Budget+ Extension Activity 4 Completing a Budget

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1 Budget+ Extension Activity 4 Completing a Budget

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3 Budget + Extension Activity 4 Completing a Budget Copyright 2016 Junior Achievement USA Colorado Springs, Colorado All rights reserved. Any text of this publication, or any part thereof, may not be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, storing in an informationretrieval system, or otherwise, except in the course of conducting a registered Junior Achievement USA class or with the permission of the publisher. All Web links in this guide were correct at the time of publication; however, some may have become inactive or otherwise modified since that time. If a link is no longer active or has changed, please education@ja.org with the words Link Update in the subject line. Include the page number on which the link appears in this guide. Current Web links used throughout this guide also are available on CrossKnowledge (contact your local JA Area for access).

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5 Budget + Extension Activity 4 Completing a Budget Overview Students continue to prepare for the JA Finance Park simulation by researching the price of goods and services and practicing their budgeting skills. They evaluate hypothetical life situations and prioritize budget items. Teacher Introduction Financial problems typically occur because people fail to plan ahead. A budget can help to avoid some of these financial pitfalls. To create a budget, a person needs to gather the information needed to make smart money decisions, establish financial objectives and goals, make informed decisions about how to achieve those goals, and balance a budget to fit within his or her income. Budgeting often is an unfamiliar concept to students. But it is a skill they will need to master if they are to lead a financially successful life. That future starts with giving students sufficient practice to feel competent enough to create a budget. To prepare for the JA Finance Park simulation, students will develop and complete a typical monthly budget. The exercise begins with students using the Internet (or newspapers, catalogs, and magazines that you provide) to research prices on goods and services they must buy. This will help students see the range of prices offered for different goods and services. They will then create a visual representation of their research that will help them make their budget decisions. Student groups will receive a Life Scenario card that assigns them an income, family status, and age. Using their assigned income, they create a budget, determine an amount to save or invest, choose items to purchase, and finally see if they can get the things they need and want and still balance their budget with a little money left over at the end of the month. Budget + Extension Activity 4 This Extension Activity is best completed in four sessions: Set Up and Gather Information; Budget and Establish Financial Goals; Make Informed Decisions Using Research; and Shop and Balance the Budget. The teacher acts as a facilitator, allowing students to follow their own ideas about their group s budget needs. Consider using the first day of this extension activity to review procedures. Then let students dive in, move ahead, and accomplish their goals. You should remain available to answer questions and give guidance. Plan for three to four 45-minute sessions. You will decide the method of student assessment for this lesson. You may have each student complete and turn in his or her own worksheets or have each group turn in one packet of worksheet pages. 1

6 JA Finance Park Materials oo Life Scenario Cards oo Student Introduction oo Average Household Budget Chart oo Student Checklist oo Worksheets 1-22 (for students to complete) oo Access to computers and the Internet (optional) oo Scissors, tape, glue (not provided, optional) oo Poster board (not provided, optional) Life Scenario Cards oo Calculators and local newspapers, magazines, catalogs, and store fliers (not provided) Average Household Budget Completing a Budget Activity Steps Set Up and Gather Information: Worksheets Ask students to read the Student Introduction on Page 17 and study Worksheet 2, Average Household Budget, on Page 21. As a class, review the major points about budgets and answer questions students may have. 2. Arrange the students into cooperative learning groups. Randomly assign one of the eight Life Scenario cards to each student group. The scenarios appear on Pages To make informed decisions, students will need to research items and prices available in their local area. As they gather this information for each category, they should create a PowerPoint, Prezi, mural, collage, or other visual aid. o Research categories are: Housing, Transportation, Groceries, Clothing, Philanthropy, and Entertainment. You may want to list these budget categories on the board. o Research on other categories is optional. o Students should display pictures and prices from catalogs, newspapers, Internet sites, coupons, etc., to show budget options. o Students can gather information in one session or research each budget category as they complete the worksheet for that category. o Students present the information to the class if time allows. 2

7 4. Explain to students that they should use the Student Checklist on Page 18 to complete the worksheets and the budget activity. Budget and Establish Financial Goals: 5. Have students complete Worksheet 1, Net Monthly Income (NMI), Page 20, by using the information from their Life Scenarios. You may have each student complete his or her own worksheet using the group s Life Scenario or have each group complete one set of worksheets. An Answer Key for the NMI Worksheet is on Page Direct students to complete Worksheet 3, Budget Guidelines, Page 22, to determine their spending limit. If desired, have them complete Optional Worksheet A, Percentage Bank, Pages 15-16, using the Net Monthly Income from Worksheet 1. They can then use the figures from the Percentage Bank to fill in the minimum and maximum amounts for each category on the Budget Guidelines worksheet. An Answer Key for the Percentage Bank Worksheet is on Page Ask students to complete Student Worksheet 4, Savings and Investments, Page 24, to determine how much they would like to save each month. Optional: Have the students read and discuss Optional Worksheet B, Investment Portfolio, Page 22. Have them choose three stocks to track. They may not spend more than 50 percent of their savings on stocks. Have the students complete Optional Worksheet C, Personal Investment Report, Page 26. Remind them to update the report daily using the Internet or the stock section of the local newspaper. (See Step 15 for the conclusion of this activity.) Make Informed Decisions Using Research: Budget + Extension Activity 4 8. Have students read through and discuss each of the worksheets and make spending decisions based on their budget guidelines. You may want to have them indicate their choices on their visual aid (PowerPoint, poster, etc.). 9. The total amount (shaded green box) from each worksheet that has such a box must be transferred to Worksheet 22, The Budget, on Page 47. These totals can either be transferred as each worksheet is completed, or the totals from all worksheets can be transferred during the Shop/Balance the Budget session. 3

