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2019Annual
Retirement
Conference
Strategies to Effectively Manage
Your Personal Finances
Presented by: Andrew Smith
MERS Benefit Education Specialist
Agenda
• Budgeting basics and resources
• Debt management strategies
• Importance of having an emergency fund
• Emergency fund best practices
• Saving for future goals
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Budgeting Basics
Budget Benefits
A budget can:
Provide guidance and direction
Facilitate planning
Motivate and inspire action
Help evaluate progress
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Building a Budget
Income Expenses Debts
Building Your Budget
Complete a Household Budgeting Worksheet
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Compare
EXPENSES vs INCOME
Sources to Consider
Savings
• Pension
• Supplement savings account (457)
• 401(k) / 401(a)
• IRA
• Stocks and Bonds
• Emergency fund
Income
• Current salary
• Income from rentals
• Side jobs
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Sources to Consider, cont’d
Expenses
• Housing (mortgage)
• Transportation (gas, auto loans, insurance)
• Insurance/Healthcare
• Food
• Miscellaneous Personal care
Clothing
Hobbies
Travel
• Debts Student loans
Credit cards
Medical bills
Loans
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Identify Your Gaps
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Average Household Expense Ranges
Source: US Bureau of
Labor Statistics Consumer
Expenditure Survey*
* Includes emergency fund savings,
retirement savings, etc.
Example: Meet Bill • Bill would like to establish a budget and set
some spending goals for himself
• Bill’s net monthly income is $4,688
($56,258 annually)
• He is single with no children
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Determining Bill’s Gaps
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Budgeted
Expense
Bill’s Goal Expense Target (net income x Bill’s
goals %)
Actual
Expense
Area of
Concern?
Housing
(25 – 35%)% $ $
Transportation
(10 – 15%)% $ $
Savings
(10 – 20%) % $ $
Food
(5 – 15%)% $ $
Medical
(5 – 10%)% $ $
Debt Payments
(5 – 10%)% $ $
All other
(5 -20%)% $ $
1,641$4,688 x .35
703
188
281
938
234
703
$4,688 x .15
$4,688 x .20
$4,688 x .06
$4,688 x .04
$4,688 x .05
$4,688 x .15
35
15
20
6
4
5
15
1,600
600
300
700
150
100
1,238
Determining Bill’s Gaps, cont’d.
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Budgeted
Expense
Bill’s Goals Expense Target (net income x Bill’s
goals %)
Actual
Expense
Area of
Concern?
Housing
(25 – 35%)35% $1,641 $1,600
Transportation
(10 – 15%)15% $703 $600
Savings
(10 – 20%) 20% $938 $300 Yes
Food
(5 – 15%)6% $281 $700 Yes
Medical
(5 – 10%)4% $188 $150
Debt Payments
(5 – 10%)5% $234 $100
All other
(5 -20%)15% $703 $1,238 Yes
Analysis
Based on this analysis, Bill should take the following steps
to adjust his monthly budget:
1. Reduce his food and miscellaneous monthly expenses
2. Consider increasing the amount he is setting aside for
savings
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Where are
your gaps?
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Budgeting Tools and Tips
Manage Your Day-to-Day Spending
• Spend “within your means”
• Know your income and expenses by creating a budget
• Budgeting is a tool that tells your money where to go
ahead of time
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Budgeting Tools
• Online tools through your bank
• Microsoft Office templates
• Organizations such as:
– National Credit Union Administration (mycreditunion.gov)
– Visa (practicalmoneyskills.com)
• Apps
– Mint
– You Need a Budget
– Wally
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Ideas to Reduce Expenses
Household
• Shop around for better rates
• Consider refinancing your mortgage
• Improve water and energy efficiency
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Ideas to Reduce Expenses, cont’d
Transportation
• Consider carpooling or public transportation
• Shop around for a better auto insurance rates
• Avoid unnecessary repairs with routine maintenance
• Reduce or eliminate car payments
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Ideas to Reduce Expenses, cont’d
Other Discretionary Expenses
• Cancel memberships
• Shop around for a better deal on TV/cable, or reduce your
current package
• Shop second hand stores for clothing and home goods
• Make your own coffee and bring your lunch to work
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Debt Management Strategies
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Debt Management• Debt can come in many forms and includes:
– Credit cards
– College or student loans
– Other types of loans
• Debt management is simply creating a plan to repay
debt in a meaningful way
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Debt Payoff StrategiesTwo primary strategies:
1. Pay off debt with the highest interest rates first
2. Tackle the smallest debts first then move on to the
second smallest, and so on
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DID YOU KNOW?
