Keys to Financial Success Theme 3 Money Management

Keys to Financial Success Theme 3 – Money Management Summarize the unit in a 4 -5 sentence paragraph Create a KWL Chart in your binder (3 columns) Complete columns 1 and 2 only Column 1 – What do I KNOW about Money Management Column 2 – What do I WANT to learn about Money Management Column 3 – What did I LEARN about the Money Management

Lesson 3. 1: Why Should I Have a Budget? • Objectives • Students will be able to: • 1. Allocate their resources and make decisions based on a budget. • 2. Identify that one’s income has limits and that choices must be made within those limits. • Concepts • • Budgeting Decision making Saving Spending • Today – introduction to why budgeting is important and how quickly your income can disappear without planning

REMEMBER…. . YOU ALREADY SELECTED A CAREER CHOICE AND THAT CAREER CHOICE CAME WITH AN ENTRY-LEVEL INCOME. NOW THAT YOU HAVE THAT INCOME, YOU ALSO HAVE SOME SAVING AND SPENDING DECISIONS TO MAKE.

THINK/PAIR/SHARE • COPY & ANSWER THE FOLLOWING QUESTIONS IN YOUR BINDER • WHAT IS A BUDGET? • DO YOU HAVE A BUDGET? WHY OR WHY NOT? • WHY DO PEOPLE HAVE BUDGETS? • PARTNER UP AND SHARE YOUR RESPONSES • BE PREPARED TO SHARE WITH CLASS

The Cosby Show Video Questions • Copy and answer in binder • What are Cliff and Theo discussing at the beginning of the video? • Why are Theo’s parents concerned about his grades? • What lesson is Cliff trying to teach Theo?

Cosby Video Discussion Questions • How much money does the “regular” person start out with a month? • What were some of the categories that were mentioned? How much money was spent on each? • How much money was left in the scenario that they act out? • How realistic do you think Theo was being in the clip? • How many of you would be willing to live on bologna and cereal?

Cosby Video Discussion Questions • Do you buy fast food for dinner? If so, how much does that meal usually cost? • If you were to eat that meal every day for dinner, how much would you have spent on dinner along for a month? • How many of you would and could live on that diet every day? • Do you think Theo’s “regular” guy can live a rewarding lifestyle on a budget of $1200 a month? • Would creating, developing and using a budget help a person manage his or her income? • Do you think that budget process is a difficult process? Why or why not?

Why We Need Money Management Skills • 1. ) To provide for and protect yourself and your family. • 2. ) To plan for the future. • 3. ) To reach your goals. 1. Can you think of any examples of skills or knowledge you need to provide and protect your family? 2. What kinds of plans would involve personal finance skills? 3. What is a goal? What is the purpose of a goal?

Goal Setting Survey of Harvard Graduates • Who has goals? • What is the difference between goals and dreams? • How many of you have written down your goals? • Do you think writing down your goals would make a difference? A study was done of Harvard alumni 10 years after they had graduated. The survey found that: � 83% had NO specific personal or business goals. � 14% had specific goals but they were NOT written down. � 3% had specific goals that were written down.

PAYOFF: • Those with goals not written down earned 3 times as much as those with no goals. • Those who had written their goals down earned • 10 times as much as those with no goals. • What surprises you? • Why do you think writing your goals down makes such a difference?

Roadblocks to financial success • No Goals • Ignorance • Debt • Poor investments • Inflation • Taxes • Procrastination – the most common! • What is a roadblock? • Over which of these roadblocks does the person have the most control? • Over which would you have the least control? • Which can you address right now has a high school student? • Which do you think could cause you the most trouble? • How can you remove these roadblocks?

Set Goals - What do you want out of life? � 1. ) Short Term Goals (1 -2 years) Emergency fund � 2. ) Medium Term Goals (5 years or less) Buy a home � 3. ) Long Term Goals ( 5 years and longer) Children’s Education Retirement • Set three of each short, medium and long term goals • How many of you have accomplished any of your short term goals? • How many of you are taking steps to achieve your medium and long term goals?

Building Your Budget How might a budget help you achieve your medium and long term goals? � 1. ) Decide what you want to do with your money. � 2. ) Make Your Plan and stick with it!

