1. NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money Unit 2 - Budgeting: Making the Most of Your Money Objective - Demonstrate the ability to allocate financial resources to allocate financial resources to meet family needs and goals meet family needs and goals

2. Did You Know? Financial literacy is the ability to make informed decisions regarding finances. Effective use of resources (time, money, etc) improves success toward a goal. Family members share certain resources in order to meet collective needs.

3. NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money 2-A-1 NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money ? For an interactive version of this slide, open the Excel File for this unit and go to Excel Worksheet 2-A-1

4. NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money 2-A-2 For an interactive version of this slide, open the Excel File for this unit and go to Excel Worksheet 2-A-2

5. NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money

6. NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money

7. NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money Reasons for a Spending Plan  …Helps you determine where you are spending your money currently.  …Helps you decide where to spend your money in the future.  …You have an organized way to save for things that cost more.  …Puts you in control of your financial future, beginning NOW. 2-B-1 321

8. NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money People Without a Budget…  …Are less likely to know what they have.  …Have no plan, often coming up short before their next paycheck or allowance.  …Are almost certain to have no plan to save for more expensive spending goals. 2-B-2 321

9. NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money How to Build a Budget 1.D ecide on a time frame for tracking expenses (week, two weeks, month). 2.L ist all money you have coming in (income). 3.M ake categories for all expenses. 4.S ubtract total expenses from income. 5.S tudy your budget and your financial plan to make sure it fits with your plans and goals. 2-F 54321

10. The Costs Add Up ItemAverage Yearly Expense Daily Latte at $2.50 Eating lunch out 5 days per week at a cost of $5.00=$10.00 each time Daily can of soda or chips at $1.00 each Daily candy bar at $1.00 Daily can of chew or pack of cigarettes at $3.79 Weekly attendance at a sporting event with $3.50 admission and $5.00 for snacks Monthly haircut at $25.00 per month Monthly movie and popcorn for two at $20.00 Monthly gym membership at $38.00 Do not let money fly away! By creating a spending plan, a person can realize everyday expenses, reduce these expenses, and increase current income. Beginning at age 15, if a person saved $547.50 per year by not having a can of soda everyday, they would have $105,504 extra to retire on at age 50 with a 8.5% interest rate compounded yearly. $912.50 $1,300.00-$2,600.00 $365.00 $1,383.35 $442.00 $300.00 $240.00 $456.00

11. Income & Expense Spending Plans have two main components –Income Money Earned –Expense Money Spent –Fixed Expenses –Flexible Expenses

12. Income Income is money earned from: –Tips –Wages or salaries –Withdrawal of money from savings –Interest from savings accounts, or investments –Monetary gifts –Scholarships

13. Expense Money Spent Fixed Expenses –Same amount paid each time, usually has a specific due date Rent/Mortgage –Difficult to change in short amount of time Flexible Expenses –Different amount paid each time, usually no specific due date Clothing –Easier to change in short amount of time

14. Spending Plan Activity Decide if each item is income, a fixed expense, or a flexible expense Indicate a response by holding up the corresponding game card

15. Spending Plan Activity Rent Fixed Expense Wages Income

16. Spending Plan Activity Groceries Flexible Expense Internet Bill Fixed Expense

17. Spending Plan Activity Tips Income Utilities Fixed Expense

18. Spending Plan Activity Gift from Family Income Savings Fixed Expense

19. Spending Plan Activity Automobile Registration Fixed Expense Eating Out/Snacks Flexible Expense

20. Spending Plan Activity Scholarships Income Hobbies Flexible expense

21. Net Loss & Gain When finished with the spending plan two outcomes are possible: Net Loss –More expenses than income –An individual needs to increase income or decrease spending Net Gain –More income than expenses –Ideal situation –Extra money can go into savings, be invested, or spent

22. Organize Select categories for the spending plan Select a time period –Usually when paychecks are received Weekly Bi-weekly Monthly Keep records of spending and earnings!

23. Step 5: Control Control systems are ways that a person can keep accurate records of spending Realize potential problems early if spending too much in one area Control systems occur simultaneously with implementation A person should keep a credit spreadsheet which logs all credit transactions (charges and payments for each creditor)

24. Types of Control Systems Envelope System –Individuals place actual budgeted cash in a labeled envelope for a certain expense –Each time $ is taken out of an envelope, write down amount and place receipt inside –Move money around to meet expenses –Once cash is gone, its gone and there is no more money in that category

25. Types of Control Systems Spending Plan System –Track expenses on a sheet by entering amount –Keep daily to know how much is being spent Check Register System –Tracks all expenditures in a checkbook register –Divided into spending plan categories

26. Organize Determine the appropriate way of record keeping –Spreadsheet –Envelopes –Software like Money Select categories for the spending plan Select a time period –Usually when paychecks are received Weekly Bi-weekly Monthly Keep records of spending and earnings!

27. NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money 2-E For an interactive version of this slide, open the Excel file for this unit and go the Excel worksheet #2-E NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money Personal Plan for One Week

28. NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money Questions  Does it makes sense to create and live within a budget when you don’t have a lot of money?  What if you find that you are consistently spending more in one area than you had planned to?  What if you find that you can’t live within your budget? 2-B-3 321

29. What is so bad about Debt? “Excessive debt eats at the heart of family life. Without savings, families can’t cope with the emergencies and unexpected expenses that inevitably occur. More than 50% of marriages in the U.S. end in divorce, and the #1 reason for divorces is $ problems.”

30. What is so bad about Debt? “A family that constantly worries about money is a family that has less time to enjoy life and each other. Declaring bankruptcy is emotionally painful and throws a family into turmoil and pain.”

31. What Do We Do About It? Examine Your Debts –The goal is to pay them off without having to go into debt even more. Pay the most on the balances that are charging the most

32. Targets - Suggested Spending Ratios 35% for Housing ( mortgage house payment or rent, taxes on the property, home repairs, insurance and utilities (gas for the home, electric, water bill, etc) 20% for transportation (car payment, gas for car, car repairs, auto insurance, etc)

33. Suggested Spending Ratios (cont) 15% MAX for other Debt (credit cards and loans) This money would be more valuable used in another way!! 20% for other expenses such as Food, Clothes, Life and Health Insurances 10% Savings

34. NEFE High School Financial Planning Program Unit Two – Budgeting: Making the Most of Your Money S A V E etting aside money for “big ticket items” voids borrowing, which costs you a lot! It’s a ery wise thing to do, because very time you pay yourself first, you are developing a saving habit that leaves you with more money to spend later on for things that are really important to you! PAY YOUR$ELF FIRST! 2-D-1. (2-D-2 and 2-D-3 on Excel file Unit 2 Visuals.xls)

35. Cash In on the Benefits of Financial Management: Less Stress More Fun in your life Able to have anything you want – in time Waste less money