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Major Expenditure Mania
Get Ready to Take Charge of Your Finances
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How do people decide how to spend their money?
Purchase items to live Food, water, shelter Purchase items for specific needs Vehicle, school supplies Purchase items for fun Movie ticket, camping gear, electronics
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The choices are unlimited!
With so many choices, how do people decide what to purchase? Identify values, needs and wants Value – fundamental belief or practice about what is desirable, worthwhile, and important to an individual Need – something that is necessary to live Food, water, shelter Want – something unnecessary but desired MP3 player, designer clothes, car stereo
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Creating a Spending Plan
After identifying one’s values, needs and wants, a spending plan can be created Spending plan – financial statement individuals can use to assist with money management The benefits of creating a spending plan are: Prevent overspending Identify how money is being spent Help reach financial goals Spending plan components: Income – money earned Expense – money spent
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Taxes When receiving income, a portion is used to pay taxes
Taxes – required citizen charges by local, state and federal governments Provide public goods and services Police Fire and emergency services School Roads
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Taxes Approximately 30% of an individual’s gross income is spent on taxes Gross income – total amount of money earned during a pay period before payroll deductions Net income – amount of money left after all payroll withholdings have been taken from the gross pay
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Major Expenditures Major Expenditures – largest expenses in a spending plan Housing, Transportation, Food and Insurance Recommended percentages of net income provide guidance about how much should be spent in each area to prevent overspending Percentages should be adjusted to meet individual values, needs and wants
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Other Expenses Major expenditure percentages are helpful when creating a spending plan, but other expenses need to be considered as well If major expenditure percentages are adjusted according to values, needs and wants, individuals are able to live within their means and have enough money for other expenses as well
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Housing
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Housing Largest major expenditure
Approximately 30% of an individual’s net income If Leo earns $2000 each month, he should allocate approximately $600 in his spending plan for housing expenses ($2000 * .3 = $600)
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Housing There are many types of houses available
Decision depends on goals, values, needs and wants If Leo is single, spends very little time at home, and does not like to entertain guests, he probably does not need a huge house Individuals can rent or purchase homes Rent – make payment to the owner of the home Own – take out a home loan, or mortgage and make monthly payments to pay back the loan There are additional expenses for both options that should be explored
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Housing Expenses Monthly payment Move-in costs Utilities Insurance
Payments that are required before individuals move into a home Utilities Electricity, water, garbage Optional utilities - television, internet Insurance Can be purchased to protect the home and possessions inside Taxes Paid by the owner of the home Maintenance Includes upkeep such as painting or repairing broken appliances
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Housing Decisions Families must consider many things before making a housing decision Total cost of the home Condition and required maintenance Will the family have to spend a lot of money before moving in to fix a leaky roof? Size Number of rooms Garage Location Is the home close to a school and the adult’s work place? Is the home in a safe community?
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Housing Decisions Families must make adjustments to their needs and wants to afford homes For example, if the Lopez family has four children, they may want a home that has five bedrooms But, if they can’t find a home with five bedrooms in their spending plan, they may choose a home with only three bedrooms instead They must adjust their wants (five bedrooms) to fit their needs (an affordable home)
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Transportation
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Transportation Types of transportation Walk Bike City bus Metro
Automobile
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Transportation Owning a vehicle is the second largest major expenditure Approximately 20% of net income If Leo earns $2000 each month, he should allocate approximately $400 in his spending plan for transportation expenses ($2000 * .2 = $400)
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Transportation There are many types of transportation available
Choice depends on an individual’s needs, wants and values If Leo is single and commutes to work every day, he needs a car, but does not necessarily need a new SUV Individuals can purchase new or used vehicles There are additional expenses for both options that should be explored
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Transportation Expenses
Total cost of purchasing new or used Monthly payment – if a loan is taken out License and Registration Required by law to license and register vehicles Insurance Required by law to protect the vehicle and individuals involved in an accident Maintenance New tires, oil changes, engine repairs Fuel Optional Upgrades Leather interior, heated seats, DVD system
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Transportation Decisions
Families must consider many things before making a transportation decision Total cost of the vehicle Typical use Will one family member drive just to and from work, or will the vehicle be used to travel long distances? Condition and required maintenance Will the family have to do extensive motor repairs before driving it?