Closure – Turn into bin • Write a brief essay, title “What I Want Out of Life” that addresses the following – • • • In 8 -10 years, what goals will I want to have achieved and how will I be living? What will I have to do to accomplish these goals? What roadblocks do I think I will have? How might be able to overcome them? How can money management help me accomplish them?

Homework • Think back to what you have spent your money on over the last week. Complete Handout 3. 1. 1 • Write a paragraph on the following statement – • After tracking my spending and saving, I was surprised to learn…. • MUST INCLUDE AT LEAST TWO SPECIFIC EXAMPLES OF WHAT YOU DID WITH YOUR MONEY AND EXPLAIN WHY YOU MADE THE CHOICES YOU DID. • STUDY CONCEPTS FROM CLASS • WORK ON BINDER

Lesson 3. 2: Funding My Goals By Planning • Objectives • Students will be able to: • • Examine current spending and savings behaviors and patterns. Demonstrate the relationship between goals and budgeting. Analyze trade-offs and opportunity costs related to senior year expenses. Prioritize how to obtain and allocate their income for senior year expenses. • Concepts • Budgeting • Goals • Today – Identify and prioritize your personal and financial goals; learn how to create and use a budget to meet those goals

Step #1 – Analyzing and Comparing Spending • Get out Handout 3. 1. 1 – Spending Tracker Analysis Worksheet • Transfer all of the information from the Spending Tracker Analysis Worksheet to handout 3. 2. 1 Personal Spending Diary Analysis • Get into your groups – Copy and answer the questions into your binder • • • What is the source of most of your income? What were your top two spending categories? What were you lowest two spending categories? How were the group’s categories similar? How were they different? Why are there differences?

Step #2 – Gallery Walk • Move to the category on which you spent the most money • LOOK AROUND AND REMEMBER HOW THE CLASS LOOKS • Move to the category on which you spent the least money • What surprises you about spending and saving patterns of the class?

Step #3 – Goal and Action Plan Review • Get out the Goals and Action plans identified in Theme 1 • Discussion Questions – • How many of you consider and think about your goals when you are spending and saving? • How do your spending and saving patters reflect your goals? • In what way will your current choices about spending/savings help you reach their goals?

Step #4 – Senior Year Expenses • Engage in a process that connects your goals with income and spending/saving patterns • What is a budget? • Why did we do a Spending Tracker as a first step? • Look at and revisit medium term goals by examining expenses you will encounter during your senior year • How much money do you think you will spend during your senior year? • In you binder, work with a partner to create a list of expenses that will occur during your senior year. • Be prepared to share with class • Include all ideas from classmates including estimated costs for each item

Step #4 – Senior Year Expenses • Create a final list of expenses you are expected to make during your senior year (include purchases made my your parents). • Total all estimated costs • Share with class • Does this number surprise you? Is anyone shocked?

Step #5 – Creating a Senior Year Budget • Constructing a budget that addresses short, medium and long term goals during the senior year • Complete Handout 3. 2. 2 Constructing My Senior Year Budget • Use Handout 3. 2. 3 – Potential Senior Year Variable Expanses as a guide. • Prioritize the goods and services they expect to purchase during that year ranking them from most important to least important with the most being given a “ 1” • Use the costs from the ongoing regular expenses recorded on the Personal Spending Diary Analysis • For the yearly cost of regular expenses, multiply them by 52 • Place these numbers in the Actual Cost column • Using the guide on Handout 3. 2. 3 – enter the items fro the one-tem expenses that you want. For the actual expense column, choose the amounts you want • Complete the total spending calculation • Identify which type of goal (short, medium, long term) each category reflects

Closure – Turn into Bin • Where will the income (money) for these activities/expenses come from? • Do you think that you will be able to do all of these things at no cost to yourself? • Will your parents help pay for all of these purchases? • What would be some of the opportunity costs you will have to face? • How could you increase your income? • What strategies could you use to reduce your spending? • How will a budget keep you on track for your goals?

