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Personal Financial Choices

FCIC: Personal Financial Choices




Part 1: The Basics of Chapter 7 Bankruptcy

Lesson 1: What You Need to Know About Chapter 7 Bankruptcy

Part 2: The Basics of Money Management

Lesson 2: Personal Planning, Values, Goals, & Priorities

Lesson 3: Money. Making It, Tracking It, Saving It, Spending It

Lesson 4: Smart Shopping

Part 3: The Basics of Credit Management

Lesson 5: Wise Use of Credit

Lesson 6: Is There Life After Chapter 7 Bankruptcy?

Part 4: Additional Resources

Your Rights Under The FCRA
Web Sites for Money Management
Books and Tapes
Glossary of Terms

Personal Financial Choices
Setting A New Course
Chapter 7
Resource Guide




At the conclusion of this lesson you should be able to:
1. Identify your Personal Spending Habits.
2. Identify the Leaks in Your Budget that add up to trouble.
3. Develop a Spending Plan that works for you.

Now that you have determined exactly how you want to spend your money and you’ve designed your plan for achieving your financial goals, this section will help you identify all your sources of income and find ways to get the most out of the money that you make. It will help you identify past and present spending patterns and find where the “leaks” are in your budget. Then you will develop a workable spending plan. You will find it both interesting and helpful to do some of the exercises which will help you work through this process.


Have you ever noticed how much better you feel when you aren’t worried about how you’re going to pay your bills? Most people wonder when they look at their bank statement each month exactly where their hard-earned money is going. This lesson will help you develop new habits for managing your money.

First, you will learn how to accurately calculate your average monthly income. Next, you will estimate how much you think you spend each month to compare with what you actually spend. Finally, you will gather past financial records and track your current spending to get an accurate picture of how much you are actually spending each month.

This lesson contains many exercises that will help you develop the daily spending skills you need so you can stick with your financial plan. Using the exercises, you can look at the past to get a better understanding of the way you used to spend your money. Using the tracking methods described later in this lesson, you will get a better understanding of your present (current) spending habits. This will help you answer the question about where your money is going each month. Lastly, you will look at the future by using all of this information to project short-term and long-term financial goals.



Spending money is a process, not just a laundry list of who you owe and when you need to pay. Therefore, you should consider your spending plan to be a living document with a past, a present, and a future — a spending plan that improves as you learn new and better ways to manage your money, and that can change when your circumstances change. For instance, when you have achieved one of your financial goals, you may have more money each month to spend on your next goal.

Let’s look at the origin of the word “budget.” The word comes from the French word “bougette” which is a small bag with a drawstring. French women adopted this handy bag method of money management from ancient Roman women who used little leather pouches to divide their household coins into different categories of spending.

Today we may not keep our money in small bags, but we still divide our money into categories of expenses. Many people today use envelopes for each item of expense they know they will have to pay at the end of the week, month, or quarter (e.g., food, rent, insurance, child care, etc.). These categories and a spending plan based upon each of these categories make up a budget.



Any budget discussion must begin with an honest determination of how much money you actually have to work with each month. Do you know what your real average monthly income is?

There are two ways to look at your “monthly income.” There is “gross income” and“net income.” Your “gross income” is the total you actually earned (for example, $1,000/month). Your “net income” is what is left after your employer takes out deductions for taxes, social security, Medicare, etc. This is also called your “takehome pay.” In order to know how much you can actually spend, you must accurately determine your net (take-home) pay.

Exercise #1: Calculate Average Monthly Take-Home Pay

Spending Category

1. Savings
2. Rent/House payment
3. Home/household insurance
4. Utilities (including heat, gas, water)
5. Home maintenance
6. Telephone/Mobile/Pager
7. Cable TV/Satellite
8. Groceries/Cleaning supplies
9. Work/school lunches
10. Meals out
11. Clothing
12. Laundry and dry cleaning
13. Auto payments
14. Auto insurance
15. Gasoline/Oil/Tires/Repairs
16. Bus/Train/Parking
17. Medical & Dental expense
18. Medical & Dental insurance
19. Recreation & Entertainment
20. Tax payments (IRS, state, property, etc.)
21. Child care expense
22. Child support/Support of others
23. Charitable contributions
24. Other loan payments
25. Tuition/Books
26. School loans
27. Gifts
28. Personal grooming
29. Cigarettes/Tobacco/Alcohol
30. Bank service charges
31. Books/Newspapers/Magazines
32. Hobbies/Club dues
33. Vacation/Travel
34. Miscellaneous expenses

