majorexpenditures:& housing,&transportation& … ·...

MAJOR EXPENDITURES: HOUSING, TRANSPORTATION AND FOOD

Advanced Level

© Take Charge Today – August 2013– Major Expenditures – Slide 2 Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America InsUtute at the University of Arizona

2.6.7.G1

Food, TransportaUon and Housing: Over 60% of Average Spending

Food 13%

Housing 34%

Transpor-‐taUon 17%

Other 37%

Consumer Spending

Source: 2011 Consumer Expenditure Survey

What influences spending choices?


2.6.7.G1

Your Present Self Impacts Your Future Self

Planned buying process is essenUal

Credit is o`en used to purchase housing and transportaUon

Choices impact net worth

Choices impact financial well-‐being

HOUSING (RENTING AND OWNING)

Describe your dream house


2.6.7.G1

Housing: Largest Expense for Most

Prices vary greatly

Size LocaUon AmeniUes

Choose housing that fits your personal needs and spending plan


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RenUng 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


2.6.7.G1

What are common rental expenses?

UUliUes (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 addiUon to liability losses

CommunicaUons (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

BulleUn Boards

Property Management Company

News-‐paper


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When Comparing ProperUes

Make a list of essenUal vs. preferred features

If possible, visit properUes of interest

Know what you can afford and calculate the total cost

Understand the policies

What are examples of essenUal vs. preferred features?


2.6.7.G1

What types of quesUons would you ask when comparing rental properUes?

•  How much is rent? • When is it due? • What is the rental contract length?

Rent & Length of Rental

• Who is responsible for each bill? UUliUes

• What is available? •  Are there addiUonal charges for usage?

AmeniUes (furniture, pool, laundry, etc)

Direct Costs


2.6.7.G1

What types of quesUons would you ask when comparing rental properUes?

• What are the property features and restricUons -‐ overnight guest and pet policies, parking, safety features? Policies

• Who is responsible for the work and fees? Repairs and maintenance

• What are the evicUon terms? EvicUon terms

• What are my rights? Landlord/Property Manager Access

Policies


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What types of quesUons does a landlord ask on a rental applicaUon?

Who will be living at the property

Income/employment verificaUon

Rental history

References Credit history check

Helps a landlord evaluate if they will rent to you


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Rental Agreement

Make sure all expenses and policies are clearly outlined

Contract specifying the tenant’s and

landlord’s legal responsibiliUes

Rental agreement (lease)

Don’t pay any deposits or rent payments without a rental agreement!


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What iniUal 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:


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Purchasing a Home

Real estate agent -‐ Licensed individual

represenUng a buyer or seller in a contractual transacUon 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


2.6.7.G1

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


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Two Significant IniUal Expenses

Down Payment

• PorUon of the purchase price not borrowed

• Typically 5-‐20% of purchase price

• Mortgage insurance – protecUng 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


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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


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What are typical home ownership expenses?

UUliUes Household Furnishings

Special Assessments

Homeowner’s AssociaUon Dues

Maintenance and repairs

CommunicaUons (Internet, television, phone)

Housing expenses are more than a mortgage!


2.6.7.G1

Purchasing a $250,000 Home

20% Down Payment 5% Down Payment

Down Payment $50,000 $12,500

Monthly Mortgage Payment $1,158.51 $1,326.90

Total paid $417,062.18 $477,683.21

Scenario 1: Down Payment 3.5% 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

$7,924.42 AddiUonal interest paid

Source: mortgagecalculator.org


2.6.7.G1

Statement of Financial PosiUon

Benefits of owning

• Pride of ownership

• Tax benefits • Opportunity to build equity

Risks of owning

• UnanUcipated expenses

• Property value may decrease

• May be difficult to sell

Equity – the monetary value of a property minus the amount owed


2.6.7.G1

Rent vs. Own AcUvity

¨  Set-‐up: work in groups of 2-‐3

¨  Supplies: piece of butcher paper and markers

¨  AcBvity: For both renUng and owning, brainstorm: ¤ 2 Pros ¤ 2 Cons

Rent Own Pros Cons Pros Cons

Rent Own Pros Cons Pros Cons

Lower move-‐in cost Subject to terms of the rental agreement

PotenUal to gain equity May have significant negaUve effects on

credit history is home loan is not paid

according to the terms of the loan

Easier to move May have restricUons such as no pets

Tax benefits Large iniUal cost (down payment, closing costs)

No (or lisle) maintenance and

repairs

Few or no opportuniUes for home improvements (appliances, paint, etc.)

May improve credit history if the home loan is paid according to the terms of the loan

AddiUonal expenses

Less responsibility No equity is gained Free to make home improvements

More risky than renUng

Typically less expensive than home

ownership

No tax benefits No restricUons (unless restricted by the specific homeowner’s associaUon)

Usually requires addiUonal resources (Ume, money) to

maintain UUliUes are someUmes

included in rent payment

Not as easy to move

TRANSPORTATION

What are transportaUon opUons in your community?


2.6.7.G1

Public TransportaUon

Pros Cons

May not be convenient or require more travel Ume

Availability depends on the

locaUon

Does not require extra cost of ownership expenses

Typically cost effecUve

Examples include: taxi, subway, bus, etc.


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Purchasing an Automobile

Dealership

• New and used vehicles

• Convenient hours

Private Sources

• Typically pre-‐owned vehicles


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Do Your Research!

Before working with sales personnel

Evaluate your needs and wants

IdenUfy the right type of vehicle for you and

desired features

Research expected costs

You are responsible for yourself! Advance research will maximize your saUsfacUon with the

purchase!


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What are typical automobile ownership expenses?

Automobile payment

(if credit is used) Fuel

Maintenance and Repairs

License and RegistraUon (yearly fee)

Insurance Parking (in some locaUons)

Before purchasing a vehicle, be sure you can afford the total cost of ownership


2.6.7.G1

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


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DepreciaUon

The value of most vehicles depreciates (lowers) over Ume

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 PosiUon should record the market value of the vehicle that day


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What features would you look for in an automobile?

Cost Size Usage

Gas mileage Safety RaUngs Reliability

Environmental Impact DepreciaUon Upgraded

features


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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 InsUtuUons

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


2.6.7.G1

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, negoUate the trade-‐in value separately from the price of your new vehicle


2.6.7.G1

Leasing

You pay a specified amount of money (usually monthly) for a specific Ume

Once lease expires, vehicle returned to the lease grantor

Read the contract closely – look for hidden costs

Leasing – renUng a product while the ownership remains with the lease grantor

FOOD

Which do you prefer, preparing food at home or eaUng out? Why?


2.6.7.G1

Two Primary Sources

Scratch

Convenience

Ready-‐to-‐eat

Fast-‐food restaurants

Fast-‐casual restaurants

Full-‐service restaurants

Prepare Food at Home Least Expensive

Food Away from Home Most 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 le`-‐overs

What are ways to reduce the cost for either opUon?


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NutriUon

Goal: Eat well-‐balanced meals high in nutriUon

Brainstorm 2-‐3 examples of food from each group


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Other ConsideraUons

Time Skills

FaciliUes and equipment


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Summary

Housing, transportaUon, and food

Over 60% of spending

Determine if renUng or owning a home is best for

you

Housing

Consider the total cost of owning a vehicle

TransportaUon

Eat well-‐balanced meals high in nutriUon that fit into your spending plan

Food

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