MAJOR EXPENDITURES: HOUSING, TRANSPORTATION AND FOOD Advanced Level

© Take Charge Today – August 2013– Major Expenditures – Slide 2 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Food, Transportation and Housing: Over 60% of Average Spending Source: 2011 Consumer Expenditure Survey What influences spending choices?

© Take Charge Today – August 2013– Major Expenditures – Slide 3 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 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

© Take Charge Today – August 2013– Major Expenditures – Slide 5 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Housing: Largest Expense for Most Prices vary greatly SizeLocationAmenities Choose housing that fits your personal needs and spending plan

© Take Charge Today – August 2013– Major Expenditures – Slide 6 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 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

© Take Charge Today – August 2013– Major Expenditures – Slide 7 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 What are common rental expenses? 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) The cost of housing is more than rent!

© Take Charge Today – August 2013– Major Expenditures – Slide 8 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Where can you find a place to rent? Sources Online Friends/ Family Bulletin Boards Property Management Company News- paper

© Take Charge Today – August 2013– Major Expenditures – Slide 9 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 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?

© Take Charge Today – August 2013– Major Expenditures – Slide 10 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 What types of questions would you ask when comparing rental properties? How much is rent? When is it due? What is the rental contract length? Rent & Length of Rental Who is responsible for each bill? Utilities What is available? Are there additional charges for usage? Amenities (furniture, pool, laundry, etc) Direct Costs

© Take Charge Today – August 2013– Major Expenditures – Slide 11 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 What types of questions would you ask when comparing rental properties? What are the property features and restrictions - overnight guest and pet policies, parking, safety features? Policies Who is responsible for the work and fees? Repairs and maintenance What are the eviction terms? Eviction terms What are my rights? Landlord/Property Manager Access Policies

© Take Charge Today – August 2013– Major Expenditures – Slide 12 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 What types of questions does a landlord ask on a rental application? Who will be living at the property Income/employment verification Rental history ReferencesCredit history check Helps a landlord evaluate if they will rent to you

© Take Charge Today – August 2013– Major Expenditures – Slide 13 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Rental Agreement Make sure all expenses and policies are clearly outlined Contract specifying the tenant’s and landlord’s legal responsibilities Rental agreement (lease) Don’t pay any deposits or rent payments without a rental agreement!

© Take Charge Today – August 2013– Major Expenditures – Slide 14 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 What initial expenses may be required to rent a property? 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 One or both expenses may be required:

© Take Charge Today – August 2013– Major Expenditures – Slide 15 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 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

© Take Charge Today – August 2013– Major Expenditures – Slide 16 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Home Loan Lender evaluates many factors including: Credit history IncomeNet 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

© Take Charge Today – August 2013– Major Expenditures – Slide 17 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 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

© Take Charge Today – August 2013– Major Expenditures – Slide 18 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Mortgage Payment Mortgage payments typically include: Cost of the homeInterest Funds to pay property taxes Funds to pay homeowners insurance A payment to pay off the loan used to purchase housing

© Take Charge Today – August 2013– Major Expenditures – Slide 19 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 What are typical home ownership expenses? Utilities Household Furnishings Special Assessments Homeowner’s Association Dues Maintenance and repairs Communications (Internet, television, phone) Housing expenses are more than a mortgage!

© Take Charge Today – August 2013– Major Expenditures – Slide 20 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Purchasing a $250,000 Home 20% Down Payment5% Down Payment Down Payment$50,000$12,500 Monthly Mortgage Payment$1,158.51$1, Total paid$417,062.18$477, Scenario 1: Down Payment 3.5% Interest Rate  30 Year Loan 780 Credit Score720 Credit Score Interest3.3%3.5% Monthly Mortgage Payment$1,136.33$1, Total paid$409,077.76$417, $8, paid for mortgage insurance! Scenario 2: Credit Score $50,000 Down Payment  30 Year Loan $7, Additional interest paid Source: mortgagecalculator.org

© Take Charge Today – August 2013– Major Expenditures – Slide 21 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Statement of Financial Position 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 Equity – the monetary value of a property minus the amount owed

© Take Charge Today – August 2013– Major Expenditures – Slide 22 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 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 RentOwn ProsConsProsCons

RentOwn ProsConsProsCons 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 responsibilityNo 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

TRANSPORTATION What are transportation options in your community?

© Take Charge Today – August 2013– Major Expenditures – Slide 25 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Public Transportation ProsCons May not be convenient or require more travel time Availability depends on the location Does not require extra cost of ownership expenses Typically cost effective Examples include: taxi, subway, bus, etc.

© Take Charge Today – August 2013– Major Expenditures – Slide 26 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Purchasing an Automobile Dealership New and used vehicles Convenient hours Private Sources Typically pre- owned vehicles

© Take Charge Today – August 2013– Major Expenditures – Slide 27 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Do Your Research! 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!

© Take Charge Today – August 2013– Major Expenditures – Slide 28 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 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

© Take Charge Today – August 2013– Major Expenditures – Slide 29 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Marina’s Out-of-Pocket Expenses 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$19,402 Monthly Amount$ Monthly Payment Purchase Price$21,548 Down Payment$2, Interest Rate2.84% Monthly Payment$ Total Paid (down payment + loan) $22, Marina’s monthly loan is $347.09, but on average, the car will cost her, $ per month to own! Marina purchased a 2013 Honda Accord Source: bankrate.comSource: kbb.com

© Take Charge Today – August 2013– Major Expenditures – Slide 30 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 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

© Take Charge Today – August 2013– Major Expenditures – Slide 31 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 What features would you look for in an automobile? CostSizeUsage Gas mileageSafety RatingsReliability Environmental Impact Depreciation Upgraded features

© Take Charge Today – August 2013– Major Expenditures – Slide 32 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 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.

© Take Charge Today – August 2013– Major Expenditures – Slide 33 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 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

© Take Charge Today – August 2013– Major Expenditures – Slide 34 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Leasing 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 Leasing – renting a product while the ownership remains with the lease grantor

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

© Take Charge Today – August 2013– Major Expenditures – Slide 36 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Two Primary Sources 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

© Take Charge Today – August 2013– Major Expenditures – Slide 37 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Burger Night - Family of Four Cost per person$6.29 Family of 4$25.16 Cost per person$5.84 Family of 4$23.36 Food Away From HomeFood 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 The meal prepared at home is less expensive and will result in left-overs What are ways to reduce the cost for either option?

© Take Charge Today – August 2013– Major Expenditures – Slide 38 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Nutrition Goal: Eat well-balanced meals high in nutrition Brainstorm 2-3 examples of food from each group

© Take Charge Today – August 2013– Major Expenditures – Slide 39 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Other Considerations TimeSkills Facilities and equipment

© Take Charge Today – August 2013– Major Expenditures – Slide 40 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona G1 Summary 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