Managing Your Money Lesson from the Council for Economic Education Financial Fitness for life publication

Exercise 8.1 Five students volunteer to participate in a call-in show activity. Roles : Budget Bob Dr. Penny Saver Connie Calvin Minnie

Questions from script What is disposable income? What does Dr. Saver recommend as the three parts of a family budget? What are fixed and variable expenses? Use examples. What does “pay yourself first” mean? What is net worth?

Exercise 8.2 A Read the background information about John and Marcia Questions: Who are John and Marcia? What is their lifestyle? What is their immediate financial goal?

Exercise 8.2 A: Budget Fixed Expenses: Expenses that continue at relatively stable levels, month after month or year after year What are some examples of John and Marcia’s fixed expenses? Housing, life and disability insurance, renters insurance, auto insurance, student loan, etc… Variable Expenses: A cost to a person or business that varies over time according to a number of factors. What are some examples of John and Marcia’s variable expenses? Meals, utilities, fuel, medical care, child care, clothing, etc…

Exercise 8.2 A: Budget John and Marcia have decided to practice the "pay yourself first" approach to saving for a second car. How do they pay themselves first? Examine John and Marcia’s monthly spending plan. What sacrifices do you think John and Marcia should make in their variable expenses to meet their goal? Note: at-home food expenses can’t be reduced below $220. Complete the “After Column” with ways that you believe they can adjust their budget. What are the benefits and costs of your recommended decisions for John and Marcia?

Assessment Activity John and Marcia want to buy a house! Down Payment: $10,000 Home Price: $150,000 Step 1: Calculate mortgage payment for a 30 year, fixed rate mortgage at 6% interest. Payment = $840 PI (Principal and interest) Step 2: Calculate costs that include mortgage payment plus insurance and real estate taxes of $210/ month $840+$210= $1050 PITI ( Principal, interest, taxes, and insurance)

John and Marcia Buy a House cont… John and Marcia’s Variable Expenses Notes: Add the additional $65 utilities cost to the total variable. John and Marcia’s Fixed Expenses:

John and Marcia Buy a House cont… Do John and Marcia have enough flexibility in their budget to accommodate the additional costs of homeownership (mortgage payment, taxes, insurance, and higher utilities)? Not right now. Their expenses will be $5500, representing fixed expenses of $3240 and variable expenses of $2260 (with the added $65 in utilities). If not, what are some expenses they may need to reduce in order to afford the home they want? Enter suggestions for variable expenses in the Homeowner column in budget form from exercise 8.2B)

John and Marcia Buy a House cont… Calculate if John and Marcia qualify…. $5400 x .28= $1,512; the PITI is expected to be $1,050 $5400 x .36 = $1,944; Monthly PITI plus other consumer debt such (car, loan, and credit card payment) is $1480. Do you think John and Marcia can afford to pay 28 percent of their monthly gross income as a monthly house payment? Why or why not?