Homework • Write two paragraphs (5 sentences each) that address the following – • Identify 3 priorities that you have for use of your “income”. Explain which of these senior year expenses that you want could be roadblocks or interfere with their personal medium and long term goals and priorities? How? • What adjustments can you make to stay within your income limits for regular expenses so that you have some savings for the one time senior year expenses? How could you adjust the one-time expenses themselves? • STUDY CONCEPTS FROM CLASS • WORK ON BINDER

Lesson 3. 3: Uncle Sam Takes a Bite: Forms, Forms • Objectives • Students will be able to: • • Identify key terms such as gross pay, net pay, deductions, and benefits. Explain the types of benefits provided by employers. Make distinctions between required and optional deductions. Compute net pay using payroll deductions and tax tables. • Concepts • Gross pay • Net pay • Taxes • Today – introduced to concepts of gross and net pay; compute deductions and taxes by reading tax tables

Uncle Sam Takes a Bite - NOTES • They money you earn is not the same as the money you take home. • What accounts for the difference between pay that is earned and take-home pay? • Two main goals – • Help the students understand how taxes affect net pay • Introduce strategies people can use to reduce their taxes, enabling them to bring home the largest paycheck that they are legally entitled to • 1040 EZ or free tax-calculating packages online – used to easily file federal income taxes • Young and done have many deductions and exemptions

Uncle Sam Takes a Bite - NOTES • Imagine…. You just agreed to start working at a part-time job (15 hours/week, $10/hour) • How much will your first paycheck be? • The amount of money that appears on an employee’s paycheck is not total amount earned • Several deductions are taken out……. . TAXES!! • DO NOW – • Complete Exercise 7. 1 (read the exercise and answer the questions)

Exercise 7. 1 Discussion Questions • What is gross pay? • What is net pay? • Is the amount of money shown on your paycheck equal to the total number of hours worked times your rate of pay? • Name at least three mandatory deductions that are taken out of gross pay. • Name three other deductions.

Uncle Sam Takes a Bite - NOTES • Not all of our income is taxes at the same rate • Marginal tax rate – highest tax rate at which we are taxed • Rate at which each additional dollar earned is taxed • Referred to as “tax bracket” • DO NOW – Exercise 7. 2 – Tax-Saving Strategies • Look at the table – “What’s Your Bracket? ” • What is the marginal tax rate for someone with a taxable income of $33, 000? • 25% • REMEMBER – THE MARGINAL TAX RATE APPLIES TO THE LAST DOLLAR OF EARNINGS.

DO NOW – EXERICE 7. 2 TAX-SAVING STRATEGIES • READ EXERCISE 7. 2 AND ASNWER THE QUESTIONS AT THE END • DISCUSSION QUESTIONS • WHAT IS MIKE’S MARGINAL TAX RATE? • 16% • WHAT DOES THAT MEAN? • HOW MUCH DOES MIKE SAVE IN TAXES BY PAYING FOR HIS HEALTH INSURANCE WITH PRE-TAX DOLLARS? • $270 ($1800 X. 15) • WHAT IS MIKE’S TAXABLE INCOME? • $18, 250 • HOW MUCH DOES MIKE SAVE IN TAXES BY USING PRE-TAX DOLLARS TO SAVE FOR RETIREMENT AND PAY FOR HIS HEALTH INSURANCE? • $420

DO NOW – EXERICE 7. 2 TAX-SAVING STRATEGIES • DISCUSSION QUESTIONS CONTINUED • WHAT ARE SOME THINGS MIKE COULD DO WITH HIS TAX SAVINGS? • HOW MUCH TAX WAS OWED ON THE FIRST $5, 000 OF GROSS INCOME • $0 (THE FIRST $8950 IS NOT TAXED!!!) • COMPARE MIKE’S GROSS INCOME TO ANN’S GROSS INCOME. WHAT DO YOU NOTICE? • THEY ARE THE SAME • COMPARE MIKE’S TAXABLE INCOME TO ANN’S TAXABLE INCOME. WHAT DO YOU NOTICE?

