BUDGETING FOR MAJOR EXPENSES Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2 1

Learning Outcomes Students will be able to identify sources of income. Students will be able to identify expenses which are included in a budget. Students will be able to prepare a simple household budget. 2 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2

Lesson Tasks Discuss budgets, their importance, where they come from and what is included in them Calculate a budget for three major expenses 3 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2

WHAT’S A BUDGET?

Budget How would expenses be different for individuals at the following stages of their life? Under 25 Under 25 Two parents with children Two parents with children Retired Retired 5 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2

Financial Planning and Budget Financial planning is a process individuals engage in to achieve long-term financial success while having a quality standard of daily living A budget is a paper or electronic document used to record both planned and actual income through expenditures over a period of time 6 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2

Budget 7 Each individual has a unique budget based upon the following elements: Want – Something unnecessary but desired Need – An essential item required for life Value – A fundamental belief about what is desirable, worthwhile, and important to an individual

Income Examples of income are: Wages or salaries Wages or salaries Tips Tips Withdrawal of money from savings/retirement Withdrawal of money from savings/retirement Interest from savings accounts or investments Interest from savings accounts or investments Monetary gifts Monetary gifts Scholarships Scholarships Child support or alimony Child support or alimony Inheritance Inheritance Winnings from lottery etc… Winnings from lottery etc… 8 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2

Expenses Fixed Expenses Same amount paid each time, usually has a specific due date Difficult to change in short amount of time Flexible Expenses Different amount paid each time, usually no specific due date Easier to change in short amount of time 9 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2

DEVELOPING A BUDGET

Developing a Budget Step 1 - Track current income and expenses Individuals will determine the income and expenses they have within a give period of time Usually concurrent with an individual’s pay day Monthly Monthly Bi-monthly Bi-monthly 11 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2

Costs Add Up 12 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2

Developing a Budget Step 2 - Create personalized income and expense categories Each spending plan is unique because of individual and family values Each spending plan is unique because of individual and family values Categories are based upon the individuals/families income and expenses Categories are based upon the individuals/families income and expenses 13 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2

Gross vs. Net Income 14 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2 Gross Income - Payroll Deduction = Net Income Total amount of money earned during a pay period (salary or hourly x hours worked) TaxesRetirement Health Benefits Take home pay (the amount of the paycheck)

Payroll Deductions Taxes Required by local, state, and federal governments Required by local, state, and federal governments They provide public goods and services They provide public goods and services They account for approximately 30% of an individual’s gross income 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) 15 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2

Budget Breakdown of Major Expenses 16 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2

Developing a Budget Step 3 - Allocate money to each category Reference tracking from step one to be realistic about expenditures and income 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 Think if there were any unique expenses in the past month that should be included Consider changes that need to be made Consider changes that need to be made Identify ways to implement that change Identify ways to implement that change Consider financial goals and money that needs to be allocated Consider financial goals and money that needs to be allocated 17 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2

Examples of Budget Expense Categories 18 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2 Housing – Rent or Mortgage Housing – Rent or Mortgage Utilities – Cable, gas, electric, water, garbage, home phone, internet, HOA, renter’s/homeowner insurance Utilities – Cable, gas, electric, water, garbage, home phone, internet, HOA, renter’s/homeowner insurance Food – groceries and dining out Food – groceries and dining out Transportation – car payment, gas, parking, insurance, bus fare Transportation – car payment, gas, parking, insurance, bus fare Medical/Health – co-payments, deductible, co-insurance, prescriptions, gym memberships Medical/Health – co-payments, deductible, co-insurance, prescriptions, gym memberships Health Insurance – Health insurance premium (only) Health Insurance – Health insurance premium (only) Savings – emergency, vacations Savings – emergency, vacations Debt – credit cards, medical bills, school loans Debt – credit cards, medical bills, school loans Giving/Charity – church, non-profit, schools Giving/Charity – church, non-profit, schools Personal Shopping – clothing, shoes, haircare, Personal Shopping – clothing, shoes, haircare, Entertainment – movies, concerts, electronics Entertainment – movies, concerts, electronics

Who is Wealthier? 19 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2 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 $51,000AssetsHome$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 Alexis – earns $100,000 per year Juanita – earns $35,000 per year

The Food Spending Challenge Locate and complete this activity where you will keep track of how much you spend on food, what food you purchased and how much it costs. 20 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2

LET’S REVIEW…

Review What is a budget? What is the difference between fixed and variable expenses? How much should you allocate for housing, utilities and food? 22 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2

Review What is a budget? A paper or electronic document used to record both planned and actual income through expenditures over a period of time What is the difference between fixed and variable expenses? Fixed is always the same, Variable is different How much should you allocate for housing, utilits and food? Housing 30%, Utilities 5-10%, Food 5-15% 23 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2

Complete the Lesson… Calculate a budget for major expenses 24 Adapted in partnership with ©2015 Educurious Partners--All rights reserved UNIT 3 LESSON 2