Presentation on theme: "Major Expenditure Mania"— Presentation transcript:
1Major Expenditure Mania Get Ready to Take Charge of Your Finances
2How do people decide how to spend their money? Purchase items to liveFood, water, shelterPurchase items for specific needsVehicle, school suppliesPurchase items for funMovie ticket, camping gear, electronics
3The choices are unlimited! With so many choices, how do people decide what to purchase?Identify values, needs and wantsValue – fundamental belief or practice about what is desirable, worthwhile, and important to an individualNeed – something that is necessary to liveFood, water, shelterWant – something unnecessary but desiredMP3 player, designer clothes, car stereo
4Creating a Spending Plan After identifying one’s values, needs and wants, a spending plan can be createdSpending plan – financial statement individuals can use to assist with money managementThe benefits of creating a spending plan are:Prevent overspendingIdentify how money is being spentHelp reach financial goalsSpending plan components:Income – money earnedExpense – money spent
5Taxes When receiving income, a portion is used to pay taxes Taxes – required citizen charges by local, state and federal governmentsProvide public goods and servicesPoliceFire and emergency servicesSchoolRoads
6TaxesApproximately 30% of an individual’s gross income is spent on taxesGross income – total amount of money earned during a pay period before payroll deductionsNet income – amount of money left after all payroll withholdings have been taken from the gross pay
7Major ExpendituresMajor Expenditures – largest expenses in a spending planHousing, Transportation, Food and InsuranceRecommended percentages of net income provide guidance about how much should be spent in each area to prevent overspendingPercentages should be adjusted to meet individual values, needs and wants
8Other ExpensesMajor expenditure percentages are helpful when creating a spending plan, but other expenses need to be considered as wellIf 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
10Housing Largest major expenditure Approximately 30% of an individual’s net incomeIf Leo earns $2000 each month, he should allocate approximately $600 in his spending plan for housing expenses($2000 * .3 = $600)
11Housing There are many types of houses available Decision depends on goals, values, needs and wantsIf Leo is single, spends very little time at home, and does not like to entertain guests, he probably does not need a huge houseIndividuals can rent or purchase homesRent – make payment to the owner of the homeOwn – take out a home loan, or mortgage and make monthly payments to pay back the loanThere are additional expenses for both options that should be explored
12Housing Expenses Monthly payment Move-in costs Utilities Insurance Payments that are required before individuals move into a homeUtilitiesElectricity, water, garbageOptional utilities - television, internetInsuranceCan be purchased to protect the home and possessions insideTaxesPaid by the owner of the homeMaintenanceIncludes upkeep such as painting or repairing broken appliances
13Housing DecisionsFamilies must consider many things before making a housing decisionTotal cost of the homeCondition and required maintenanceWill the family have to spend a lot of money before moving in to fix a leaky roof?SizeNumber of roomsGarageLocationIs the home close to a school and the adult’s work place?Is the home in a safe community?
14Housing DecisionsFamilies must make adjustments to their needs and wants to afford homesFor example, if the Lopez family has four children, they may want a home that has five bedroomsBut, if they can’t find a home with five bedrooms in their spending plan, they may choose a home with only three bedrooms insteadThey must adjust their wants (five bedrooms) to fit their needs (an affordable home)
16Transportation Types of transportation Walk Bike City bus Metro Automobile
17TransportationOwning a vehicle is the second largest major expenditureApproximately 20% of net incomeIf Leo earns $2000 each month, he should allocate approximately $400 in his spending plan for transportation expenses($2000 * .2 = $400)
18Transportation There are many types of transportation available Choice depends on an individual’s needs, wants and valuesIf Leo is single and commutes to work every day, he needs a car, but does not necessarily need a new SUVIndividuals can purchase new or used vehiclesThere are additional expenses for both options that should be explored
19Transportation Expenses Total cost of purchasing new or usedMonthly payment – if a loan is taken outLicense and RegistrationRequired by law to license and register vehiclesInsuranceRequired by law to protect the vehicle and individuals involved in an accidentMaintenanceNew tires, oil changes, engine repairsFuelOptional UpgradesLeather interior, heated seats, DVD system
20Transportation Decisions Families must consider many things before making a transportation decisionTotal cost of the vehicleTypical useWill one family member drive just to and from work, or will the vehicle be used to travel long distances?Condition and required maintenanceWill the family have to do extensive motor repairs before driving it?
21Transportation Decisions Families must make adjustments to their needs and wants when purchasing vehiclesFor example, Mr. Lopez wants a new, bright red sports carBut, the Lopez family has four children, so a bright red sports car would not be large enough to hold all family membersHe must adjust his wants (sports car) to fit their needs (four children) and purchase a bright red mid-sized car instead
22Who is the Jordan family? After reading the type of home and car the Jordan family purchases, write a short story that describes the familyInclude what you think they value, need and want based on their major expenditure decisions
23The Jordan Family Home Car Small with two bedrooms Large family room downstairs for the kids to have friends overSmall yard, but the family decided to make room for a badminton netNo garageCar1998 Mini-vanVery reliable and runs wellNew tiresBumper 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.
25Food Third largest major expenditure Approximately 15% of an individual's net incomeIf Leo earns $2000 a month, he should allocate approximately $300 in his spending plan for groceries and/or food in restaurants.($2000 * .15 = $300)
26Food Options Eat meals at home Cook convenience foods Cook meals from scratchPurchase the ingredients (pepperoni, mushrooms and cheese) to make a homemade pizzaCook convenience foodsPurchase a frozen pizza and cook it at homeConvenience foods are typically more expensive than making meals from scratchRequire less time and skill to prepareOther examples of convenience foods include frozen dinners, cookie mixes and hamburger helper
27Food Options Eat meals at restaurants Different types of restaurants have a wide range of pricesFast foodRestaurant – generally more expensive
28FoodHow 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 - $12.00At home - $1.30 -hamburger ($.50 for 1 serving)-spaghetti sauce ($.70 for 1 serving)-noodles ($.10 for 1 serving)At homeIn a restaurant1 meal$1.30$12.001 meal / month for 6 months$7.80$72.001 meal / month for 1 year$15.60$144.00
29Food ComparisonCreate a list of pros and cons to preparing meals at home and eating outMaking meals at homeLess expensiveCan make meals exactly how you like themPreparation timeRequires cooking skillsMust purchase cooking utensilsEating out at restaurantsMore expensiveChoose from a limited amount of options on the menuDriving and waiting timeDo not need to prepare meals or clean up afterwards
30Food DecisionsWhen making food decisions, families must consider many thingsWhat 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?
32Insurance Life is full of risks and accidents Risk – uncertainty about a situation’s outcomeInsurance is purchased to protect individuals from loss when accidents happenApproximately 7% of an individual's net incomeIf Leo earns $2000 a month, he should allocate approximately $140 in his spending plan for insurance($2000 * .07 = $140)
33Insurance Main types of insurance Health Auto Home Pays for a portion of health care billsDoctor visits, medicine, X-rayAutoRequired by lawIf an individual is in an auto accident, their insurance may pay for a portion of the bill to repair the damagesHomeIf 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
34Insurance Read your game card. Describe the type of insurance the individual has.Was the insurance beneficial, why or why not?
35Spending Plan Percentages Major Expenditures and Other Expenses ReviewMajor ExpendituresHousing – 30%Transportation – 20%Food – 15%Insurance – 7%Other expendituresSavings – 10%Clothing – 5%Personal Care – 5%Entertainment – 5%Donations – 3%Spending Plan Percentages Major Expenditures and Other Expenses