Warm up Problem

• Electric Bills:• August $131• September $134• October $ 145• November $ 175• December $201• Calculate the average monthly electric bill for the

time period described• $157.20

3.1 , page 159 Homework review

• 11 -$675 Mortgage• 12- No, do not know monthly net income and

no savings information is available• 13- $41 telephone• 14- $443.52 for transportation costs

Budgeting

-Identify and examine current spending habits and identify the various expenses (difference between needs and wants) associated with living independently

Balance is essential for proper financial stability

• Balance:

Key Terms

Budget- a financial plan that compiles and compares a person’s income against all of his/her expenses in order to analyze spending and meet personal goals.Income- money coming into a budget (activity 1)Directions: Paper, pencil – fold hotdog styleIncome and expenses on either side.Examples- part-time job, stipends, allowances, gifts, interest, etc.

Where does your money go?• Expenses: Give me examples of each….• Categories: Est. of US household expenses

30 Housing

18 Transportation

16 Food

5 Clothing

5 Medical

5 Recreational

5 Utilities

8 Miscellaneous

4 Savings

4 Other debts

100 % Total

Needs versus Wants

• Needs are essential, wants are not• Expenses: Fixed versus Flexible• Fixed- rent, loan payment, insurance, etc.• Flexible – utility bill, groceries, clothing, etc.• Discretionary Spending (just flexible, not fixed)-

spending money on things you want versus what you need to survive- candy, pop, snacks, movie tickets, late night pizzas, etc.

• Too much (DS) can be a bad thing, control your excessive spending for a positive cash flow.

Cash Flow worksheet

• A: Monthly Net Income=• B: Monthly Flexible Expenses =• C: Monthly Fixed Expenses=• Add B and C together =• A minus B = Total for saving and investing• When to save at the end of month or the

beginning? • What if the bottom number is negative? Living

beyond your means.

Net Worth

• Net Worth = Assets – Liabilities• Assets = something you own that has positive economic

value. Growing your assets has a positive net worth– Examples: savings, stocks, antiques, real estate, houses, etc.

• Liabilities = something you owe, negative economic value, excessive liabilities can detract from your overall financial plan– Examples: loans, mortgages, auto and credit cards

Guide Practice

• YOU Choose Fixed expense (FE), Variable expense (VE), Discretionary Spending (DS)

• Magazine or cup of coffee• This Months rent• Dinner out• Cell Phone bill• School Books• Motorcycle Insurance payment• Monthly bus pass• Heating Bill

Continued

• Frozen Pizza at grocery store• New pair of running shoes• Oil change for car• New mobile phone (old one still works)• New mobile phone (old isn’t working)• Personal Loan payment• Monthly deposit into savings

Written Assessment Exercise

• Module 2 Handout• Groups of 6-7 people• List ideas and be prepared to present your

budget to the class

Closure

• What do you need to understand to help control excessive spending?

• Quiz date- _____________