Paying even just $25 over your minimum monthly payment can have a
big impact on the time it takes you to pay off your bill.
Paying More Than the Minimum Has an Impact
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Monthly PaymentTime to Pay Off Card (if no additional purchases made) Total Interest Paid
First Payment of $120, then
Minimum Payment (3% of balance or $25 whichever is greater)
Over 11 years $2,513
$145 2 years 6 months $935
$220 1 year 9 months $566
Example: Joe has $4,000 in credit card debt with a 15% interest rate
Debt Consolidation
Plans involve combining debts into one loan in an
attempt to lower monthly payments and interest
charges
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National Debt Relief: www.nationaldebtrelief.com
Debt Settlement• Avoid companies which:
– Charges fees before it settles your debts
– Touts a "new government program"
– Guarantees it can make your debt go away
– Guarantees your debts can be paid off for pennies on the dollar
– Tells you to stop communicating with your creditors, but doesn’t
explain the serious consequences
– Tells you it can stop all debt collection calls and lawsuits
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Planning for the Unexpected –Establishing an Emergency Fund
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Importance of Having an Emergency Fund
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Emergency Savings
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• Money set aside to cover life's unexpected events
• Should be able to access quickly and easily
• Ideally should be a fund separate from other things
you are saving for
How Much Should You Save?
Other Important Considerations
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Emergency Fund Best Practices
Don’t Touch!
• Should be accessible on short notice
• Not so convenient you’re tempted to spend it
elsewhere
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Consider Your Spending Habits
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Ask Yourself
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Unplanned Income
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457 Hardship Withdrawal Feature
• Emergency withdrawal option in the event of a
severe financial hardship
• You do not pay back an emergency withdrawal
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Roth IRA Features
Tax-free earnings
Emergency savings
Estate planning
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Saving for Future Goals
Determine Your Goals
Future
Goals
Retire Comfortably
Buying a House
Saving for College
First Priority? You!
Saving for a Home
Tips
• Start saving for a down payment early
• Consider paying off all your debt and have an
emergency fund in place first
• Work with a reputable lender to determine how much of
a mortgage you can afford
• Compare mortgage rates
Saving for College Example
Invested and earning 6% return
+ compounded interest
Invested and earning 6% return
+ compounded interest
Saving for College Example, cont’d.
A Plan for the Future
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Bill’s Retirement Readiness Report
• He is 35 years old
• His current annual salary is $56,258
• At age 62 he is projected to make $96,026
(2% inflation each year for 27 years)
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Bill, YOU MAY NOT BE ON TARGET TO MEET YOUR
RETIREMENT INCOME GOAL
First Month in Retirement
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Actions to Increase Retirement Readiness
• Add additional information online to build your
Full Picture Report
Increase retirement savings
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Bill’s Example (he originally had a gap of $605 per month)
Contacting MERS of Michigan
55
MUNICIPAL EMPLOYEES’
RETIREMENT SYSTEM
1134 Municipal Way
Lansing, MI 48917
800.767.MERS (6377)
www.mersofmich.com
This presentation contains a summary description of MERS benefits, policies or procedures. MERS
has made every effort to ensure that the information provided is accurate and up to date. where the
publication conflicts with the relevant Plan Document, the Plan Document controls.
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