Module Four

Topic: Budgeting 

BudgetingSavingPlanningOh The Excitement!

Module 4 Overview

Introduction/ Lesson: Instructors of the course will begin by explaining the difference between gross and net pay. They will use this as a segue into a discussion of prudent spending practices and the difference between needs and wants. Finally, instructors will explain the difference between fixed and variable expenses and walk students through examples of each, including, but not limited, to those listed below. (10-15 minutes)

  • Fixed Expenses
    • Savings for a House
    • Rent
    • Car Payment
    • Car Insurance
    • Internet/Cable TV
    • Cell Phone
    • Student Loan
  • Variable Expenses
    • Gas
    • Food
    • Entertainment
    • Personal Shopping
    • Utilities
    • Occasional Spending

Exercise: Participants will break into smaller groups of between 5 and 15 students (depending on how many student instructors/participants are present at each section) and student instructors will lead small group discussions. In these discussions, they will be asked to complete the “Budget Busters: Who’s Breaking the Bank?” Activity Sheet from the Practical Money Skills Program website (see attached). (15-25 minutes)

Conclusion: Student instructors will guide participants through a full group discussion in which some participants present their budgets. The session will conclude with a summary of what the students have learned from completing this activity. (10 minutes)

Lesson 1

Who’s Breaking the Bank? 

Where does all your money go? No matter how much money you earn, a careful budget lets you know exactly what happens to your cash. In the Tabs Below there are three different cash flow scenarios over one month. Review the numbers to determine who’s breaking the bank and who will meet their goals the soonest.

Scenario 1

Nate is a junior in high school. He works 15 hours a week at the mall, and his net income after taxes is $600 a month. He lives with his parents, so he doesn’t have rent, utility or food expenses. His older brother owns a car and lets him borrow it to drive to work for $100 each month; otherwise Nate takes the bus. He really wants to buy a car, so he puts any leftover money toward savings. Nate also pays for his cell phone and personal expenses, such as going to the movies, buying video games and purchasing gifts.

Below is Nate’s estimated budget and what he actually spent in one month’s time. Analyze Nate’s spending to determine why he is not on track to save for that new car, and what changes he can make to get on track.

  Budget Goals Actual Budget
Fixed Expenses    
Saving for a Car $200 $0
Cell Phone $75 $100
Car Payment to his Brother $100 $100
     
Variable Expenses     
Public Transportation $50 $60
Entertainment $50 $75
Personal Shopping $100 $175
Occasional Spending (gifts, repairs, etc.) $25 $100
     
Total $400 $600

Scenario 2

Maria just graduated from college and accepted her first job as a social media manager for a real estate company. She can’t believe that her monthly net income will be $3,000. She just moved into a one-bedroom apartment, so she is responsible for rent, utilities, food and other household expenses. She is paying off a student loan and she wants to save as much money as she can to buy a house someday. She owns a car and enjoys going out with friends on the weekend.

Below is Maria’s estimated budget and what she actually spent in one month’s time. Analyze her spending to see why she is not on track to meet her goal and to determine what she can do to get back on track.

  Budget Actual
Fixed Expenses    
Saving for House $450 $150
Rent $600 $600
Car Payment $350 $350
Car Insurance $150 $150
Internet/Cable TV $110 $110
Cell Phone $75 $105
Student Loan $300 $300
     
Variable Expenses    
Gas $100 $175
Food $250 $300
Entertainment $100 $250
Personal Shopping (clothes, makeup, etc.) $75 $300
Utilities $200 $275
Occasional Spending (gifts, repairs, etc.) $150 $250
     
Total $2,910 $3,315

Scenario 3

Jamal is a senior in high school and works 30 hours per week at a neighborhood coffee shop. His net income after taxes is $1,500 and he is saving up for college. He owns a car and makes payments toward it each month, but he lives with his parents so he saves on rent, utilities and food costs. He occasionally goes out with friends and buys things for himself, but he tries to hold back on these things so he can save more for college next year.

Below is Jamal’s estimated budget and what he actually spent in one month’s time. Analyze his spending to see why he is not on track to meet his goal and determine what he can do to get back on track.

  Budget Actual
Fixed Expenses    
College Savings $870 $820
Car Payment $125 $125
Car Insurance $95 $95
Cell Phone $85 $85
     
Variable Expenses    
Gas $100 $105
Entertainment $50 $75
Personal Shopping $50 $95
Occasional Spending (gifts, repairs, ect.) $100 $100
     
Total $1,475 $1,500

Lesson 2

Budgets 101: How to Get It Done

You just accepted your first job and you’ll be earning a gross income of $30,000/year. You live on your own and are responsible for all expenses, including rent, car, insurance, cell phone, utilities, entertainment, food, savings and miscellaneous expenses. You have to pay 25% of your gross income in taxes.

Calculate Your Take Home Pay and Expenses:
With a gross income of $30,000 and a 25% tax deduction, what is your monthly net income? (Remember this is what
you get after taxes.) Then determine if your expenses are fixed or variable.

Lesson 3

Divide Your Expenses

Determine the cost for each category and record the prices in your budget. Use the following percentages to divide your monthly net pay:

Expenses % of Net Pay
Rent 30%
Utilities 10%
Car Insurance 5%
Cell Phone 5%
Occasional Spending 10%
Savings 10%
Food 15%
Car Loan 10%
Entertainment  5%