1.15.2.G1

“Take Charge of Your Finances” Advanced Level

Spending Plans

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 2Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Typical Spending Plan Pie Chart

30%

20%15%

7%

18%

10%

Housing

Transportation

Food

Insurance

Other

Saving andInvesting

Provides guidance when creating a spending plan

What variables may cause these percentages to be different?

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 3Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Males vs. Females

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 4Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Having a plan Financial planning - a tool

used to achieve financial success based upon the development and implementation of financial goals

Spending plan - paper or electronic document used to record both planned and actual income through expenditures over a period of time

Spending Plan Development

Process

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 5Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Everyone has a unique spending plan Based upon

the following elements:

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 6Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

SMART Financial Goals

Why is goal setting important?

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 7Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Example of SMART goals I plan to save $15.00 from my monthly paycheck for

ten months to purchase a new MP3 player for $150.00

What is the……S=M=A=R=T=

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 8Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Components of a Spending Plan Gumball machine represents

components of the financial planning process

Income - money earned Gumballs going into the

machine Wages from a job, allowance,

gifts

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 9Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Components of a Spending Plan Expense - money spent Money going out of the gumball

machine Fixed expenses -may have a fixed

amount due each month and are contractual

Flexible expenses -can vary each month in the amount owed and are not contractual

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 10Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Spending Plan Activity Decide if each item would be income, a fixed

expense, or a flexible expense

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 11Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Spending Plan ActivityPaying Rent

Wages

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 12Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Spending Plan ActivityGroceries

Internet bill

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 13Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Spending Plan ActivityTips

Utilities

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 14Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Spending Plan ActivityGift from family

Income

Savings

Fixed expense or Income

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 15Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Spending Plan ActivityAutomobile registration

Eating out/Snacks

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 16Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Spending Plan ActivityScholarships

Hobbies

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 17Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

How to Develop and Maintain a Spending Plan

Steps 1-3 help develop a spending plan

Steps 4-5 help maintain a spending plan Evaluate and adjust to

meet personal needs and adapt to life changes

Spending Plan Development

Process

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 18Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Step 1: Track Current Income and Expenses

Necessary to creating a realistic spending plan

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 19Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Tracking Methods Carrying a small notebook and writing down all

expenses Keep all receipts Use a debit card if your depository institution

creates spending reports for your account Input information into a cell phone Cell phone applications

Must work for the individual! There is not one right method!

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 20Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

The Costs Add Up Eating lunch out 5 days

per week $5-$10 daily $1,300-$2,600 per year

Daily sport drink $2.00 daily $730 per year

Weekly date night at the movies with popcorn $30 per week $1,560 per year

Daily Latte $3.75 every day $1,369 per year

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 21Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Gross vs. Net Income

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 22Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Payroll Deductions Taxes

Required by local, state, and federal governments Provide public goods and services Account for approximately 31% of an individual’s gross

income

Payroll deductions: Federal Taxes (mandatory) State Taxes (If applicable) Federal Insurance Contribution Act (FICA tax) (mandatory) Retirement (depends upon the employer) 401K Health care benefits (depends upon the employer)

What are two items or services you use that are paid for by taxes?

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 23Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Saving and Investing Savings- Current income not spent on

consumption Pay Yourself First!

Save then spend Recommend saving 10-20 % of net income Save at least 6 months worth of expenses for

emergencies Continue to invest

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 24Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Housing -Typically 30% of net income Possible expenses associated with housing:

Monthly payment – a fee charged each month to live in a home

Utilities – includes electricity, water, and garbage fees Home or renters insurance – purchased to protect the

home and possessions inside from loss Property taxes – paid by the owner of the home Maintenance – Repairs, cleaning, and care Household furnishings - furniture, decorations, etc.

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 25Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Transportation-Typically 20% of net income Possible expenses associated with transportation:

Monthly payment – if a loan is taken out to purchase an automobile

License and registration – required by law to own an automobile

Insurance – required by law to protect the vehicle and individuals if involved in an accident

Repairs and maintenance Fuel Public transportation fees – including bus, metro pass,

taxis, or parking fees

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 26Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Food-Typically 15% of net income

Possible expenses associated with food: Food at the grocery store Meals at restaurants Snacks eaten out (coffees, treats) Party and entertainment foods Non-food kitchen supplies (plastic wrap, dish

soap)

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 27Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Insurance-Typically 7% of net income

Arrangement between an individual and an insurance company to protect the individual against risk

Home/renters AutomobileHealth – pays a

portion of health care expenses if one is sick

or injured

Disability – provides financial support if an individual is injured and cannot work

Life – provides financial support to an

individual’s beneficiaries upon

death

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 28Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Other Expenses-Typically 18% of net income

Communication and computers (Internet,

cell phone, cable television)

Medical costs not covered by

insuranceClothing

Personal careEducational

expensesPet care Entertainment

Gifts and charitable

contributions

Credit costs (loan payments)

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 29Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Step 2: Create Personalized Income and Expenses Categories Categories are based

upon the individuals/families income and expenses

Reference tracking from Step One

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 30Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Step 3: Allocate Money to Each Category

Reference tracking from Step One

Use categories created in Step Two

Refer to goals and determine if any changes in spending needs to be made

A spending plan is now developed!

