurance (800) 346-6840 Horace Mann Home Insurance (636) 532-4447 NEA Home Financing, Line of Credit or Reverse Mortgage Program (800) NEA-4-YOU NEA Personal Consolidation Loan (866) 266-0211, code FABYTB NEA Money Market (800) 205-8647, code HA02B Disability/Salary Replacement Insurance (636) 532-4447 Financial Planning, Retirement Savings, and College Savings Program: Reliant Financial Planning (800) 471-7717 Security Benefit Group (800) NEA-VALU Horace Mann Companies (636) 532-4447 NEA members can read articles, listen to podcasts and order plain-English books, forms and software on a wide range of legal issues at a discounted price from Nolo.com when they access the site through the NEA Member Benefits Web site. Visit www.neamb.com and use the link under “Member Discounts” for discounted self-help legal books. For a limited time, members get a discount off Quicken Willmaker 2008. Members can also contact a participating attorney in the MNEA Attorney Referral Program and receive two, free 30-minute consultations and a 30 percent discount in five core areas of law, including wills and estate planning. Visit www.mnea.org/member_ services/legal/ARP.htm.

Life-Cycle Planner for:

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Twenties
 Finish your post-secondary education.
 Turn your skills and abilities into a livelihood.
 Establish credit in your own name.
 Start saving, even if it is only $25 a month, in a tax-deferred retirement plan.
 Build an emergency fund that is equal to at least three months of your salary. (Keep your money in a money market or other safe interest-bearing account that you can access if necessary.)
 Create a budget to help you learn how to handle cash-flow issues.
 Plan for short-term goals (buying a car or furniture), mid-term goals (buying a home, paying off student loans) and long-term goals (retirement and travel).
 Consolidate high-interest debt with a consolidation loan and make one monthly payment.
 Make certain you have adequate health insurance, automobile insurance, life insurance, and renter’s or homeowner’s insurance. Be sure to use your employer’s flexible spending account program for out-of-pocket expenses. Work toward getting auto, renter’s or homeowner’s insurance with liability limits that exceed the required minimum and a 20- or 30-year term life insurance plan that will at least pay off all your bills.
 Organize a file box and set up a record-keeping system.

Thirties
 Pursue additional education / life-long learning opportunities.
 Think about whether you’re living where you want and doing what you want to do. How will you accumulate the money to accomplish those goals?
 Manage your cash flow. Look at what you’re spending and where you can reduce expenses.
 Make sure you have adequate insurance to protect your assets. Add disability/salary-replacement insurance to cover lost wages if you don’t already have this coverage from your employer.
 Establish relationships with financial professionals, such as a financial planner, accountant, attorney and real estate agent.
 Increase contributions to your tax-deferred retirement plan.
 Review your record-keeping system and keep good records on investment assets and your home. You’ll need this information to figure your capital-gains tax later.
 If you have children, start putting money away for their college education.
 Draw up a will and, if you have children, name a guardian.
 Set up a durable power of attorney and a health care proxy (living will) so that your wishes are carried out if you are unable to make those decisions.

Forties
 Re-examine your goals and focus on what you will do to accomplish them.
 Set up a home equity credit line for emergencies. The interest is tax deductible if you need to use it.
 Plan a special vacation and start setting money aside to fund it.
 Add to your investment portfolio. Diversify your assets in U.S. companies and funds that invest in foreign stocks.
 Think about what you will have now, what you will need in retirement, and the age you want to retire.
 Be sure you have adequate personal liability protection added to your homeowner’s and auto insurance. (This protection, an umbrella policy, becomes more important as your net worth grows.)
 Think about how marital assets are titled.
 Consult an attorney to review your estate plan, will, power of attorney, and health care proxy to be sure your decisions are still current and meet your needs.

Fifties
 Don’t give up! You still probably have 30 years or more to realize your dreams.
 Think about a second home (or retirement home). If you will retire in the home you live in now, try to pay off the mortgage.
 Prioritize and eliminate all debt to free up your income in retirement.
 As income goes up and expenses go down, divert extra cash into savings and retirement assets.
 Include expensive hobbies, travel, insurance premiums and higher medical expenses in your budget projections.
 Look into long-term care insurance to protect your assets (in most cases, premiums are tax deductible).
 Meet regularly with your financial planner to balance your investments and discuss tax-free investments and capital-gains tax.
 Consult an attorney to review your estate plan, durable power of attorney and living will to make sure your decisions are still current and meet your needs.
 Think about creating a legacy in some way through your children, a business or a charity.

Sixties
 If you are still working, finalize your projections for retirement. Will you consolidate all of your investments for ease of recordkeeping? Will you take a lump sum distribution or an annuity? Consult a tax advisor before deciding how to take out your retirement funds. The order in which you withdraw funds (interest, dividends or capital gains) can have a significant impact on your taxes.
 Keep some of your retirement money in stocks for growth to keep pace with inflation.
 Check with the Social Security office for benefit estimates.
 Research your Medicare options, and be sure to enroll by the time you reach age 65.
 Consider life insurance to pay off debt, help your surviving spouse live comfortably, and possibly pay for estate planning expenses (such as taxes).
 If you are having a hard time meeting your expenses with your current income, schedule an appointment with a qualified and reputable Reverse Mortgage Specialist.
 Update your will, trust and estate plans. Review your durable power of attorney and living will.
 Re-evaluate your goals to make “new beginnings” and pursue those that are really important to you!

by Laverne Copeland
MNEA manager of Member Benefits

sb, summer '08