VISUAL 7. 1 – NICOLE’S W-2 WAGE & TAX STATEMENT

VISUAL 7. 2 – NICOLE’S FORM 1040 EZ

VISUAL 7. 3 – FEDERAL TAX TABLE FORM 1040 EZ • WHAT IS NICOLE’S ADJUSTED GROSS INCOME? • WHAT IS NICOLE’S TAXABLE INCOME? • WHAT ACCOUNTS FOR THE DIFFERENCE BETWEEN THESE NUMBERS? • HOW MUCH FEDERAL INCOME TAX WAS WITHHELD FROM NICOLE’S PAYCHECK? • WHERE WOULD NICOLE GET THIS INFORMATION? • HOW MUCH TAX DOES NICOLE OWE FOR 2008? • WHERE DID SHE GET THIS INFORMATION? • WAS TOO MUCH OR TOO LITTLE WITHHELD FROM NICOLE’S PAYCHECK? • HOW MUCH TAX DOES NICOLE STILL OWE?

DO NOW – EXERCISE 7. 3 – IS IT BETTER TO GET A TAX REFUND OR TO HAVE FEWER TAXES WITHHELD? PART 1 • READ THE EXERCISE AND COMPLETE JACK’S 1040 EZ FORM • AFTER COMPLETING THE FORM – ANSWER BOTH SETS OF QUESTIONS FOUND IN THE EXERCISE • DISCUSSION QUESTIONS – • WHAT IS THE DIFFERENCE BETWEEN JACK’S WEEKLY GROSS PAY AND HIS NET PAY? • $77. 79 • HOW MANY WITHHOLDING ALLOWANCES DID JACK CLAIM? • 0 • WHAT IS JACK’S MARGINAL TAX RATE? • 15% • DOES JACK OWE TAXES OR GET A REFUND? • REFUND - $442 • HOW WOULD YOU RECOMMEND THAT JACK CHANGE HIS WITHHOLDING ALLOWANCES FOR NEXT YEAR?

Closure – TURN INTO BIN • WHY WOULD IT BE EASIER FOR A STUDENT TO USE THE 1040 EZ FORM WHEN FILING THEIR TAXES THAN THE COMPLETE 1040? • DEFINE – • • Grosse Pay Net Pay Deductions Benefits • What is the difference between required and optional deductions? • What types of benefits may be provided by employers?

Homework • COMPLETE EXERCISE 7. 4 – IS IT BETTER TO GET A TAX REFUND OR TO HAVE FEWER TAXES WITHHELD? PART 2 • STUDY CONCEPTS FROM CLASS • WORK ON BINDER

Lesson 3. 4: Managing Your Money • Objectives • Students will be able to: • Identify the major categories of a family budget. • Differentiate among various types of expenses. • Demonstrate trade-offs that occur when constructing a budget. • Concepts • • Assets Budgeting Fixed Expenses Income Liabilities Net Worth Variable Expenses • Today – introduces basics of money management

PURPOSE OF TODAY • HELP STUDENTS UNDERSTAND SOME KEY ASPECTS OF PLANNING THEIR FINANCIAL FUTURE • DECISIONS ABOUT HOW TO USE INCOME ARE SIMILAR TO OTHER DECISIONS • ADVANTAGES AND DISADVANTGES TO VARIOUS CHOICES • FINANCIAL SACRIFICES CAN BE DIFFICULT TO MAKE WHEN THE COSTS BE PAID IN THE PRESNT AND MOST OF THE BENEFITS OCCUR IN THE FUTURE

THEME 3 INTRODUCTION • FIND THE PARAGRAPH AND KWL COLUMN THAT YOU COMPLETED AT THE BEGINNING OF THE UNIT. • REVIEW YOUR ACTIVITY. • PARTNER UP AND SHARE YOUR PARAGRAPHS. • BE PREPARED TO SHARE WITH CLASS.

EXERCISE 8. 1 – BUDGETS ARE BEAUTIFUL CALL-IN SHOW • 5 VOLUNTEERS – • • • BUDGET BOB = DR. PENNY SAVER CONNIE FROM CONNECTICUT CALVIN FROM CALIFORNIA MINNIE FROM MINNESOTA • REMAINDER OF CLASS – FOLLOW ALONG WITH SCRIPT. REMAIN QUIET • ANSWER THE QUESTIONS AT THE END OF THE SCRIPT

EXERCISE 8. 1 – BUDGETS ARE BEAUTIFUL CALL-IN SHOW • DISCUSSION QUESTIONS – • WHAT IS DISPOSABLE INCOME? • WHAT DOES DR. SAVER RECOMMEND AS THE THREE PARTS OF A FAMILY BUDGET? • WHAT ARE FIXED VARIABLE EXPENSES? USE EXAMPLES TO ILLUSTRATE ECH. • WHAT DOES “PAY YOURSELF FIRST” MEAN? • WHAT IS NET WORTH?

