Major Expenditures: Housing, Transportation and Food Advanced Level

Food, Transportation and Housing: Over 60% of Average Spending Source: 2011 Consumer Expenditure Survey What influences spending choices?

Your Present Self Impacts Your Future Self Planned buying process is essential Credit is often used to purchase housing and transportation Choices impact net worth Choices impact financial well-being

Housing (Renting and Owning) Describe your dream house Housing (Renting and Owning)

Housing: Largest Expense for Most Prices vary greatly Size Location Amenities Choose housing that fits your personal needs and spending plan

Renting a Home – Important Terms Landlord Person who owns a property and chooses to allow others to live there for rent Rent Price paid for the use of someone else’s property Tenant Person who rents the property

What are common rental expenses? The cost of housing is more than rent! Utilities (all or some may be included in rent) Household furnishings (some may be furnished) Renters Insurance – provides payment to renters to cover the damage and loss of property in addition to liability losses Communications (internet, television, phone)

Where can you find a place to rent? Sources Online Friends/Family Bulletin Boards Property Management Company News-paper

When Comparing Properties Make a list of essential vs. preferred features If possible, visit properties of interest Know what you can afford and calculate the total cost Understand the policies What are examples of essential vs. preferred features?

Amenities (furniture, pool, laundry, etc) What types of questions would you ask when comparing rental properties? Direct Costs Rent & Length of Rental How much is rent? When is it due? What is the rental contract length? Utilities Who is responsible for each bill? Amenities (furniture, pool, laundry, etc) What is available? Are there additional charges for usage?

What types of questions would you ask when comparing rental properties? Policies Policies What are the property features and restrictions - overnight guest and pet policies, parking, safety features? Repairs and maintenance Who is responsible for the work and fees? Eviction terms What are the eviction terms? Landlord/Property Manager Access What are my rights?

What types of questions does a landlord ask on a rental application? Helps a landlord evaluate if they will rent to you Who will be living at the property Income/employment verification Rental history References Credit history check

Rental Agreement Rental agreement (lease) Contract specifying the tenant’s and landlord’s legal responsibilities Make sure all expenses and policies are clearly outlined Don’t pay any deposits or rent payments without a rental agreement!

What initial expenses may be required to rent a property? One or both expenses may be required: Pre-payment First and last month’s rent Security Deposit Money paid to a landlord to cover cleaning costs and damage repairs beyond normal wear and tear

Purchasing a Home Real estate agent - Licensed individual representing a buyer or seller in a contractual transaction to purchase real property Helps buyers: Find a property that addresses their needs and wants Find a property that fits their spending plan Work through the contract and closing process

Home Loan Most use credit to purchase a home Lender evaluates many factors including: Credit history Income Net worth Income and expense statement Most use credit to purchase a home Lender determines the maximum amount that can be borrowed and the credit terms

Two Significant Initial Expenses Down Payment Portion of the purchase price not borrowed Typically 5-20% of purchase price Mortgage insurance – protecting the lender if the borrower provides less than 20% down payment Closing Costs Fees and charges associated with the purchase of a property Typically 1-4% of purchase price

Mortgage Payment A payment to pay off the loan used to purchase housing Mortgage payments typically include: Cost of the home Interest Funds to pay property taxes Funds to pay homeowners insurance

What are typical home ownership expenses? Housing expenses are more than a mortgage! Utilities Household Furnishings Special Assessments Homeowner’s Association Dues Maintenance and repairs Communications (Internet, television, phone)

Purchasing a $250,000 Home Scenario 1: Down Payment 3.5% Interest Rate  30 Year Loan 20% Down Payment 5% Down Payment Down Payment $50,000 $12,500 Monthly Mortgage Payment $1,158.51 $1,326.90 Total paid $417,062.18 $477,683.21 $8,708.33 paid for mortgage insurance! Scenario 2: Credit Score $50,000 Down Payment 30 Year Loan 780 Credit Score 720 Credit Score Interest 3.3% 3.5% Monthly Mortgage Payment $1,136.33 $1,158.51 Total paid $409,077.76 $417,062.18 $7,924.42 Additional interest paid Source: mortgagecalculator.org

Statement of Financial Position Equity – the monetary value of a property minus the amount owed Benefits of owning Pride of ownership Tax benefits Opportunity to build equity Risks of owning Unanticipated expenses Property value may decrease May be difficult to sell

