1. Develop a Spending Plan
SHOW SLIDE 4-1: Develop a Spending Plan
4. Learning Step / Activity 4: Develop a Spending Plan
Method of Instruction: DSL – Discussion (Small or Large Group)
Instructor to Student Ratio: 1:25
Time of Instruction: 00 hrs. / 30 mins
Media: PowerPoint Presentation, Handout
Required Student Materials:
Student Handout
Calculator
Pencil
Corresponding Activities:
Statement of Net Worth, Student Handout Page 3
Preparing a Monthly Spending Plan, Student Handout Page 4
Debt-to-Income Ration Exercise, Student Handout Page 5
Introduction: During this learning activity, we will discuss the importance of developing and following a financial plan that will provide you with a sound and secure future.
We will:
Examine the key elements of a successful financial plan.
Determine what components make up a spending plan.
Learn how to identify and distinguish between discretionary and non-discretionary spending.
Learning Activity 4
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2. Why Have A Game Plan? SHOW SLIDE 4-2: Why Have A Game Plan? 4-2
Instructor’s Note: Instructor read and discuss with students using the slide.
A good game plan is the key to success in any endeavor.
I am not here to tell you what to do with your money.
I'm here to challenge you to think before you spend.
The most effective way to get your dollars’ worth is to ensure that you have a written plan.
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3. Why Have A Spending Plan?
Live Within your Income
Reduce Financial Stress
Maintain a Good Credit History
Realize Personal Goals
SHOW SLIDE 4-3: Why Have A Spending Plan?
Instructor’s Note: Instructor read and discuss with students using the slide.
You may have already heard about a personal spending plan, also commonly referred to as a budget. But why would anyone need it? A good spending plan can improve your life in several ways.
Its most immediate contribution will be helping you live within your income
It can reduce stress that is often associated with financial problems. Remember we talked about this as one of the major problem areas for young Soldiers.
It will help you establish and maintain a good credit history.
Creating a successful spending plan will help you start on the road to financial success and achievement of personal goals.
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4. Elements of Personal Financial Success
Spending Plan
Current Net Worth
Personal Financial Goals
SHOW SLIDE 4-4: Elements of Personal Financial Success
Instructor’s Note: Instructor read and discuss with students using the slide.
Three Elements of Personal Financial Success:
In addition to a spending plan, two other components must be met in order to really meet desired financial success.
They are:
Knowing your current Net Worth
Goal Setting
Instructor’s Note: Inform students that we will begin by investigating these parts first.
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5. Determining Your Net Worth
Assets Minus Liabilities:
Asset – Has Value
Liability – You Owe
Your Net Worth May Surprise You
Limiting Your Liabilities Has a Direct Positive Effect or
SHOW SLIDE 4-5: Determining Your Net Worth
Instructor’s Note: Instructor read and discuss with students and direct students to page 3 of their Student Handout to the activity “Statement of Net Worth”.
Encourage the students fill out this page to determine their individual net worth.
Note: Not all students will have the information necessary to fill the statement out on hand. Inform them if they don’t know all of the required information, they can fill the statement out at a later time.
Determining your Net Worth:
It's difficult to chart a course to a destination if you don't know where you are. That's the primary reason for determining your net worth.
Your net worth is defined as the total amount of your assets, minus your liabilities. For an individual, it represents the properties owned, less any debt the person has.
An asset is anything you own that has value. A car is a good example. A liability is something for which you owe. Recognize that the fact that decreasing, or making a conscious decision not to increase your liabilities, directly and positively affects your net worth.
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6. The Financial Planning Pyramid
SHOW SLIDE 4-6: The Financial Planning Pyramid
Instructor’s Note: Instructor read and discuss with students using the slide.
Financial Planning Pyramid Four Levels:
Level One Protection:
Life Insurance
Emergency Fund
Debt Reduction
Wills and Power of Attorney’s
Level Two Savings and Wealth Accumulation:
Home Ownership
Fixed Interest Plans
Mutual & Segregated Funds
Level Three Growth & Diversification:
Bonds
Mortgage Pay down
Equity Securities
Level Four Speculation:
Real Estate Investments
Business Interests
4-6