DO NOW – EXERCISE 8. 2 A JOHN AND MARCIA: MONTHLY SPENDING PLAN 1 • READ THE BACKGROUND INFORMATION ONLY • DISCUSSION QUESTIONS – • WHO ARE JOHN AND MARCIA? • WHAT IS THEIR LIFESTYLE? • WHAT IS THEIR IMMEDIATE FINANCIAL GOAL?

DO NOW – EXERCISE 8. 2 A JOHN AND MARCIA: MONTHLY SPENDING PLAN 1 • EXAMINE JOHN AND MARCIA’S FIXED AND VARIABLE EXPENSES FOR SPENDING PLAN. • ANSWER THE QUESTIONS • DISCUSSION QUESTIONS – • WHAT ARE SOME EXAMPLES OF JOHN AND MARCIA’S FIXED EXPENSES? • WHAT ARE SOME EXAMPLES OF JOHN AND MARCIA’S VARIABLE EXPENSES? • JOHN AND MARCIA HAVE DECIDED TO PRACTICE THE “PAY YOURSELF FIRST” APPROACH TO SAVING FOR A SECOND CAR. HOW DO THEY PAY THEMSELVES FIRST? • EXAMINE JOHN AND MARCIA’S MONTHLY SPENDING PLAN. WHAT SACRIFICES DO YOU THINK JOHN AND MARCIA SHOULD MAKE IN THER VARIABLE EXPENSES TO MEET THEIR GOAL? • WHAT ARE THE BENEFITS AND COST OF YOUR RECOMMENDED DECISIONS FOR JOHN AND MARCIA?

CLOSURE – TURN INTO BIN • WHAT IS DISPOSABLE INCOME? • WHAT ARE THREE PARTS OF A FAMILY BUDGET? • WHAT ARE FIXED EXPENSES? • WHAT ARE VARIABLE EXPENSES? • WHAT IS NET WORTH?

Homework • COMPLETE THE FOLLOWING ACTIVITIES – • EXERCISE 8. 2 B – JOHN AND MARCIA: MONTHLY SPENDING PART 2 • EXERCISE 8. 3 – CAN JOHN AND MARCIA AFFORD THE HOME OF THEIR DREAMS? • STUDY CONCEPTS FROM CLASS • WORK ON BINDER

Lesson 3. 5: Preparing My Own Budget • Objectives • Students will be able to: • Construct a personal budget based on the entry level career salary chosen earlier in the course. • Analyze how a budget will help individuals achieve their goals • Concepts • Budgeting • Fixed Expenses • Variable Expenses • TODAY – LEARN ABOUT SETTING UP A PERSONAL BUDGET BASED ON CAREER CHOICE MADE EARLIER

BRAINSTORM – WORK WITH A PARTNER AND COMPLETE IN BINDER • GENERATE A LIST OF GOODS AND SERVICES YOU WOULD WANT TO HAVE AS YOU START LIVING ON YOUR OWN • REMEMBER – YOU HAVE ALREADY CHOSEN A CAREER AND SHOULD KEEP THAT CAREER’S INCOME AND HEALTH BENEFITS IN MIND WHILE BRAINSTORMING • FOR EXAMPLE – • IF YOUR CHOSEN CAREER WAS VETERINARY TECHNICIAN, YOU CANNOT PURCHASE OR LEASE A FERRARI • TAKE OUT ACTIVITY 2. 5. 3 – CAREER DECISION GRID • DOES YOUR ENTRY-LEVEL SALARY SUPPORT YOUR INITIAL WANTS?

