1. Spending Plans Advanced Level

2. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans – 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 What is a Spending Plan? Spending Plan for: Time Period: Planned Amount Actual Amount Income Earned Income Wages or salary before deductions Unearned Income Money from savings and investments to help pay expenses during this time period Received Income from Government Programs Total Income$ $ Expenses Deductions Often Taken from Paychecks Contributions to retirement programs (401k, 403b, pension, IRA) Federal income tax and state income tax Social Security and Medicare Saving and Investing (Pay Yourself First) Contribution to savings and investments Insurance Premiums Health, automobile, home or renters, life Housing Costs Transportation Costs Food Costs Family Member Care Communication and Computers Telephone landline, cell phone, Internet, cable/satellite television Medical Costs Not Covered by Insurance Clothing and Personal Care Educational Expenses Pet Care Entertainment Gifts and Charitable Contributions Credit Costs Student loan, credit card, other loan payments Total Expenses$ $ Net Gain or Net Loss (Income less Expenses)$ $ An income and expense statement sometimes referred to as a budget which records both planned and actual income and expenses over a period of time A budget

3. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans – 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 Money Management Tools Statement of Financial Position Income & Expense Statement Spending Plan What is my financial position today? What is my future money management plan? How have I managed my money in the past? Make changes Determine what changes to make

4. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans – Slide 4 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 A Spending Plan is a forward-looking Income and Expense Statement May use the same template for both the Income and Expense Statement and the Spending Plan

5. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans – 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 Spending Plan Development Process Step 1 - Track Current Income and Expense Step 2 – Create categories Step 3 - Allocate Money to Each Category Step 4 - Implement and Control Step 5 - Evaluate and Make Adjustments Develop the spending plan Maintain the spending plan

6. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans – 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 Step 1: Track Current Income and Expenses Complete an Income and Expense Statement for past months Step 1 - Track Current Income and Expense Step 2 - Personalize Your Spending Plan Step 3 - Allocate Money to Each Category Step 4 - Implement and Control Step 5 - Evaluate and Make Adjustments Income: The money you receive(+$) Expenses: the money you spend (-$)

7. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans– 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 Examples of Income and Expenses Income: Money that comes into your bank account Examples: ▫ Wages ▫ Gifts ▫ Allowance ▫ Interest Expenses: Money that you spend Examples: ▫ FoodEntertainment ▫ HousingCell bill ▫ ClothingGas ▫ SavingsInsurance ▫ CharityCar loan

8. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans – 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 Step 2: Personalize Your Spending Plan Step 1 - Track Current Income and Expense Step 2 - Personalize Your Spending Plan Step 3 - Allocate Money to Each Category Step 4 - Implement and Control Step 5 - Evaluate and Make Adjustments What method will you use to keep track of spending? Examples: Paper and pencil, spreadsheet software, apps Determine the Time Period Usually 1 month Create categories for spending

9. 2.2.5.G1 © Take Charge Today – August 2013– Spending Plans – 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 Types of Expenses: Fixed ExpensesFlexible Expenses Fixed expenses are expenses that are the same each month Mortgage or rent Car payment Phone bill (assuming you don’t go over) Internet TV Flexible (or variable) expenses change from month to month Utilities (gas, water, electric) Food Clothing Miscellaneous

10. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans – 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 Step 3: Allocate Money to Each Category Reference tracking from Step One Determine what changes to make Step 1 - Track Current Income and Expense Step 2 - Personalize Your Spending Plan Step 3 - Allocate Money to Each Category Step 4 - Implement and Control Step 5 - Evaluate and Make Adjustments

11. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans – 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 When allocating money consider: Contractual (aka Fixed)Non-contractual Trade-offs and opportunity costs Goals Contractual expenses Required to pay expense for a specific amount of time - not easy to reduce or eliminate Easy to reduce or eliminate Rent, Internet, Cell phone Food, entertainment

12. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans – 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 Spending Plan Guide What variables may cause these percentages to be different?

13. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans – 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 Once you allocate your categories, determine your Net Gain (Surplus) or Net Loss (Deficit) Income Expenses Net Gain or Net Loss Net Gain?Net Loss? Add more money to savings or another expense Increase income Decrease expenses Both

14. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans– 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 Net Gain = Surplus Net Loss = Deficit A SURPLUS is when you have money left over in your budget Income – Expenses = +# AKA “in the black” A DEFICIT is when you spent more than you earned Income – Expenses = -# AKA “in the red” This means you are creating debt

15. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans – 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 Step 4: Implement and Control Make your planned spending decisions Step 1 - Track Current Income and Expense Step 2 - Personalize Your Spending Plan Step 3 - Allocate Money to Each Category Step 4 - Implement and Control Step 5 - Evaluate and Make Adjustments Use a control system to stay on track

16. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans – 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 Control Systems Money management computer software Which control system would you use? Internet-based spending plan program Depository institution programs Check register system Envelope system

17. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans – 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 Example of online budgeting software is http://mint.com “Mint”http://mint.com You can link your checking account to mint.com and it will automatically keep track of your spending by category Also available as an app

18. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans – 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 Step 5: Evaluate and Make Adjustments How well did your spending plan work? Step 1 - Track Current Income and Expense Step 2 - Personalize Your Spending Plan Step 3 - Allocate Money to Each Category Step 4 - Implement and Control Step 5 - Evaluate and Make Adjustments Is your spending plan helping you reach goals? Do you need to make any adjustments?

19. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans – 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 Be sure to save up for unexpected expenses or events Examples of unexpected expenses: ▫ Car accident ▫ Stolen or broken phone ▫ AC or heater breaks ▫ Car breaks down ▫ You accidently break your arm ▫ You need glasses ▫ Loss of work

20. 2.2.5.G1 © Take Charge Today – August 2013 – Spending Plans – 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 Summary A spending plan is an important financial planning tool ▫ Helps achieve goals Make your spending plan work for you Make sure to control, evaluate, and adjust your spending plan for the next month Step 1 - Track Current Income and Expense Step 2 - Personalize Your Spending Plan Step 3 - Allocate Money to Each Category Step 4 - Implement and Control Step 5 - Evaluate and Make Adjustments

21. 2.2.5.G1 © Take Charge Today – August 2013– Spending Plans – 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 Housing DetailExamples The largest of the major expenditures Average percentage: 30% Monthly payment: rent or mortgage Utilities— electricity, water, garbage, etc. Housing or renters insurance—to protect the home and possessions from loss Property Taxes—paid by the owner of the home Maintenance—painting, repairs, carpeting

22. 2.2.5.G1 © Take Charge Today – August 2013– Spending Plans – 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 Transportation DetailExamples The second largest of the major expenditures Average percentage: 20% License and registration Insurance Maintenance—oil changes, new tires, tire rotation, battery, car wash Fuel Public Transportation Fee— including bus, taxi, parking fees

23. 2.2.5.G1 © Take Charge Today – August 2013– Spending Plans – Slide 23 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 Food DetailExamples The third largest of the major expenditures Average percentage: 15% Groceries bought from the store Eating away from the home Fast food Snacks

24. 2.2.5.G1 © Take Charge Today – August 2013– Spending Plans – Slide 24 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 Insurance DetailExamples Arrangement between an individual and an insurance company to protect the individual against risk Average percentage: 7% Health – pays a portion of the health care expense is one is sick or injured Disability—provides financial support if an individual is injured and cannot work Life—provides financial support to an individual’s beneficiaries upon death

25. 2.2.5.G1 © Take Charge Today – August 2013– Spending Plans – 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 Savings and Other DetailExamples Save 3-6 months of income that is available in a liquid account for emergencies Fulfilling individual’s other needs such as clothing Fulfilling individual’s wants such as luxury items