Major Expenditure Mania Get Ready to Take Charge of Your Finances

Major Expenditure Mania

Get Ready to Take Charge of Your Finances

© Family Economics & Financial Education –January 2007 – Get Ready to Take Charge of Your Finances – Major Expenditure ManiaFunded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

2.15.2.G1

How do people decide how to spend their money?

Purchase items to live•Food, water, shelter

Purchase items for specific needs•Vehicle, school supplies

Purchase items for fun•Movie ticket, camping gear,

electronics


2.15.2.G1

The choices are unlimited!

With so many choices, how do people decide what to purchase?•Identify values, needs and wants

•Value – fundamental belief or practice about what is desirable, worthwhile, and important to an individual

•Need – something that is necessary to live•Food, water, shelter

•Want – something unnecessary but desired•MP3 player, designer clothes, car stereo


2.15.2.G1

Creating a Spending Plan

After identifying one’s values, needs and wants, a spending plan can be created•Spending plan – financial statement individuals

can use to assist with money management

•The benefits of creating a spending plan are:•Prevent overspending

•Identify how money is being spent

•Help reach financial goals

•Spending plan components:•Income – money earned

•Expense – money spent


2.15.2.G1

Taxes

When receiving income, a portion is used to pay taxes•Taxes – required citizen charges by

local, state and federal governments•Provide public goods and services

•Police

•Fire and emergency services

•School

•Roads


2.15.2.G1

Taxes

Approximately 30% of an individual’s gross income is spent on taxes•Gross income – total amount of money

earned during a pay period before payroll deductions

•Net income – amount of money left after all payroll withholdings have been taken from the gross pay


2.15.2.G1

Major Expenditures Major Expenditures – largest expenses in

a spending plan•Housing, Transportation, Food and Insurance

•Recommended percentages of net income provide guidance about how much should be spent in each area to prevent overspending

•Percentages should be adjusted to meet individual values, needs and wants

30%

20%15%

7%

28%

Housing

Transportation

Food

Insurance

Other


2.15.2.G1

Other Expenses Major expenditure percentages are helpful when

creating a spending plan, but other expenses need to be considered as well

If major expenditure percentages are adjusted according to values, needs and wants, individuals are able to live within their means and have enough money for other expenses as well

10%

5%

5%

3%

5%

Saving

Clothing

Personal Care

Entertainment

Donations

Housing


2.15.2.G1

Housing

Largest major expenditure•Approximately 30% of an individual’s

net income•If Leo earns $2000 each month, he should

allocate approximately $600 in his spending plan for housing expenses

•($2000 * .3 = $600)


2.15.2.G1

Housing

There are many types of houses available•Decision depends on goals, values, needs and

wants•If Leo is single, spends very little time at home, and

does not like to entertain guests, he probably does not need a huge house

Individuals can rent or purchase homes•Rent – make payment to the owner of the home

•Own – take out a home loan, or mortgage and make monthly payments to pay back the loan

There are additional expenses for both options that should be explored


2.15.2.G1

Housing Expenses

Monthly payment Move-in costs

• Payments that are required before individuals move into a home

Utilities• Electricity, water,

garbage

• Optional utilities - television, internet

Insurance• Can be purchased to

protect the home and possessions inside

Taxes• Paid by the owner of the

home

Maintenance• Includes upkeep such as

painting or repairing broken appliances

• Paid by the owner of the home


2.15.2.G1

Housing Decisions Families must consider many things

before making a housing decision•Total cost of the home

•Condition and required maintenance•Will the family have to spend a lot of money

before moving in to fix a leaky roof?

•Size•Number of rooms

•Garage

•Location•Is the home close to a school and the adult’s

work place?

•Is the home in a safe community?


2.15.2.G1

Housing Decisions

Families must make adjustments to their needs and wants to afford homes•For example, if the Lopez family has four

children, they may want a home that has five bedrooms

•But, if they can’t find a home with five bedrooms in their spending plan, they may choose a home with only three bedrooms instead

•They must adjust their wants (five bedrooms) to fit their needs (an affordable home)

Transportation


2.15.2.G1

Transportation

Types of transportation•Walk

•Bike

•City bus

•Metro

•Automobile


2.15.2.G1

Transportation

Owning a vehicle is the second largest major expenditure•Approximately 20% of net income

•If Leo earns $2000 each month, he should allocate approximately $400 in his spending plan for transportation expenses

•($2000 * .2 = $400)


2.15.2.G1

Transportation

There are many types of transportation available•Choice depends on an individual’s needs, wants

and values•If Leo is single and commutes to work every day, he

needs a car, but does not necessarily need a new SUV

Individuals can purchase new or used vehicles•There are additional expenses for both options

that should be explored


2.15.2.G1

Transportation Expenses

Total cost of purchasing new or used•Monthly payment – if a loan is taken out

•License and Registration•Required by law to license and register vehicles

• Insurance•Required by law to protect the vehicle and

individuals involved in an accident

•Maintenance•New tires, oil changes, engine repairs

•Fuel

•Optional Upgrades•Leather interior, heated seats, DVD system


2.15.2.G1

Transportation Decisions

Families must consider many things before making a transportation decision•Total cost of the vehicle

•Typical use•Will one family member drive just to and from

work, or will the vehicle be used to travel long distances?