HANDOUT 3. 5. 1 – TYPICAL BUDGET CATEGORIES & NOTES • WRITE YOUR YEARLY GROSS INCOME ON THE TOP OF THE PAGE • EXPENSES THAT COMPRISE A BUDGET • FIXED EXPENSES – SAME AMOUNT OF MONEY MUST BE PAID FROM MONTH TO MONTH AND HARDLY EVER CHANGES (RENT, MORTGAGE, INSURANCE, TAXES, INSTALLMENT LOANS, STUDENT LOANS) • REGULAR VAIRABLE EXPENSES – GOODS AND SERVICES THAT REOCCUR EACH MONTH BUT THEIR AMOUNTS WILL VARY (FOOD, CLOTHING, TRANSPORTATION, UTILITIES, MEDICAL CARE, REVOLVING CREDIT CARD PAYMENTS) • DISCRETIONARY EXPENSES – GIFTS, CHARITY, ENTERTAINMENT, RECREATION, COFFEE/DRINKS, MAGAZINES, BOOKS, COMPUTER GAMES, PET SUPPLIES, TOYS

ACTIVITY 3. 5. 2 – BEGINNING BUDGET WORKSHEET • YOUR INCOME IS $20, 000 PER YEAR • PLACE THE AMOUNT AT THE BOTTOM OF THE PAGE • CALCULATE THE NET INCOME FOR THE YEAR BY USED 15% AS THE FEDERAL TAX • SUBTRACT THAT NUMBER FROM $20, 000 TO GET THE YEARLY NET • DIVIDE THE YEARLY NET BY 12 TO GET THE MONTHLY YET • USE THE SUGGEST PERCENTAGES FOR EACH CATEGORY TO COMPLETE THE FIRST COLUMN OF SUGGESTED MONTHLY EXPENSES AND PLACE THEM IN EACH OF THE SPACES PROVIDED • ADD UP THE COLUMN TO ACCOUNT FOR 100% OF YOUR INCOME FOR THE MONTH

ACTIVITY 3. 5. 2 – BEGINNING BUDGET WORKSHEET • DISCUSSION QUESTIONS – • • • HOW WELL CAN A PERSON LIVE WHO MAKES $20, 000/YEAR? WHICH EXPENSES WILL BE A PROBLEM FOR THIS PERSON? WHAT EXPENSES CAN BE ELIMINATED? WHAT ADJUSTMENTS COULD A PERSON MAKE? WHAT OTHER OPTIONS WILL NEED TO BE CONSIDERED?

ACTIVITY 3. 5. 2 – BEGINNING BUDGET WORKSHEET • FLIP ACTIVITY 3. 5. 2 OVER TO FIND ANOTHER COPY • COMPLETE THE CALCULATIONS FOR THE MONTHLY NET FOR THE ENTRY LEVEL SALARY OF YOUR CHOSEN CAREER • PLACE THE INFORMATION AT THE BOTTOM OF THE PAGE • USE ACTIVITY 3. 5. 1 – TYPICAL BUDGET CATEGORES – WHICH HAS THE PERCENTAGES • COMPLETE A BUDGET FOR THE SALARY • DISCUSSION QUESTIONS – • WHAT WOULD YOU DO IF FOOD OR TRANSPORTATION COSTS SUDDENLY ROSE ABOVE THE PERCENTAGES IN YOUR BUDGET? • WHAT WOULD HAPPEN TO YOUR BUDGET IF YOU WERE SPENDING 45% OF YOUR MONTHLY NET ON HOUSING? • WHY COULD CREATING A BUDGET BE A DIFFICULT PROCESS TO CARRY OUT AND MAINTAIN?

CLOSURE – TURN INTO BIN • WHAT CATEGORIES OF YOUR BUDGET CAN’T YOU ADJUST MONTH TO MONTH? • WHAT ARE SOME EXAMPLES OF FIXED EXPENSES IN A BUDGET? • WHAT CATEGORIES OF YOUR BUDGET CAN YOU ADJUST MONTH TO MONTH? • WHAT ARE SOME EXAMPLES OF VARIABLE EXPENSES IN A BUDGET? • WHAT BUDGETING PROCESS DO SOME PEOPLE WHO GET INTO FINANCIAL TROUBLE USE?

Homework • COMPLETE ACTIVITY 3. 5. 3 - ASSESSMENT • STUDY CONCEPTS FROM CLASS • WORK ON BINDER