MAJOR EXPENDITURES: HOUSING, TRANSPORTATION AND FOOD

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?

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

(RENTING AND OWNING)

Describe your dream houseFood13%

Housing34%

Transpor-tation17%

Other37%

HOUSING

19.8% Payment

7.5%Utilities

2.8%Household operations

3%Furnishings &

Equipment

1.2%Household

supplies

Housing: Largest Expense for Most

Prices vary greatly

Size Location Amenities

Choose housing that fits your personal needs and spending plan

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

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)

Costs of housing: Rent Payment and…..

Where can you find a place to rent?

Sources

Online

Friends/Family

Bulletin Boards

Property Management

Company

News-paper

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?

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

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

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

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!

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:

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

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

Two Significant Initial Expenses

Down Payment

• Portion of the purchase price not borrowed

• Typically 5-20% of purchase price

• Mortgage insurance – protects 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

Mortgage Payment

Mortgage payments

typically include:

Cost of the home Interest Funds to pay property taxes

Funds to pay homeowners

insurance

Mortgage: A payment to pay off the loan used to purchase housing

What are typical home ownership expenses?

Utilities Household Furnishings

Special Assessments

Homeowner’s Association Dues

Maintenance and repairs

Communications(Internet, television,

phone)

Housing expenses:

MORTGAGE

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

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

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?Food13%

Housing34%

Transpor-tation17%

Other37%

Public Transportation

1%

Other 4.9%

Fuel 5.3%

Vehicle Purchase 5.4%

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.

Purchasing an Automobile

Dealership

• New and used vehicles

• Convenient hours

Private Sources

• Typically pre-owned vehicles

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!

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

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

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

What features would you look for in an automobile?

Cost Size Usage

Gas mileage Safety Ratings Reliability

Environmental Impact Depreciation Upgraded

features

Using Credit

Credit history will determine

if a loan will be granted

and the terms

Automobile Dealerships

Depository Institutions

Loan rates vary significantly between lenders.Shop around before negotiating.

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

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?Food13%

Housing34%

Transpor-tation17%

Other37% 7.7% home

cooking

5.3% eating out

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

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?

Nutrition

Goal: Eat well-balanced

meals high in nutrition

Brainstorm 2-3 examples of food from each group

Other Considerations

Time Skills

Facilities and equipment

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