•Condition and required maintenance•Will the family have to do extensive motor

repairs before driving it?


2.15.2.G1

Transportation Decisions

Families must make adjustments to their needs and wants when purchasing vehicles•For example, Mr. Lopez wants a new, bright

red sports car

•But, the Lopez family has four children, so a bright red sports car would not be large enough to hold all family members

•He must adjust his wants (sports car) to fit their needs (four children) and purchase a bright red mid-sized car instead


2.15.2.G1

Who is the Jordan family?

After reading the type of home and car the Jordan family purchases, write a short story that describes the family•Include what you think they value, need

and want based on their major expenditure decisions


2.15.2.G1

The Jordan Family

Home•Small with two

bedrooms

•Large family room downstairs for the kids to have friends over

•Small yard, but the family decided to make room for a badminton net

•No garage

Car•1998 Mini-van

•Very reliable and runs well

•New tires

•Bumper sticker on the back that says, “We support our team! Go Wildcats!”

Based upon this information, write a story that describes the Jordan family following the questions on

your note taking guide.

Food


2.15.2.G1

Food

Third largest major expenditure•Approximately 15% of an individual's

net income •If Leo earns $2000 a month, he should

allocate approximately $300 in his spending plan for groceries and/or food in restaurants.

•($2000 * .15 = $300)


2.15.2.G1

Food Options• Eat meals at home

1.Cook meals from scratch• Purchase the ingredients (pepperoni,

mushrooms and cheese) to make a homemade pizza

2.Cook convenience foods• Purchase a frozen pizza and cook it at home

• Convenience foods are typically more expensive than making meals from scratch

• Require less time and skill to prepare• Other examples of convenience foods include

frozen dinners, cookie mixes and hamburger helper


2.15.2.G1

Food Options

Eat meals at restaurants• Different types of restaurants have a wide

range of prices1. Fast food 2. Restaurant – generally more expensive


2.15.2.G1

Food How does the cost of eating out compare to

preparing meals at home over time?•Let’s compare a spaghetti dinner for one person.

•In a restaurant - $12.00

•At home - $1.30 -hamburger ($.50 for 1 serving) -spaghetti sauce ($.70 for 1

serving)-noodles ($.10 for 1 serving)

At home In a restaurant

1 meal $1.30 $12.00

1 meal / month for 6 months

$7.80 $72.00

1 meal / month for 1 year $15.60 $144.00


2.15.2.G1

Food Comparison

Making meals at home•Less expensive

•Can make meals exactly how you like them

•Preparation time

•Requires cooking skills

•Must purchase cooking utensils

Eating out at restaurants•More expensive

•Choose from a limited amount of options on the menu

•Driving and waiting time

•Do not need to prepare meals or clean up afterwards

Create a list of pros and cons to preparing meals at home and eating out


2.15.2.G1

Food Decisions

When making food decisions, families must consider many things•What is the price difference in eating

out and preparing meals at home?

•How much time does the family have to prepare and eat meals?

•Does anyone in the family have special dietary needs that would make it difficult to eat in restaurants?

Insurance


2.15.2.G1

Insurance

Life is full of risks and accidents•Risk – uncertainty about a situation’s

outcome

•Insurance is purchased to protect individuals from loss when accidents happen

•Approximately 7% of an individual's net income•If Leo earns $2000 a month, he should allocate

approximately $140 in his spending plan for insurance•($2000 * .07 = $140)


2.15.2.G1

Insurance Main types of insurance

•Health•Pays for a portion of health care bills

•Doctor visits, medicine, X-ray

•Auto•Required by law

•If an individual is in an auto accident, their insurance may pay for a portion of the bill to repair the damages

•Home•If a fire ruins part of a home and the contents

inside, home insurance will cover a portion of the expenses to replace the damages or lost items


2.15.2.G1

Insurance

Read your game card. Describe the type of insurance the

individual has. Was the insurance beneficial, why

or why not?


2.15.2.G1

Review Major Expenditures

•Housing – 30%

•Transportation – 20%

•Food – 15%

• Insurance – 7% Other expenditures

•Savings – 10%

•Clothing – 5%

•Personal Care – 5%

•Entertainment – 5%

•Donations – 3%

Spending Plan Percentages

Major Expenditures and Other Expenses


2.15.2.G1

Questions?

Documents

Major Expenditure Mania Get Ready to Take Charge of Your Finances