1. © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 1 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Introduction to Spending Plans Family Economics & Financial Education

2. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 2 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Introduction to spending Plans Lesson Objectives  Define financial planning  Describe the benefits of financial planning  Name the types of financial statements used in financial planning

3. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 3 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Introduction to spending Plans What are some things in life which require financial planning? Examples: parties weddings funerals education What do all of these things have in common?

4. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 4 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Financial Planning Financial Planning (definition)  A process to achieve financial success Based upon the development and implementation of financial goals & plans

5. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 5 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Financial Planning  Helps a person avoid financial difficulties and save for the future  An ongoing process – always updated to meet the needs of an individual’s financial activity  Based upon personal values, financial goals, needs, wants, and lifestyle conditions Financial Goals  Specific objectives to accomplish by financial planning

6. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 6 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Financial Planning What could happen to an individual or family if they do not have a financial plan?  Be unprepared for unexpected events Examples: illness, accident  Get into debt  Have no back-up funds

7. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 7 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Financial Planning Each family or individual has their own unique financial plan Reasons why financial planning is important  To avoid financial difficulties  To be prepared and ready for unexpected financial changes  To save for future goals

8. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 8 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Financial Planning Values, needs, and wants must be evaluated before a financial plan can be made

9. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 9 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Wealth (definition) The amount of money or valuable possessions which can help a person to achieve financial goals

10. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 10 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Wealth Having a large amount of money or valuable possessions Can help a person achieve financial goals A symbol of the amount of wealth/money available for future consumption

11. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 11 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Bathtub Analogy Water is money Income is water filling up a bathtub from the top Wealth is amount of money in the bathtub Expense is water draining out of the tub from the bottom

12. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 12 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Bathtub Analogy Income Water filling up the bathtub Expenses Water draining from the bathtub Wealth Amount of water in the bathtub

13. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 13 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Bathtub Analogy Financial planning influences the amount of water in the bathtub Goal is to keep water in the bathtub  Enough to maintain desired standard of living during retirement (until death) Water level raises and lowers with income and expenses Must have water (or wealth) in the bathtub for financial planning

14. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 14 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Bathtub Analogy Financial planning influences the amount of water in the bathtub What are some ways to make sure there is water in the bathtub at all times?

15. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 15 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Financial Statements Illustrate personal financial data and information on money matters (definition)  Show financial data and information regarding money  Can show financial status of a family or individual  Are necessary in financial planning

16. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 16 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Financial Statements There are 3 types: I. Balance sheet II. Income and expense statement III. Spending plan

17. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 17 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Balance Sheet A balance sheet is also called a net worth statement  Shows assets, liabilities, and net worth on a particular date (definition) Assets - everything a person owns with monetary value Liabilities - debts or what is owed to others Net worth - money left when liabilities are subtracted from assets

18. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 18 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Balance Sheet Shows financial status at one point in time People need to know where they stand before they can create or implement a financial plan

19. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 19 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Balance Sheet Katie Cole’s Balance Sheet 1.15.3.D2

20. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 20 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Income and Expense Statement Summarizes and lists all monetary transactions (income and expenses) during a specific period of time, usually a month or a year (definition) Also called a cash-flow statement  Lists all monetary actions in a given time period  Foundation for the spending plan

21. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 21 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Income and Expense Definitions Income  Total income received Expenses  Total expenditures made Net gain  A person is making more than they are spending Net Loss  A person is spending more than they are making

22. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 22 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Income and Expense Definitions A net gain allows a person to save, spend, or invest the money left over A net loss means a person is spending more money than he/she is making and has to borrow money to make ends meet (also known as deficit spending)

23. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 23 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Income and Expense Statement Why is an income and expense statement important?  Shows if a family or individual lived within their income level over a certain time period  Shows where a person’s money is going  Shows if too much was spent on one expense  Helps a person to realize if he/she needs to focus on raising income to continue living at the same standard of living

24. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 24 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Balance Sheet Katie Cole’s April Income and Expense Statement 1 1.15.3.D3 Shows one expense category

25. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 25 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Balance Sheet Katie Cole’s April Income and Expense Statement 2 1.15.3.D4 Shows fixed and flexible expenses categories broken down

26. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 26 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Spending Plan A tool individuals can use to assist money management (definition)

27. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 27 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Spending Plan Future oriented tool Assists in money management Two main components I. Income II. Expenses

28. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 28 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Balance Sheet Katie Cole’s Spending Plan 1.15.3.D5

29. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 29 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Spending Plan Income and expense are estimated guidelines for monetary transactions for a specified time period After the time period is over, the spending plan is evaluated and revised for next time period Different from income and expense statement because it is an estimate for the next month’s spending

30. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 30 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Spending Plan Why is a spending plan important?  Can give a person a strong sense of where money is going  Allows for income and expense tracking  Helps meet financial goals  Helps a person live within their income and to make ends meet  Reduces need for using credit and gaining debt

31. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 31 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Comparing Statements Balance Sheet  Current financial standing  Need to create a balance sheet before a family or individual is able to create an income and expense statement Income and Expense Statement  Lists all monetary transactions  Foundation for spending plan Spending Plan  A future estimate of how to manage money based on the income and expense statement

32. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 32 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Conclusion The bathtub analogy shows a person’s wealth Every family or individual must plan for the future with financial statements Balance sheets, income and expense statements, and spending plans are all forms of financial statements used in financial planning

33. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 33 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Conclusion Financial planning is a process used to achieve financial success based upon the development and implementation of synchronized financial goals and plans  Based on personal values, financial goals, needs, wants, and lifestyle conditions  Important because it helps individuals avoid financial difficulties and helps them to be prepared and ready for unexpected financials changes

34. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 34 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Introduction to spending Plans Lesson Objectives -- Review  Define financial planning  Describe the benefits of financial planning  Name the types of financial statements used in financial planning

35. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 35 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Introduction to spending Plans Homework  Personal Bathtub Analogy worksheet 1.15.3.A1

36. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 36 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Spending Plans Outline Financial Planning Types of Financial Statements  Balance Sheet  Income and Expense Statement  Spending Plan Bathtub Analogy Conclusion

37. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 37 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona Introduction to spending Plans What are some things in life which require financial planning? Examples: parties weddings funerals education What do all of these things have in common?

38. 1.15.3.G1 © Family Economics & Financial Education—Revised May 2005—Spending Plans Unit—Introduction to Spending Plans — Page 38 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona The End