1. PF8.02: Understand personal financial planning

3. Essential Questions What are the steps in financial planning? What are the benefits of financial planning? What are the basic types of financial statements, and how is each used? How do income and expense statements compare with spending plans?

4. Journal Entry Display a bottle of water. Discuss responses to these questions: Have you ever been thirsty and not had water to drink? What did you do---ask someone for water, buy it, borrow it, find a fountain, or do without? How did being without water make you feel? Have you ever taken water with you somewhere just because you thought you might get thirsty? How did you decide how much water to take? What did you do with water you had left? Did this ever lead you to take more/less water the next time?

5. Key Terms

6. 1.15.2.G1 Take Charge of Your Finances Spending plans

7. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 7 Funded 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 Recommended Spending plan category pie chart

8. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 8 Funded 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 Life cycle spending plans  How would expenses be different for individuals at the following stages of their life? Under 25 Two parents with children Retired

9. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 9 Funded 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 is a process individuals engage in to achieve long-term financial success while having a quality standard of daily living  A Spending plan is a paper or electronic document used to record both planned and actual income through expenditures over a period of time Step 2– Creating Personalized Income and Expense Categories Step 1- Track Current Income and Expenses Step 5– Evaluate and Make Adjustments Step 4– Implement and Control Step 3– Allocate Money to Each Category Step 3– Allocate Money to Each Category

10. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 10 Funded 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  Each individual has a unique spending plan based upon the following elements: Value A fundamental belief about what is desirable, worthwhile, and important to an individual Need An essential item required for life Want Something unnecessary, but desired What does the Brown Family value?

11. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 11 Funded 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 SMART Goals Specific Exactly what is to be done with the money involved Measurable Write the exact dollar amount Attainable Determine how it can be reached Realistic Do not set the goal for something unattainable or unrealistic Time Bound Specifically state when the goal needs to be reached

12. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 12 Funded 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  Short-term (less than 1 year) I plan to save $15.00 from my monthly paycheck for ten months to purchase a new MP3 player for $150.00  Long-term (more than 1 year) I plan to save $25.00 from each bi-monthly paycheck for two years to have $1,200 towards a down payment for a used car when I turn 18 years old

13. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 13 Funded 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 goals  Evaluate your goal and identify if each component of a SMART goal was included.  Re-write your goals to be SMART goals!  Share your goals with your group. Complete questions one and two by writing SMART goals for the Brown family?

14. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 14 Funded 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 Income  Gumball machine represents components of the financial planning process  Income is money earned Gumballs going into the machine Wages from a job, allowance, gifts

15. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 15 Funded 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 Expenses  Expense is 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

16. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 16 Funded 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 is income, a fixed expense, or a flexible expense  Indicate a response by holding up the corresponding activity card

17. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 17 Funded 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 Rent Fixed expense Wages Income

18. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 18 Funded 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 Groceries Flexible expense Internet bill Fixed expense

19. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 19 Funded 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 Tips Income Utilities Fixed expense

20. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 20 Funded 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 Gift from family Income Savings Fixed expense

21. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 21 Funded 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 Automobile registration Fixed expense Eating out/Snacks Flexible expense

22. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 22 Funded 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 Scholarships Income Hobbies Flexible expense

23. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 23 Funded 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 Developing a spending plan – step 1  Track current income and expenses Individuals will determine what income and expenses they have within a give period of time  Usually concurrent with an individual’s pay day Monthly Bi-monthly Step 2– Creating Personalized Income and Expense Categories Step 1- Track Current Income and Expenses Step 5– Evaluate and Make Adjustments Step 4– Implement and Control Step 3– Allocate Money to Each Category Step 3– Allocate Money to Each Category

24. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 24 Funded 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 Must work for the individual! There is not one right method!  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

25. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 25 Funded 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  Daily Latté $3.75 each time $1,365 per year  Eating lunch out 5 days per week $5-$10 each time $1,300-$2,600 per year  Daily sport drink $2.00 each daily $728 per year  Monthly haircut $35.00 per month $420 per year  Weekly date night at the movies with popcorn $30 per week $1,560

26. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 26 Funded 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 Creating personalized income and expenses categories – step 2  Each spending plan is unique because of individual and family values  Categories are based upon the individuals/families income and expenses Step 2– Creating Personalized Income and Expense Categories Step 1- Track Current Income and Expenses Step 5– Evaluate and Make Adjustments Step 4– Implement and Control Step 3– Allocate Money to Each Category Step 3– Allocate Money to Each Category

27. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 27 Funded 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 Pay Total amount of money earned during a pay period (salary or hourly wage x hours worked) Gross Income Taxes Retirement Health Benefits Payroll Deductions Take home pay (the amount of the paycheck) Net Income When calculating spending plan expense categories, use net pay

28. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 28 Funded 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 They provide public goods and services They account for approximately 30% of an individual’s gross income  Payroll deductions:  Federal (mandatory)  State (If applicable)  Federal Insurance Contribution Act (FICA) (mandatory)  Retirement (depends upon the employer)  Health care benefits (depends upon the employer)

29. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 29 Funded 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  Housing Housing is the largest of the four major expenditures Recommended 30% of an individual’s net income  Monthly payment – A fee charged each month to live in a home  Utilities – include electricity, water, and garbage fees

30. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 30 Funded 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  Housing Home or renters insurance – purchased to protect the home and possessions inside from loss Taxes – paid by the owner of the home Maintenance – includes paying for the upkeep of a home

31. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 31 Funded 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  Transportation The second largest major expenditures Recommended 20% of an individual’s net income  Monthly payment – is made if a loan is taken out to purchase a vehicle

32. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 32 Funded 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  Transportation License and registration – are required by law to own a vehicle Insurance – required by law to protect the vehicle and individuals if involved in an accident Maintenance – costs keep automobiles running smoothly Fuel – to operate the vehicle Public transportation fees – including bus, metro pass, taxis or parking fees

33. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 33 Funded 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  Food The third most expensive category within an individual’s spending plan Recommended 15% of an individual’s net income

34. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 34 Funded 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  Insurance Arrangement between an individual and an insurance company to protect the individual against risk  Risk is uncertainty about a situation’s outcome Recommended 7% of an individual’s income

35. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 35 Funded 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  Includes the following: Health – 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

36. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 36 Funded 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 Additional expenses  Savings and investing Save 3-6 months of income that is available in a liquid account for emergencies  Other Fulfills additional needs and accounts for 18% of an individual’s net income

37. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 37 Funded 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 Allocate money to each category – step 3  Reference tracking from step one to be realistic about expenditures and income Think if there were any unique expenses in the past month that should be included  Consider changes that need to be made Identify ways to implement that change  Consider financial goals and money that needs to be allocated Step 2– Creating Personalized Income and Expense Categories Step 1- Track Current Income and Expenses Step 5– Evaluate and Make Adjustments Step 4– Implement and Control Step 3– Allocate Money to Each Category Step 3– Allocate Money to Each Category

38. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 38 Funded 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  Each individual/family uses a different program to create a spending plan Paper and pencil Online software such as Quicken Electronic programs such as Microsoft Excel and Word  Must be something that an individual can manage effectively

39. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 39 Funded 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 IncomeAmount Wages$ Total Income$ ExpensesAmountPercentage of income used for each expenditure Housing Rent or mortgage Utilities Maintenance Insurance $ Food Eating out Groceries $ Total Expenses $ Total Income – Total Expenses $

40. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 40 Funded 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 Allocate money to each category  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)

41. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 41 Funded 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

42. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 42 Funded 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 Implement and control – step 4  When individuals implement their spending plan  Must develop control systems to track their income and expenses Continually compare them to their spending plan to ensure they are on-track and make changes to prevent credit or savings use Step 2– Creating Personalized Income and Expense Categories Step 1- Track Current Income and Expenses Step 5– Evaluate and Make Adjustments Step 4– Implement and Control Step 3– Allocate Money to Each Category Step 3– Allocate Money to Each Category

43. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 43 Funded 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 Implement and control  There is not one correct control system. Depends upon the individual/family Envelope systems – individuals place the actual budget amount of cash from a paycheck into a specific envelope system for the expense Check register system – This helps consumers to 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 for consumers to use to help keep track of their financial records

44. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 44 Funded 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 Evaluate and make adjustments – step 5  Assess if spending plan is working  Make changes if necessary  Analyze if goals are being met  Begin the process again Step 2– Creating Personalized Income and Expense Categories Step 1- Track Current Income and Expenses Step 5– Evaluate and Make Adjustments Step 4– Implement and Control Step 3– Allocate Money to Each Category Step 3– Allocate Money to Each Category

45. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 45 Funded 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

46. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 46 Funded 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 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!

47. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 47 Funded 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  A 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)

48. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 48 Funded 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 year Assets 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 year Assets 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

49. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 49 Funded 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!

50. © Family Economics & Financial Education –April 2010– Spending Plan Unit – Spending Plans – Slide # 50 Funded 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

51. Think About it! Ask students to think about ways in which the flow of money in and out of an account might be compared with flow of water in and out of a bathtub. Share ideas and discuss.

52. Benefits of Financial Planning Become financially independent Enough resources to achieve standard of living Not as anxious or worried Enable to live within one’s means Financial difficulties can be avoided Increases sense of security Take care of expenses without needing credit Stay in control of finances

53. Activity Have students read the scenario and complete “Balance Sheet,” Appendix 8.02B to determine net worth. Have students write on the chart provided or work on a computer spreadsheet program.