major expenditures: housing, transportation and food advanced level
TRANSCRIPT
MAJOR EXPENDITURES: HOUSING, TRANSPORTATION AND FOOD
Advanced Level
© Take Charge Today – August 2013– Major Expenditures – Slide 2Funded 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
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Food, Transportation and Housing:Over 60% of Average Spending
Food13%
Housing34%
Transpor-tation17%
Other37%
Consumer Spending
Source: 2011 Consumer Expenditure Survey
What influences spending choices?
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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
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Housing: Largest Expense for Most
Prices vary greatly
Size Location Amenities
Choose housing that fits your personal needs and spending plan
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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
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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!
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Where can you find a place to rent?
Sources
Online
Friends/Family
Bulletin Boards
Property Management
Company
News-paper
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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 10Funded 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
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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
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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
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What types of questions does a landlord ask on a rental application?
Who will be living at the property
Income/employment verification Rental history
References Credit history check
Helps a landlord evaluate if they will rent to you
© Take Charge Today – August 2013– Major Expenditures – Slide 13Funded 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
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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!
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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 15Funded 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
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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
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Home Loan
Lender evaluates
many factors including:
Credit history
Income
Net 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 17Funded 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
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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 18Funded 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
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Mortgage Payment
Mortgage payments
typically include:
Cost of the home Interest 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 19Funded 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
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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 20Funded 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
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Purchasing a $250,000 Home
20% Down Payment 5% Down PaymentDown Payment $50,000 $12,500Monthly Mortgage Payment $1,158.51 $1,326.90Total paid $417,062.18 $477,683.21
Scenario 1: Down Payment3.5% Interest Rate 30 Year Loan
780 Credit Score 720 Credit Score
Interest 3.3% 3.5%
Monthly Mortgage Payment $1,136.33 $1,158.51
Total paid $409,077.76 $417,062.18
$8,708.33 paid for
mortgage insurance!
Scenario 2: Credit Score $50,000 Down Payment 30 Year Loan
$7,924.42Additional
interest paid
Source: mortgagecalculator.org
© Take Charge Today – August 2013– Major Expenditures – Slide 21Funded 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
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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 22Funded 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
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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
Rent OwnPros Cons Pros Cons
Rent OwnPros Cons Pros Cons
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 responsibility No 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 25Funded 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
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Public Transportation
Pros Cons
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 26Funded 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
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Purchasing an Automobile
Dealership
• New and used vehicles
• Convenient hours
Private Sources
• Typically pre-owned vehicles
© Take Charge Today – August 2013– Major Expenditures – Slide 27Funded 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
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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 28Funded 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
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What are typical automobile ownership expenses?
Automobile payment
(if credit is used)Fuel
Maintenance and Repairs
License and Registration (yearly fee)
InsuranceParking (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 29Funded 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
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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 $323.37
Monthly Payment
Purchase Price $21,548
Down Payment $2,154.80
Interest Rate 2.84%
Monthly Payment $347.09
Total Paid (down payment + loan)
$22,980.20
Marina’s monthly loan is $347.09, but on average, the car will cost her, $670.46 per month to own!
Marina purchased a 2013 Honda Accord
Source: bankrate.com Source: kbb.com
© Take Charge Today – August 2013– Major Expenditures – Slide 30Funded 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
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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 31Funded 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
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What features would you look for in an automobile?
Cost Size Usage
Gas mileage Safety Ratings Reliability
Environmental Impact Depreciation Upgraded
features
© Take Charge Today – August 2013– Major Expenditures – Slide 32Funded 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
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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 33Funded 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
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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 34Funded 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
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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 36Funded 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
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Two Primary Sources
Scratch
Convenience
Ready-to-eat
Fast-food restaurants
Fast-casual restaurants
Full-service restaurants
Prepare Food at HomeLeast Expensive
Food Away from HomeMost Expensive
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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 Home Food 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?
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Nutrition
Goal: Eat well-balanced
meals high in nutrition
Brainstorm 2-3 examples of food from each group
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Other Considerations
Time Skills
Facilities and equipment
© Take Charge Today – August 2013– Major Expenditures – Slide 40Funded 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
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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