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Transportation Decisions
Families must make adjustments to their needs and wants when purchasing vehicles For example, Mr. Lopez wants a new, bright red sports car But, the Lopez family has four children, so a bright red sports car would not be large enough to hold all family members He must adjust his wants (sports car) to fit their needs (four children) and purchase a bright red mid-sized car instead
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Who is the Jordan family?
After reading the type of home and car the Jordan family purchases, write a short story that describes the family Include what you think they value, need and want based on their major expenditure decisions
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The Jordan Family Home Car Small with two bedrooms
Large family room downstairs for the kids to have friends over Small yard, but the family decided to make room for a badminton net No garage Car 1998 Mini-van Very reliable and runs well New tires Bumper sticker on the back that says, “We support our team! Go Wildcats!” Based upon this information, write a story that describes the Jordan family following the questions on your note taking guide.
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Food
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Food Third largest major expenditure
Approximately 15% of an individual's net income If Leo earns $2000 a month, he should allocate approximately $300 in his spending plan for groceries and/or food in restaurants. ($2000 * .15 = $300)
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Food Options Eat meals at home Cook convenience foods
Cook meals from scratch Purchase the ingredients (pepperoni, mushrooms and cheese) to make a homemade pizza Cook convenience foods Purchase a frozen pizza and cook it at home Convenience foods are typically more expensive than making meals from scratch Require less time and skill to prepare Other examples of convenience foods include frozen dinners, cookie mixes and hamburger helper
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Food Options Eat meals at restaurants
Different types of restaurants have a wide range of prices Fast food Restaurant – generally more expensive
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Food How does the cost of eating out compare to preparing meals at home over time? Let’s compare a spaghetti dinner for one person. In a restaurant - $12.00 At home - $1.30 -hamburger ($.50 for 1 serving) -spaghetti sauce ($.70 for 1 serving) -noodles ($.10 for 1 serving) At home In a restaurant 1 meal $1.30 $12.00 1 meal / month for 6 months $7.80 $72.00 1 meal / month for 1 year $15.60 $144.00
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Food Comparison Create a list of pros and cons to preparing meals at home and eating out Making meals at home Less expensive Can make meals exactly how you like them Preparation time Requires cooking skills Must purchase cooking utensils Eating out at restaurants More expensive Choose from a limited amount of options on the menu Driving and waiting time Do not need to prepare meals or clean up afterwards
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Food Decisions When making food decisions, families must consider many things What is the price difference in eating out and preparing meals at home? How much time does the family have to prepare and eat meals? Does anyone in the family have special dietary needs that would make it difficult to eat in restaurants?
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Insurance
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Insurance Life is full of risks and accidents
Risk – uncertainty about a situation’s outcome Insurance is purchased to protect individuals from loss when accidents happen Approximately 7% of an individual's net income If Leo earns $2000 a month, he should allocate approximately $140 in his spending plan for insurance ($2000 * .07 = $140)
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Insurance Main types of insurance Health Auto Home
Pays for a portion of health care bills Doctor visits, medicine, X-ray Auto Required by law If an individual is in an auto accident, their insurance may pay for a portion of the bill to repair the damages Home If a fire ruins part of a home and the contents inside, home insurance will cover a portion of the expenses to replace the damages or lost items
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Insurance Read your game card.
Describe the type of insurance the individual has. Was the insurance beneficial, why or why not?
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Spending Plan Percentages Major Expenditures and Other Expenses
Review Major Expenditures Housing – 30% Transportation – 20% Food – 15% Insurance – 7% Other expenditures Savings – 10% Clothing – 5% Personal Care – 5% Entertainment – 5% Donations – 3% Spending Plan Percentages Major Expenditures and Other Expenses
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Questions?
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