7. Setting Goals Short-Term: Long-Term:
Less than one year, often within weeks
Purchase airline ticket to go home on leave
Long-Term:
Requires higher commitment
Down payment for a car within 36 months
SHOW SLIDE 4-7: Setting Goals
Instructor’s Note: Instructor read and discuss with students using the slide.
There are two categories of goals.
Short-term goals: those that can be accomplished in a year or less.
Long-term goals: May take years to achieve. These goals require a higher degree of commitment to your spending plan.
The most important thing about setting goals is getting started. If you have a financial dream, doing nothing will get you nowhere.
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8. S.M.A.R.T. Goal Setting
Specific: What exactly do you want to accomplish?
Measurable: How will you demonstrate the goal was met?
Achievable: Challenge goals within ability to achieve outcome
Realistic: How does the goal tie to your key responsibilities
Time-bound: Set one or more target dates
SHOW SLIDE 4-8: S.M.A.R.T. Goal Setting
Instructor’s Note: Instructor read and discuss with students using the slide.
Specific:
The more specific the goal, the more likely you are to achieve it.
Example: eat out once a week to spend less money.
Measurable:
You must establish criteria that measures your progress towards attaining your goal.
Example: Save $20 a week in savings account.
Achievable:
Understanding what needs to be done to reach the goals that are important to you, and adjusting your habits to reach that goal.
Example: maybe saving $50 a week is too much, but $50 a month can be done.
Realistic:
A goal must represent an objective towards which you are willing to work. Realizing that making certain changes will put you closer to achieving your goal.
Example: You can visit coffee shops less frequently to save money, but you can still enjoy drinking coffee by brewing it at home.
Time Bound
– have a start date and an end date for your goal. With no timeframe tied to your goal there is no sense of urgency.
Example: Plan to have accumulated $1, in your savings account by the first of the New Year.
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9. Spending Plan Your Roadmap to Financial Success
SHOW SLIDE 4-9: Spending Plan
Instructor’s Note: Direct students to page 4 in their handout: Preparing a Monthly Spending Plan.
After you have determined your net worth and set some specific and realistic goals, it will be time to develop your personal spending plan.
Definition of a Personal Spending Plan:
A personal spending plan is a document used to determine the cash flow of an individual or family. Similar to a budget, it determines the income you have coming in each month and where it is going.
Developing a personal spending plan allows you to identify your spending habits, acknowledge any weaknesses, and keep your spending in check.
A spending plan is flexible, so it is able to keep up with the ebbs and flows of your changing finances.
Think of your spending plan as a roadmap--you wouldn't want to take a trip without it!

10. DISCRETIONARY Vs. Non-Discretionary Spending
Discretionary Funds:
Funds set aside for WANTS
Music
Entertainment
Travel
Non-Discretionary Funds:
Funds are set aside for NEEDS
Food
Shelter
Bills
SHOW SLIDE 4-10: DISCRETIONARY Vs. Non-Discretionary Spending
Instructor’s Note: Instructor read and discuss with students using the slide.
Discretionary vs. Non-Discretionary Spending:
The biggest obstacle many people, and particularly young people, face when starting to save for the future is that money allotted to savings must be "paid" with discretionary funds.
Discretionary funds are used for WANTS; they are the dollars left over after paying your monthly expenses. These are the dollars used for savings.
(2) Non-discretionary funds are used for living expenses and debts. This is the money used for your NEEDS. There are three things you can do if you want to increase the amount of discretionary funds available for savings.

11. Where Does Your Discretionary Money Go?
Daily cup of coffee $840/yr.
1 pack of cigarettes/day $2,000/yr.
Lunch at fast food restaurant $1,825/yr.
Soda/Energy drink -3/day $1,640~$2,190/yr.
33% of an E-2’s annual Base Pay or $6,855/yr.
SHOW SLIDE 4-11: Where Does Your Discretionary Money Go?
Instructor’s Note: Instructor read and discuss with students using the slide.
Increasing your discretionary funds:
The first way to increase your discretionary funds is to control your spending. Take a closer look at what you are spending your money on each day. Where can you reduce spending?
To give you an idea of how much discretionary income you use in a year, look at this slide. Imagine if you cut down on eating fast food for a year. You could save up to $1,800 or more!
Reducing your discretionary spending will increase your ability to save.

12. Three Ways to Increase Discretionary Funds:
CONTROL SPENDING!
GET PROMOTED!
DECREASE DEBT!
SHOW SLIDE 4-12: Three Ways to Increase Discretionary Funds
Instructor’s Note: Instructor read and discuss with students using the slide.
Note: Animated slide, click enter to reveal answers.
Three Ways to Increase Discretionary Funds.
(1) The first way to increase discretionary funds is to control spending. Take a careful look at what you are spending your money on, and see where you could possibly cut back.
(2) The second way to increase discretionary funds is to GET PROMOTED!
(3) The third and final way for you to increase your discretionary funds is to reduce your debt.