Monthly Average



The objective in tracking your actual spending is to get a very clear picture of exactly where you have been spending your money. To do this, you need to gather your records from the past year and organize them into expense categories: fixed expenses, periodic expenses, and variable expenses. Here are some of the kinds of records and reminders you might collect and examine to help you determine the exact figures for your past spending habits:

• Canceled checks
• Check stubs
• Check registers
• Receipts
• Calendars
• Diaries
• Pocket Notebooks
• Bills
• Invoices
• Statements

After you have collected these records, set up a folder for each of your expense categories. Gather these receipts and statements and put each of them into the appropriate folder, depending on whether they are for fixed, periodic, or variable expenses.

It is a good idea while you are organizing your records to start a financial calendar. This is a calendar that you use only to keep track of when your bills are due, how much is due, and to keep other notes (such as what you may still owe). By keeping a financial calendar in the same place with your other financial records, you will have all of your financial information in one place.

Remember to track cash payments or money orders. If you didn’t keep a record of payments you made in cash, spend a few minutes to try to remember them and write this information in the appropriate folder. Don’t forget to use your memory!

Accurately looking into the past is a way to discover how you’ve spent your money so you can decide if you need to spend it differently in the future.


These are the major, set expenses you must pay every month like rent, mortgage, car or truck payments, child support, etc. These payments are the same each month. Record your fixed expenses on the MONTHLY MONEY TRACKER WORKSHEET. Fixed expenses such as utilities often vary from month to month depending upon the weather. To get an average, look back at your utility bills for at least one year, add up the total you have spent, and then divide that number by 12 to get the average amount you spend per month.


Periodic expenses are expenses you pay regularly, but not necessarily every month. These include medical expenses, house and car insurance, property and income taxes, car repairs, etc. To determine how much you spend on a specific periodic expense on a monthly basis, gather all of your receipts for that category during the past year and divide the total by 12.

Many people forget to include their periodic expenses when they prepare their budgets because these are usually payments they don’t make every month. Remember that they are still “regular” payments because they must be made in certain amounts at certain times. The best way to make sure you stay current on your periodic expenses is to follow these steps:

1. Include them in your spending category.
2. Make a note on your financial calendar of when and how much must be paid in that spending category.
3. Put the monthly portion of the total amount you will have to pay into a savings account so that you will have the total payment available on the due date.

The example on the below illustrates the impact of periodic expenses.

   Example: Monthly Expense for Car Insurance

Dee’s car insurance costs $1,200/year. She can’t afford to pay the entire premium at once, so she has been making quarterly payments of $300 each. How much should Dee budget each month for her car insurance, even though she doesn’t have to pay it each month?

$1,200 / 12 = $100/month

How does Dee make sure she has $300 each time her quarterly payment is due?

She puts $100 each month into her savings account (where it will earn interest), or into her “car insurance” envelope. Every three months Dee will have $300 to send to her insurance company.

You can go through the same exercise for all of your other periodic expenses, and then enter the average amount spent on each of them each month on your MONTHLY MONEY TRACKER WORKSHEET.


Your variable expenses may or may not be necessary to your basic needs, but they show how much you actually consume. These are usually the best areas to cut back spending. They include clothing, eating out, long distance phone calls, cable, newspapers, entertainment, etc. You will find a list of these kinds of expenses on the WEEKLY MONEY TRACKER SPENDING WORKSHEET. You can use this worksheet to track variable expenses over the next month.

To determine how much you spend in each category, you need to track these expenses day by day, week by week, for at least a month. Make at least four copies of the sheet, and better yet, make extra copies for all family members to use when they spend money on these items or you could underestimate these expenses. Write down every dime, nickel, and penny you spend for the next few weeks.

It may seem silly to you now to write down every penny you (and even the other members of your family) spend on every little thing, especially for four weeks. However, if you think about it, you will probably see that some weeks you tend to spend more than other weeks, and some weeks you will have expenses that you don’t have in other weeks.

For instance, you may find that you spend more on eating lunches out during particularly busy weeks when you are too busy to pack a lunch. Even though that particular expense doesn’t happen all the time , you do need to pick it up on your tracking worksheet because it still reflects one of your spending habits.