Rent vs. Own Activity Set-up: work in groups of 2-3 Supplies: piece of butcher paper and markers Activity: For both renting and owning, brainstorm: 2 Pros 2 Cons Rent Own Pros Cons

Rent Own Lower move-in cost Subject to terms of the rental agreement Pros Cons Lower move-in cost Subject to terms of the rental agreement Potential to gain equity May have significant negative effects on credit history is home loan is not paid according to the terms of the loan Easier to move May have restrictions such as no pets Tax benefits Large initial cost (down payment, closing costs) No (or little) maintenance and repairs Few or no opportunities for home improvements (appliances, paint, etc.) May improve credit history if the home loan is paid according to the terms of the loan Additional expenses Less responsibility No equity is gained Free to make home improvements More risky than renting Typically less expensive than home ownership No tax benefits No restrictions (unless restricted by the specific homeowner’s association) Usually requires additional resources (time, money) to maintain Utilities are sometimes included in rent payment   Not as easy to move

What are transportation options in your community?

Public Transportation Examples include: taxi, subway, bus, etc. Pros Does not require extra cost of ownership expenses Typically cost effective Cons May not be convenient or require more travel time Availability depends on the location

Purchasing an Automobile Dealership New and used vehicles Convenient hours Private Sources Typically pre-owned vehicles

Do Your Research! You are responsible for yourself! Before working with sales personnel Evaluate your needs and wants Identify the right type of vehicle for you and desired features Research expected costs You are responsible for yourself! Advance research will maximize your satisfaction with the purchase!

What are typical automobile ownership expenses? Automobile payment (if credit is used) Fuel Maintenance and Repairs License and Registration (yearly fee) Insurance Parking (in some locations) Before purchasing a vehicle, be sure you can afford the total cost of ownership

Marina’s Out-of-Pocket Expenses Marina purchased a 2013 Honda Accord Monthly Payment Purchase Price $21,548 Down Payment $2,154.80 Interest Rate 2.84% $347.09 Total Paid (down payment + loan) $22,980.20 5-Year Average Out-of-Pocket (15,000 miles driven per year) Fuel $9,852 Insurance $3,915 State fees (licensing) $1,932 Maintenance $1,945 Repairs $1,758 5 Year Total $19,402 Monthly Amount $323.37 Marina’s monthly loan is $347.09, but on average, the car will cost her, $670.46 per month to own! Source: bankrate.com Source: kbb.com

Depreciation The value of most vehicles depreciates (lowers) over time One of the biggest costs of ownership Make sure you don’t owe more than you own if credit is used The Statement of Financial Position should record the market value of the vehicle that day

What features would you look for in an automobile? Cost Size Usage Gas mileage Safety Ratings Reliability Environmental Impact Depreciation Upgraded features

Using Credit Credit history will most likely be checked to determine if a loan will be granted and the terms Automobile Dealerships Depository Institutions Loan rates vary significantly between lenders. Shop around before negotiating.

Down Payment Amount required (if any) varies If selling a current vehicle, research the vehicles worth in advance of talking to others If you trade-in your vehicle, negotiate the trade-in value separately from the price of your new vehicle

Leasing Leasing – renting a product while the ownership remains with the lease grantor You pay a specified amount of money (usually monthly) for a specific time Once lease expires, vehicle returned to the lease grantor Read the contract closely – look for hidden costs

Which do you prefer, preparing food at home or eating out? Why?

Two Primary Sources Prepare Food at Home Least Expensive Scratch Convenience Ready-to-eat Fast-food restaurants Fast-casual restaurants Full-service restaurants Prepare Food at Home Least Expensive Food Away from Home Most Expensive

Burger Night - Family of Four Food Away From Home Food Prepared at Home McDonalds Quarter Pounder with Cheese Combo Meal Burger with bun, condiments, 5lb bag of potatoes (for fries) and a 12 pack of Coke Cost per person $6.29 Family of 4 $25.16 Cost per person $5.84 Family of 4 $23.36 The meal prepared at home is less expensive and will result in left-overs What are ways to reduce the cost for either option?

Goal: Eat well-balanced meals high in nutrition Brainstorm 2-3 examples of food from each group

Facilities and equipment Other Considerations Time Skills Facilities and equipment

Summary Housing Transportation Food Housing, transportation, and food Over 60% of spending Determine if renting or owning a home is best for you Housing Consider the total cost of owning a vehicle Transportation Eat well-balanced meals high in nutrition that fit into your spending plan Food