Major Expenditures Introduction The Essentials to Take Charge of Your Finances

Major ExpendituresIntroduction

The Essentials to Take Charge of Your Finances

© Family Economics & Financial Education – September 2009 – The Essentials to Take Charge of Your Finances – Major Expenditures Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7.15.3.G1

Which do you believe most similar to your family?

30%

20%15%

7%

28%

Housing

Transportation

Food

Insurance

Other

23%

8%

19%27%

23%

Housing

Transportation

Food

Insurance

Other

23%

8%

38%

8%

23%

Housing

Transportation

Food

Insurance

Other

30%

20%15%

7%

28%

Housing

Transportation

Food

Insurance

Other

1 2

3 4

© Family Economics & Financial Education – September 2009 – The Essentials to Take Charge of Your Finances – Major Expenditures Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7.15.3.G1

How do people decide how to spend their money?

Purchase items to live•Food, water, shelter

Purchase items for specific needs•Vehicle, school supplies

Purchase items for fun•Movie ticket, camping gear,

electronics

© Family Economics & Financial Education – September 2009 – The Essentials to Take Charge of Your Finances – Major Expenditures Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7.15.3.G1

Major Expenditures Major Expenditures – largest expenses in

a spending plan•Housing, Transportation, Food and Insurance

•Recommended percentages of net income provide guidance about how much should be spent in each area to prevent overspending

•Percentages should be adjusted to meet individual values, needs and wants

30%

20%15%

7%

28%

Housing

Transportation

Food

Insurance

Other

© Family Economics & Financial Education – September 2009 – The Essentials to Take Charge of Your Finances – Major Expenditures Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7.15.3.G1

Other Expenses Major expenditure percentages are helpful when

creating a spending plan, but other expenses need to be considered as well

If major expenditure percentages are adjusted according to values, needs and wants, individuals are able to live within their means and have enough money for other expenses as well

10%

5%

5%

3%

5%

Saving

Clothing

Personal Care

Entertainment

Donations

Housing

© Family Economics & Financial Education – September 2009 – The Essentials to Take Charge of Your Finances – Major Expenditures Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7.15.3.G1

Housing

Largest major expenditure•Approximately 30% of an individual’s

net income•If Leo earns $2000 each month, he should

allocate approximately $600 in his spending plan for housing expenses

•($2000 * .3 = $600)

© Family Economics & Financial Education – September 2009 – The Essentials to Take Charge of Your Finances – Major Expenditures Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7.15.3.G1

Housing

There are many types of houses available•Decision depends on goals, values, needs and

wants•If Leo is single, spends very little time at home, and

does not like to entertain guests, he probably does not need a huge house

Individuals can rent or purchase homes•Rent – make payment to the owner of the home

•Own – take out a home loan, or mortgage and make monthly payments to pay back the loan

There are additional expenses for both options that should be explored

© Family Economics & Financial Education – September 2009 – The Essentials to Take Charge of Your Finances – Major Expenditures Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7.15.3.G1

Housing Expenses

Monthly payment Move-in costs

• Payments that are required before individuals move into a home

Utilities• Electricity, water,

garbage

• Optional utilities - television, internet

Insurance• Can be purchased to

protect the home and possessions inside

Taxes• Paid by the owner of the

home

Maintenance• Includes upkeep such as

painting or repairing broken appliances

• Paid by the owner of the home

Transportation

© Family Economics & Financial Education – September 2009 – The Essentials to Take Charge of Your Finances – Major Expenditures Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7.15.3.G1

Transportation

Owning a vehicle is the second largest major expenditure•Approximately 20% of net income

•If Leo earns $2000 each month, he should allocate approximately $400 in his spending plan for transportation expenses

•($2000 * .2 = $400)

© Family Economics & Financial Education – September 2009 – The Essentials to Take Charge of Your Finances – Major Expenditures Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7.15.3.G1

Transportation Expenses Total cost of purchasing new or used

• Monthly payment – if a loan is taken out

• License and Registration•Required by law to license and register vehicles

• Insurance•Required by law to protect the vehicle and individuals

involved in an accident

• Maintenance•New tires, oil changes, engine repairs

• Fuel

• Optional Upgrades•Leather interior, heated seats, DVD system

Food

© Family Economics & Financial Education – September 2009 – The Essentials to Take Charge of Your Finances – Major Expenditures Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7.15.3.G1

Food

Third largest major expenditure•Approximately 15% of an individual's

net income •If Leo earns $2000 a month, he should

allocate approximately $300 in his spending plan for groceries and/or food in restaurants.

•($2000 * .15 = $300)

© Family Economics & Financial Education – September 2009 – The Essentials to Take Charge of Your Finances – Major Expenditures Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7.15.3.G1

Food Options• Eat meals at home

1.Cook meals from scratch• Purchase the ingredients (pepperoni,

mushrooms and cheese) to make a homemade pizza

2.Cook convenience foods• Purchase a frozen pizza and cook it at home

• Convenience foods are typically more expensive than making meals from scratch

• Require less time and skill to prepare• Other examples of convenience foods include

frozen dinners, cookie mixes and hamburger helper

© Family Economics & Financial Education – September 2009 – The Essentials to Take Charge of Your Finances – Major Expenditures Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7.15.3.G1

Food Options

Eat meals at restaurants• Different types of restaurants have a wide

range of prices1. Fast food 2. Restaurant – generally more expensive

© Family Economics & Financial Education – September 2009 – The Essentials to Take Charge of Your Finances – Major Expenditures Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7.15.3.G1

Food Comparison

Making meals at home•Less expensive

•Can make meals exactly how you like them

•Preparation time

•Requires cooking skills

•Must purchase cooking utensils

Eating out at restaurants•More expensive

•Choose from a limited amount of options on the menu

•Driving and waiting time

•Do not need to prepare meals or clean up afterwards

Create a list of pros and cons to preparing meals at home and eating out

Insurance

© Family Economics & Financial Education – September 2009 – The Essentials to Take Charge of Your Finances – Major Expenditures Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7.15.3.G1

Insurance

Life is full of risks and accidents•Risk – uncertainty about a situation’s

outcome

•Insurance is purchased to protect individuals from loss when accidents happen

•Approximately 7% of an individual's net income•If Leo earns $2000 a month, he should allocate

approximately $140 in his spending plan for insurance•($2000 * .07 = $140)

© Family Economics & Financial Education – September 2009 – The Essentials to Take Charge of Your Finances – Major Expenditures Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7.15.3.G1

Insurance Main types of insurance

•Health•Pays for a portion of health care bills

•Doctor visits, medicine, X-ray

•Auto•Required by law

•If an individual is in an auto accident, their insurance may pay for a portion of the bill to repair the damages

•Home•If a fire ruins part of a home and the contents

inside, home insurance will cover a portion of the expenses to replace the damages or lost items

© Family Economics & Financial Education – September 2009 – The Essentials to Take Charge of Your Finances – Major Expenditures Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7.15.3.G1

Questions?

© Family Economics & Financial Education – September 2009 – The Essentials to Take Charge of Your Finances – Major Expenditures Introduction

Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

7.15.3.G1

Fernandez Family Step 1: Read the Fernandez family scenario and

underline all phrases that indicate the family’s values, needs, and wants.

Step 2: Calculate the number of beans that should be spent on each major expenditure and other expenses.

Step 3: Make major expenditure and spending plan decisions by allocating your beans.

Step 4: Describe why you think the choices you made for each spending plan category meet the values, needs, and wants of the family.

Step 5: Answer the questions on the Fernandez family worksheet 7.15.2.A1.