budgeting your best tool for financial success. according to the millionaire next door who really...

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Budgeting Budgeting Your Best Tool For Your Best Tool For Financial Success Financial Success

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Page 1: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

BudgetingBudgeting

Your Best Tool For Financial Your Best Tool For Financial Success Success

Page 2: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

According to The Millionaire Next Door

Who Really Are the

Millionaires?

Page 3: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

THE MILLIONAIRES

Most millionaires are college graduates.

True. Four of five millionaires are college graduates. Eighteen percent have Master’s degrees, eight percent law degrees, six per-cent medical degrees, and six percent Ph.D.s.

Page 4: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

THE MILLIONAIRES

A majority of millionaires work fewer than 40 hours/week.

False. About 2/3 of millionaires work 45-55 hours a week.

Page 5: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

THE MILLIONAIRES

Most millionaires inherited their wealth from family.

False. Only 19 percent of millionaires received any income or wealth of any kind from a trust fund or an estate. Fewer than 10 percent of millionaires inherited 10 percent or more of their wealth.

Page 6: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

THE MILLIONAIRES

Most millionaires purchase used cars.

True.. Only 23 percent of millionaires drive a current-year (new) car.

Page 7: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

THE MILLIONAIRES

Most millionaires work in sports, entertainment, or as CEOs of big companies

False. About three out of four millionaires are self employed and consider them-selves to be entrepreneurs. Most of the others are professionals, such as doctors, accountants, and lawyers

Page 8: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

THE MILLIONAIRES

Many poor people become millionaires by winning the lottery.

False. The chances of winning are about one in 12 million. The average person who plays the lottery every day would have to live about 33,000 years to win once. In contrast, you have a one in 1.9 million chance of being struck by lightning.

Page 9: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

Sources

Lee, Dwight R., and Richard B. McKenzie. Getting Rich in America. Harper Business, 1999.

Stanley, Thomas J., and William D. Danko. The Millionaire Next Door. Pocket Books, 1996.

Page 10: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

Rules for Improving Your Financial Life

Get a good education

Work long, hard, & smart

Learn money-management skills

Spend less than you could spend

Page 11: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

Rules for Improving Your Financial Life

Save early and often

Invest for the long term

Gather information before making decisions

Page 12: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

What is a Budget?

A spending and savings plan based on an estimate of income and expenses

Purpose:Meet short and long term goals To have controlcontrol!!!!

Page 13: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

Budgeting Process

Page 14: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

Identify Current Income

Gross Income: Income before taxes are takeout

Net Income: Income after taxes are take out – take home pay

Other Income: Gifts and other income earned

Page 15: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

Identify Current Spending

Record your spending habits Review past bank statements, check

register, receipts, tax forms, bills Divide spending into categories such as…

Food Entertainment Rent Car

Label fixed vs. flexible fixed vs. flexible and needs vs. wantsneeds vs. wants

Page 16: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

Fixed vs. Flexible Expenses

Fixed Expenses Those that you have already

promised to pay on certain dates and in certain amounts

Flexible Expenses Those that vary in amount and

usually in frequencyWhich is harder to change?Which should be changed first?

Page 17: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

Fixed vs. Flexible Expenses

Rent Cell Phone School Loan Insurance Car Loan Gym Membership Savings

Clothing Food Entertainment Car Maintenance Gas Gifts Heat/Water/Power

Fixed Flexible

Page 18: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

Create Goals – Savings Plan

Short-term Goals Emergency Funds Large purchase (vacations, TV)

Long-Term Goals (three years or more) Home (down-payment) Education Retirement

Saving and investing must be treated as a fixed expense. Pay yourself first – at least 10%

Page 19: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

Simple Budget Format…Monthly Budget

Net Income

Other Income

Total

Fixed Exp

Total

Flexible Exp

Total

Saving & Investing

Total Ending Balance

Page 20: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

Creating the Budget

Analyze your spending habits to see where you need to make changes

Identify trouble spots where your spending is higher than average for other similar demographics.

Set budget to meet your goals

Page 21: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

Tracking Budget

Track expenses monthly to ensure budget is being followed Excel or other software works great

Adjust budget if needed Be realistic

It may take multiple revisions to achieve a budget you can stick to.

Page 22: BUDGETING Your Best Tool For Financial Success. According to The Millionaire Next Door Who Really Are the Millionaires?

Lastly

Its all about opportunity costs “I can have this, but it will cost me

this.” Reevaluate often to:

Your goals will change as your life changes