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Major Expenditures Introduction

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1 Major Expenditures Introduction
The Essentials to Take Charge of Your Finances

2 Which do you believe most similar to your family?
1 2 3 4

3 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

4 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

5 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

6 Housing

7 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)

8 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

9 Housing Expenses Monthly payment Move-in costs Utilities Insurance
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

10 Transportation

11 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)

12 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

13 Food

14 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)

15 Food Options Eat meals at home Cook convenience foods
Cook meals from scratch Purchase the ingredients (pepperoni, mushrooms and cheese) to make a homemade pizza 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

16 Food Options Eat meals at restaurants
Different types of restaurants have a wide range of prices Fast food Restaurant – generally more expensive

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

18 Insurance

19 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)

20 Insurance Main types of insurance Health Auto Home
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

21 Questions?

22 Fernandez Family Step 1: Read the Fernandez family scenario and underline all phrases that indicate the family’s values, needs, and wants. Step 2: Calculate the number of beans that should be spent on each major expenditure and other expenses. Step 3: Make major expenditure and spending plan decisions by allocating your beans. Step 4: Describe why you think the choices you made for each spending plan category meet the values, needs, and wants of the family. Step 5: Answer the questions on the Fernandez family worksheet A1.

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