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Summary & Resources

Summary & Resources

Module Summary

You now know how to create financial statements and a budget. Take the time to do so! The
key to the income and expenditure statement is in the surplus or deficit generated. A surplus
increases your assets and, thus, increases your net worth. A deficit increases your liabilities
and, thus, decreases your net worth. If you track your spending for a month, or better yet for
several months, you will learn where you spend your money and where you can cut back or
reduce your debt. Once you have a handle on where your money goes—or more importantly,
where you want it to go—you can create a budget. The budget should indicate how much you
are spending in each category so you can live within your means. Saving is tough because it
means forgoing some of the things you want in order to save up for the things you need. The
most important rule is to always pay yourself first. Have a portion of each paycheck automati-
cally whisked away to your savings account so you do not have to decide to save; you simply
do save.

Setting goals is the smart way to get what you want. With no specific direction, your money
will slip through your fingers like melted butter. To be successful, you need to set goals that
are specific, measurable, action oriented, realistic, and time based: SMART. One of your first
goals should be to build an emergency savings account that covers at least 6 months of your
expenses. This will help protect you against loss of employment, illness, or other calamities.

Saving early and often is the winning plan to retirement. If you started late, you will have to
invest more dollars to make up for lost time, but you can still save enough for retirement. If
you work for a corporation, you may have access to a 401(k) plan. If you work for a nonprofit,
you may have access to a 403(b) plan. Both plans are defined-contribution plans funded with
pretax dollars, which gives you more to invest in your retirement account. Your employer may
match your retirement savings dollar for dollar up to a specific percentage. This money grows
tax free until you withdraw the funds upon reaching retirement age. If you do not have access
to a 401(k) or 403(b), you may be eligible to save for retirement using an IRA. If you open a
traditional IRA you can make (income-limited) contributions with pretax dollars and let the
money grow tax free until you withdraw the money when you retire. If you open a Roth IRA,
you invest with after-tax dollars and make (income-limited) contributions that grow tax free,
and you may withdraw these funds tax free upon retirement.

Critical-Thinking Questions

1. Daryl has struggled with money all his life. He cannot seem to get a handle on where
all his money goes every month. He is desperate to get control over his financial life.
How can creating his own income and expenditure statement help him assess his
current financial situation?
2. Now that Daryl has created his income and expenditure statement, he is ready to
establish some financial goals and create a budget. How can Daryl establish SMART
goals, and how can using a budget help him achieve his goals?
3. Now that Daryl knows what his goals are and has a budget, how can he save enough
to reach his financial goals?

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