13. Characteristics of a Spending Plan
Use as a General Guide
Unique to you
Practical and Realistic
Allow for Flexibility
Allow for Leisure AND Necessities
SHOW SLIDE 4-13: Characteristics of a Spending Plan
Instructor’s Note: Instructor read and discuss with students using the slide.
Characteristics of a spending plan:
A good spending plan is a guide. Here are some characteristics of a sound plan.
(1) A spending plan is a general guide. Everything does NOT have to be figured down to the penny.
(2) It is UNIQUE to you and therefore reflects YOUR needs, wants, values, and goals.
(3) To be practical and realistic, your plan should be based on your current income and expenses, yet still allow for future possibilities.
(4) Times and circumstances change, so your plan should be FLEXIBLE enough to adapt.
(5) A reasonable plan should allow for LEISURE as well as necessities.

14. OOPS! Steak Dinner Movie and Popcorn
SHOW SLIDE 4-14: Preparing a Monthly Spending Plan
Instructor’s Note: Once again, direct students to page 3 of their handout where they will find a pre-populated Monthly Spending Plan to use as a guide to help them create their own.
Note: Animated slide, click enter to reveal answers.
We will now spend some time reviewing the personal spending plan of PVT. Smith.
Remember that this plan is a living document, and I strongly encourage each of you to create your own personal spending plan.

15. Debt-to-Income Ratio <15% OK to add credit (with caution)
% Fully extended
21-30% Overextended
>30% Seek help immediately
SHOW SLIDE 4-15: Debt-to-Income Ratio
Instructor’s Note: Instructor read and discuss with students using the slide.
Debt-to-Income Ratio Definition:
The debt-to-income ratio is a percentage assigned the amount of your debt in relationship to your income.
Simply speaking, this is the amount of your monthly debt payments divided by your monthly income, times one hundred.
Mortgage payments, if you have them, are not included as debt because real estate is considered an investment.
Total Debt ÷ Net Income X = Debt-to-Income Ratio

16. Debt-to-Income Ratio Exercise
Gross Pay (All pays and allowances) $ ______________
Minus (All deductions, Allotments, and Taxes) $ ______________
EQUALS Net Income $_______________
TOTAL $_______________
INSTALLMENT CREDIT
Creditor Monthly Payment
Credit Card $_______________
Cell Phone $_______________
TOTAL $_______________
Debt to Income Ratio. Divide line 2 by line 1, multiply by 100
(2) __________  (1) ________ x 100 = _____________%
$1,262.40
$252.48
$1,009.92
$1,009.92
$135.58
$39.95
SHOW SLIDE 4-16: Debt-to-Income Ratio Exercise
Instructor’s Note: Direct the students to page 4 of their handout to complete the Debt-to-Income Ratio exercise.
Note: Animated slide, click enter to reveal answers.
Not all students will have the necessary information on hand to complete this exercise.
Inform the students that if they aren’t sure of exact numbers, they can complete this exercise at a later time.
Still encourage the students to follow along as you go through the exercise, and be readily available to answer any questions regarding this activity.
$175.53
17.38
$175.53
$1,009.92

17. Debt-to-Income Ratio 15 - 20% Fully Extended
<15% OK to add credit (with caution))
% Fully Extended
21-30% Overextended
>30% Seek help immediately
SHOW SLIDE 4-17: Debt-to-Income Ratio
Instructor’s Note: Instructor read and discuss with students using the slide.
Debt-to-Income Ratio:
17.38% of individuals fall in the 15-20% fully extended range.
In this example, what can be done to decrease the ratio?
Note: Flip back to the previous slide so students can answer the question.

18. Online Financial Planning and Computer Software
Advantages:
Many calculations are done for you
Faster than manual methods
Automatic updates
Mobile Friendly
Able to run reports quickly
SHOW SLIDE 4-18: Online Budgets and Computer Software
Instructor’s Note: Instructor read and discuss with students using the slide.
Advantages
(1) Many of the calculations are done for you
(2) Saves time compared to manual methods
(3) You can have automatic updates for account values
(4) May be able to view and update with mobile devices
(5) You may be able to run reports on various categories
Note: Discuss the advantages of financial planning online.
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19. Online Financial Planning and Computer Software Cont.
Disadvantages:
Tendency to forget data once entered
Increased risk of identity theft. Choose secure passwords!
Sticking to manual financial planning ensures that you understand all aspects of spending plans and personal allotments
SHOW SLIDE 4-19: Online Budgets and Computer Software Cont.
Instructor’s Note: Instructor read and discuss with students using the slide.
Disadvantages
(1) Manual financial planning ensures you understand all aspects of spending plans and personal allotments
(2) There can be a tendency to enter data and forget
(3) Potentially increased security risk or risk of identity theft- choose secure passwords!
Note: Discuss the disadvantages of financial planning online.
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20. Online Financial Planning and Computer Software Cont.
There are many options for online financial planning. Many of these sites are free, or offer some sort of free option. Others require either monthly memberships or a one-time payment.
Free sites (or with free options):
Mint.com
powerpay.org
Budgetpulse.com
readyforzero.com
learnvest.com
yodlee.com,
mvelopes.com
More sites are listed on the PFMC website
SHOW SLIDE 4-20: Online Budgets and Computer Software Cont.
Instructor’s Note: Instructor read and discuss with students using the slide.
Notes:
Mint.com was described as “the best overall site” for budgeting by Kiplinger’s Success With Your Money quarterly magazine (Winter 2012).
However, each website or software option works differently and if you choose to use one of these options you should first explore several and pick the one that is best for you.
Powerpay.org is also very useful in developing a spending plan and also to develop a debt elimination plan.
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21. Sources of Assistance Chain of Command Personnel Action Center
Army Community Service (ACS)
Army Emergency Relief (AER)
Debt Management Programs at Financial Institutions
SHOW SLIDE 4-21: Sources of Assistance
Instructor’s Note: Instructor read and discuss with students using the slide.
Sources of Assistance:
If you think, you are already in debt trouble, or if you need help in the future with any of the things we discuss in this course, don't be timid about seeking assistance from any of the sources shown here.
*Contact information for each installation’s ACS is located on the PFMC website as an easily accessible resource for the Soldiers.