8 JA Finance Park 10. The following tips may help you guide student groups as they work through their checklist to complete the worksheets: Housing: After reading Worksheet 5, Housing. Page 27, students should complete either Worksheet 6, Home Buyer, Page 28, OR Worksheet 7, Home Renter, Page 29, using information from their research. If their credit score is below 680, they cannot buy a home and must rent. Home renters may find roommates to help cut costs. Optional: Have students use an online mortgage calculator like com/home-loans/mortgage/calculator to determine monthly payments with interest, then input the monthly amount into the Housing line on Worksheet 22, The Budget. Utilities: A chart on Worksheet 8, Utilities, Page 30, is used to determine utility payments for electricity and water/sewer/trash. Transportation: Students complete Worksheet 9, Transportation Fixed Costs, Page 31, using information from their research. They must choose a car that fits their family profile. A credit score of 620 or more is needed to buy a new car. They will use the provided charts to determine interest and other costs. If desired, students may opt for public transportation and must buy a bus pass for each adult and child in their Life Scenario. Have them enter the price of the monthly bus pass in Line 8 of the Transportation worksheet. Gas and Maintenance: Students will use charts on Worksheet 10, Transportation Variable Costs, Page 33, to determine gas and maintenance costs. Students who choose public transportation will not have this expense. Food: Students use a chart on Worksheet 11, Groceries, Page 34, to choose the meal plan that best fits their budget. Optional: Have students read Optional Worksheet D, Food, Household, and Hygiene, Page 35, and complete Optional Worksheets E through G, Pages 36-38, to determine their monthly grocery budget. Health Insurance: Students use a chart on Worksheet 12, Health Insurance, Page 39, to determine costs of healthcare coverage for their family. Phone: Students use a chart on Worksheet 13, Phone, Page 40, to determine their rate plan. Alternately, have them use the Internet or local ads to research a plan and a company that suits their needs and their budget. 4

9 Clothing and Accessories: Students use research results to choose a given set of clothing items on Worksheet 14, Clothing and Accessories, Page 41, based on their Life Scenario. Optional: To save time, have students use the chart on Optional Worksheet H, Clothing Discount to Designer, Page 42, to choose clothing from one of three different price brackets. Home Improvement and Furniture: Students use their research to make furniture or home improvement choices totaling 600 or more and list them on Worksheet 15, Home Improvement and Furniture, Page 43. They use a chart to determine the interest on their purchase. If they choose energy efficient home improvements, such as solar panels, LED lighting or ENERGY STAR appliances, they can deduct 25 from their electricity bill on Worksheet 8, Utilities. Entertainment: Using their research, students choose up to four activities appropriate for their Life Scenario and complete Worksheet 16, Entertainment, Page 44. Cable and Internet: Students use a chart on Worksheet 17, Cable and Internet, Page 45, to pick a rate plan based on all family members needs and then choose any additional services. You also can have them research local companies or Internet choices for plans and rates. It is often possible to bundle phone, Internet, and cable. Dining Out: A chart is available on Worksheet 18, Dining Out, Page 46, to help students determine the cost of dining out. Students also can use the Internet or local menus to plan their budget for dining out. Philanthropy: After researching some nonprofit or charity organizations, students choose at least one to receive a percentage of their income, recording it on Worksheet 19, Philanthropy, Page 47. During the simulation, they may choose to donate their time in addition to or instead of money. Education: Students should transfer their amount of educational debt from the Life Scenario to Worksheet 20, Education, Page 48. They should then calculate 0.5 percent of the education debt, which is the minimum amount that must be paid each month. Students also may choose ongoing education from the chart provided and add that to their monthly education expense. Child Care: Students must account for child care if there are children in their Life Scenario. Worksheet 21, Child Care, Page 49, directs them to choose an amount for different levels of care for each of their children. Budget + Extension Activity 4 5