Money Tracker For WEEKLY Spending


Day 1 Day 2 Day 3 Day 4 Day 5 Day 6 Day 7 Total
Weekly Expenses                
Cleaning supplies                
Work lunches                
School lunches                
Meals out                
Laundry/dry cleaning                
Charitable giving                
Video rental                
Personal grooming                
Children’s toys                
(Other categories?)                


MONTHLY Money Tracker Worksheet

Monthly Expenses

Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Total Average


If you can’t imagine carrying a sheet of paper with you, then think about using one of these techniques:

• A 3 x 5 card to record what you spend.
• An extra blank check register you get with your checks.
• A small business expense notebook, but record everything, not just business expenses.

You can also record your every expense on your financial calendar. If you record your spending here, you will always be reminded of the fixed and periodic expenses that you have coming up before you spend money unnecessarily on a variable expense.

The important thing is to write down any amount of money you spend. At the end of every day, add up all you spent in each category.

At the end of the week, total each category. After a month, total each week to get a monthly total and record this amount on the MONTHLY MONEY TRACKER WORKSHEET.

After you have recorded your actual daily expenditures on your Weekly Money Tracker Spending Worksheet and you have transferred the total to your Monthly Money Tracker Worksheet, your Monthly worksheet will now have all of the actual dollar amounts you spend plus all of your monthly fixed and average monthly periodic expenses you pay over the course of a year.

Now, compare this chart with the estimates you recorded at the beginning of this lesson (Exercise #1). How close were the two? Are you surprised? Does the difference between what you thought you spend and what you really spend now tell you where all the money goes?


Any good financial plan includes two types of savings plans:

The first type of savings account is the “set-aside” account that we discussed earlier when we described Dee’s method for "saving" to make her quarterly car insurance payment (see example). A set-aside account serves two purposes:

1. It provides a safe place to set the money aside that you know you will need for future payments.
2. It makes that money work for you by earning interest.

The second type of savings plan is that which you decide to start for the purpose of accumulating the money you need to achieve your financial goals — whether you want to retire, buy a house, buy a car or take a luxury vacation. This type of account is also a “nest egg” account. It provides a certain degree of comfort that money will be available if some unexpected expense should occur in the future.

You may think that you can’t possibly save any money, especially now. But any successful financial plan includes a regular savings plan, no matter how small. Getting into the habit of saving is just as important as how much you save. You may only be able to save a small amount at first — even if that’s the difference between eating lunch out every day or packing your lunch.

If you develop the habit of finding those small ways to save now and put those savings into a separate account for a “rainy day,” you will find that after your financial situation is more stable — and you are able to save a little bit more each week, you will be in the habit of saving. You will already have an account with a savings history. (We will talk more about the importance of “savings history” in Lesson 6.)

Remember, if you can just find a way to save just $20 per week, every week for a year, you will have saved $1,040 after one year!

After five years you will have saved $5,200!



To establish your own custom spending plan, you should have the following information: your initial estimates and records of fixed, periodic, and variable expenses. Remember, your plan should allow for you to save the right amount of money each month in anticipation of those periodic expenses which you know you will have to pay. The average monthly amount of these expenses is the amount which should be put into your set-aside savings plan.

Now that you have an accurate picture of your spending, ask yourself if the amount you spend is greater or less than your average monthly income. If you spend more than you make, you must look at those categories where you can spend less on the same item or eliminate it altogether. If you make more than you spend, save the extra money and invest it for your future!

At this point, you are ready to examine your spending record carefully for the holes and leaks. You may be surprised at the amount of money you have put in a“miscellaneous” category. These are expenses which you could not categorize. Since they didn’t fit into your fixed or periodic expenses which tend to be those that are most critical, you should examine these miscellaneous expenditures to determine whether they are even necessary. If these are expenses which you anticipate having every month and you can’t eliminate them, then you should create a category specifically for these expenses in your “fixed expenses” spending plan. Once your spending plan is established, make it your own. Make it a habit to follow this plan and stick with it.


Searching through old financial records, tracking every cent you spend, planning a budget, and working with a budget are not easy to do. If you have worked through these steps and have made a commitment to a life of financial responsibility, you will be rewarded when you achieve your financial goals. It may take a couple of months or years, but if you really put your mind to it, you will find a way to save money and use it for things that are most important to you.

Just hang in there. Worthwhile things take time to achieve.

Lesson 4 >>

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