22. SHOW SLIDE 4-22: Questions
Instructor’s Note: Ask students if they have any questions.

23. LSA 4 Check on Learning SHOW SLIDE 4-23: LSA 4 Check on Learning
Note: Conduct a check on learning and summarize this portion of the learning activity.
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24. LSA 4 Check on Learning
Q1. How can you increase your discretionary funds?
a. eat at McDonald’s
b. get promoted
c. take out a loan
d. get a credit card
SHOW SLIDE 4-24: LSA Check on Learning
Instructor’s Note: Conduct a check on learning with the students.
Note: Animated slide, click enter to reveal answers.
Q1: How can you increase your discretionary funds?
A1. Answer: b. get promoted
b. get promoted
4-24

25. LSA 4 Check on Learning (Cont.)
True or False.
Q2. A spending plan is unique to you and reflects your needs, wants, and goals.
True
SHOW SLIDE 4-25: LSA 4 Check on Learning (Cont.)
Instructor’s Note: Continue check on learning with the students.
Note: Animated slide, click enter to reveal answers.
Q2. True or False. A spending plan is unique to you and reflects your needs, wants, and goals.
A2. Answer: True
4-25

26. LSA 4 Check on Learning (Cont.)
Q3. Which of the following is true concerning your personal spending plan?
a. Once developed, it never needs to be changed
b. It will help you live within your means
c. It is likely to cause stress if you follow it
d. It will control every dollar you spend
SHOW SLIDE 4-26: LSA 4 Check on Learning (Cont.)
Instructor’s Note: Continue check on learning with the students.
Note: Animated slide, click enter to reveal answers.
Q3. Which of the following is true concerning your personal spending plan?
A3. Answer: b. It will help you live within your means.
b. It will help you live within your means

27. LSA 4 Check on Learning (Cont.)
Q4. Which of the following statements best describes the purpose of a spending plan?
a. Spending plans help you live within your income
b. Spending plans do not help you attain goals
c. Spending plans increase financial stress
d. Spending plans increase your debt-to-income ratio
SHOW SLIDE 4-27: LSA 4 Check on Learning (Cont.)
Instructor’s Note: Continue check on learning with the students.
Note: Animated slide, click enter to reveal answers.
Q4. Which of the following statements best describes the purpose of a spending plan?
A4. Answer: a. Spending plans help you live within your income.
a. Spending plans help you live within your income

28. LSA 4 Check on Learning (Cont.)
Q5. What are Discretionary Funds used for?
a. needs
b. wants
c. debts
d. living expenses
SHOW SLIDE 4-28: LSA 4 Check on Learning (Cont.)
Instructor’s Note: Continue check on learning with the students.
Note: Animated slide, click enter to reveal answers.
Q5. What are Discretionary Funds used for?
A5. Answer: b. wants
b. wants

29. DO YOUR SPENDING PLAN FIRST!
LSA 4 Summary
Can You Afford This?
SHOW SLIDE 4-29: LSA 4 Summary (Can You Afford This?)
Instructor’s Note: Conduct LSA summary for this lesson.
Summary:
During this lesson, we've talked about the advantages of creating a sound spending plan and the steps you need to take to begin preparing your personal plan.
We discussed some key economic concepts such as debt-to-income ratio and the discretionary funds that are necessary to establish a savings program.
We also identified ways to increase discretionary funds and identified sources of assistance regarding any of your financial concerns.
Instructor’s Note: Prep to transition into LSA #5 titled, Managing a Checking Account.
DO YOUR SPENDING PLAN FIRST!