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 31Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Spending Plan Template Everyone uses a different program to create a

spending plan Paper and pencil Online software Electronic programs such as Microsoft Excel and

Word Must be something that an individual can

manage effectively

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 32Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Spending Plan TemplateIncome Amount

Wages $

Total Income $

Expenses Amount Percentage of income used for each expenditure

Housing Rent or mortgage Utilities Maintenance Insurance

$

Food Eating out Groceries

$

Total Expenses $

Total Income – Total Expenses $

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 33Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Net Gain or Net Loss?

Net gain - there is remaining money to either save, spend or invest

Net loss - an individual is spending more money that he/she is earning and has to use credit (borrowed money) to meet their financial obligations

A spending plan should have income and expense matching one another (reach zero)

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 34Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Step 4: Implement and Control Implement:

Put plan into action! Control:

Determine what was actually spent Continued monitoring of spending allows an

individual to know if they are spending too much in a category

Helps avoid credit and savings use Utilize control systems

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 35Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Control Systems Envelope systems – place the actual budget amount

of cash from a paycheck into a specific envelope system for the expense

Check register system –track all expenditures in a checkbook register which has been divided into spending plan categories

Electronic spending plan systems – Multiple types of software are available Cell Phone Applications

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 36Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Step 5: Evaluate and Make Adjustments Assess if spending plan is working

Are goals being met? Are the dollar amount allocations in each

category accurate? Is money being saved or invested? Is credit being used? If so, then the spending

plan needs to be adjusted (by increasing income or decreasing expenses)

Make changes to spending plan if necessary Begin the process again!

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 37Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

WHAT IS THE LONG-TERM POSITIVE IMPACT OF A SPENDING PLAN?

To know where your money is going!To build long-term wealth!To create long-term financial security!

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 38Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Net Worth Statement

Net worth statement - describes an individual or family’s overall financial condition on a specified date

The components include: Assets – Everything a person owns with monetary value Liabilities – Debts or what is owed to others Net Worth – the amount of money left when liabilities are

subtracted from assets (indicates wealth)

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 39Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Who is Wealthier?Juanita – earns $35,000 per yearAssets

Home $60,000

Retirement $24,000

Automobile $8,000

Total Assets $92,000

Liabilities

College loan $6,000

Mortgage $35,000

Total Liabilities $41,000

Net Worth $51,000

Alexis – earns $100,000 per yearAssets

Home $75,000

Retirement $35,000

Automobile $8,000

Total Assets $118,000

Liabilities

College loan $10,000

Automobile loan $4,000

Credit card debt $20,000

Mortgage $65,000

Total Liabilities $99,000

Net Worth $19,000

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 40Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Gumball Analogy

Income (money in) Net Worth (wealth) Flexible Expenses

(money out) Fixed Expenses

(money out)

Always have more money coming in than out!Work towards building wealth!

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 41Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

ANY QUESTIONS

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 42Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Let’s Review Katie Cole First, review her estimated income and

expenses?(Do you see her various categories; income,

fixed expenses and flexible expenses?) Next, refer to her calendar to view her actual

income (wages, tips, scholarships, etc.), fixed and flexible expenses.

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 43Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

Katie Cole cont. Properly allocate her actual income and

expenses. Calculate the differences (correctly noting

positive and negative differences) for each. Did she have a net gain or net loss? Answer the last page of your packet, making

recommendations to her spending plan.

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 44Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

The Brown Family…• First read the hand-out about their family.• What does the Brown Family value?• How will these values affect their spending?

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 45Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

The Brown Family

Complete Step 2• Review spending plan categories• Answer taxes question

Complete Step 3• Complete the spending plan with the Brown families income and expenses• Analyze the pie chart

- Similarities - Differences - Adjustments

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 46Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

1.15.2.G1

The Brown Family

Complete Step 4•Identify control systems for the Brown family•Analyze the purpose of a control system•Brainstorm advice for a family who does not have a control system in place

Complete Step 5•Identify expenses encountered, but not included•Identify ways to adjust their spending plan•Create a new spending plan