10 JA Finance Park Optional: If students are completing the investment activity, have them update daily Optional Worksheet C, Personal Investment Report, Page 26. Have them then calculate any profit or loss and turn in the Investment Report with their other papers. Shop and Balance the Budget: 11. Have students complete Worksheet 22, The Budget, Page 50, by transferring the Maximum Guidelines amount in each category from Worksheet 3, Budget Guidelines, Page Students will transfer the total amount in the shaded box from each worksheet to its corresponding line in the Expenditure Amount column on Worksheet 22, The Budget, checking totals as necessary. Instruct students to make sure each line is completed (unless you have chosen to eliminate certain worksheets for the sake of time). If an amount is missing, students should find the total from the appropriate worksheet and then transfer it to Worksheet 22. Have the students deduct total expenditure amounts from their Net Monthly Income to determine what amount they will have left after paying expenses. Collect and review the students work, including any worksheets you want to grade, The Budget worksheet, and the visual aid they created. 6

11 Average Household Budget Education 3% Entertainment 3% Internet, Phone, Cable 3% Philanthropy 3% Clothing 4% Savings 5% Health Care 6% Other 6% Child Care 9% Food, Groceries, Personal Care Items 10% Transportation 18% Housing 30% Budget + Extension Activity 4 7

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21 Student Introduction Creating a budget is a lot like working a puzzle every little piece must fit for it to be complete. Most consumers have incomes and expenditures. As these two factors become more complicated, it is helpful to have a budget. To further understand the concept of budgeting and to provide some actual practice for your JA Finance Park simulation, you will develop a typical monthly budget. Your budget will work best if you balance your income and expenditures and have a little extra money at the end of the month. The process of creating a budget involves four basic steps: Set Up and Gather Information; Budget and Establish Financial Goals; Make Informed Decisions Using Research; and Shop and Balance the Budget. For this practice budget, you will work in cooperative learning groups. Each group will randomly receive a Life Scenario card that describes an imaginary life you will lead and provides information needed to begin planning your budget. After deducting taxes, your group will calculate your Net Monthly Income (NMI) to find out exactly how much money is available to spend each month. Study and discuss the Average Household Budget chart to understand how much a family typically spends in different budget categories. You also must research the prices of goods and services in your area by using the Internet, newspapers, magazines, and catalogs. Make a PowerPoint, poster, or some other visual aid to show the cost of goods and services you found during your research. Using your Life Scenario card, the Average Household Budget chart, and Budget Guidelines worksheets, your group should establish minimum and maximum allowances for each budget category. You will determine how much to save each month and how much to donate to charity. You must spend within a given range for each budget category. Budget + Extension Activity 4 Once you have found and compared budget options, your group must go shopping by making a final decision on how to spend the money allotted for each category. This will require using the guidelines and setting priorities for the budget areas considered most important. While you are compiling information, planning your budget, and making decisions, you probably will find it necessary to ask questions of adults. They have experience making decisions about managing money and will have some helpful advice. Remember your goals: Meet your hypothetical family s needs. Have a little extra money at the end of the month. Contribute to worthy causes. Save for your future. Learn how to do those things now and your financial future as an adult will be far brighter. 17

22 JA Finance Park Student Checklist Place a checkmark beside each item as it is completed during the practice simulation. If necessary, use the glossary located at the back of your JA Finance Park Student Workbook. oo oo oo oo 1. Using the information from your Life Scenario card, complete Worksheet 1, Net Monthly Income. 2. Study and discuss Worksheet 2, the Average Household Budget. 3. Complete Worksheet 3, Budget Guidelines, to determine the minimum and maximum amounts for each budget category. You may use a calculator. Your teacher may provide Optional Worksheet A, Percentage Bank, to make the calculations a bit easier. 4. Complete Worksheet 4, Savings and Investments. Optional: Read, complete, and discuss Optional Worksheet B, Investment Portfolio, and Optional Worksheet C, Personal Investment Report. Using stock reports, complete the Personal Investment Report worksheet daily. oo oo oo 5. Read and discuss Worksheet 5, Housing. Living at home with your parents is not acceptable housing for this exercise. Use the Internet, newspaper classified ads, or real estate magazines for housing research. Housing must be in your local area. 6. Complete either Worksheet 6, Home Buyer, OR 7. Complete Worksheet 7, Home Renter. oo oo oo10. Complete Worksheet 10, Transportation Variable Costs. oo 8. Complete Worksheet 8, Utilities. 9. Complete Worksheet 9, Transportation Fixed Costs. Use the Internet, newspaper classified ads, or automotive magazines for transportation research. 11. Choose a budget category from Worksheet 11, Groceries, OR read and discuss Optional Worksheet D, Food, Household, and Hygiene. Optional: Based on your family s needs, plan and prepare Optional Worksheet E, Weekly Menu, and Optional Worksheet F, Grocery List. Use these figures to complete Optional Worksheet G, Food Expenditures. 18

23 oo oo oo oo oo 12. Complete Student Worksheet 12, Health Insurance, by calculating the insurance needs of your family. 13. Using the chart provided or your own research, choose a phone plan and complete Worksheet 13, Phone. 14. Complete Worksheet 14, Clothing and Accessories, using your research OR complete Optional Worksheet H, Clothing Discount to Designer. 15. Complete Worksheet 15, Home Improvement and Furniture. You have a minimum amount that must be spent or financed on this budget item. 16. Complete Worksheet 16, Entertainment. Remember to choose up to four age-appropriate activities for your family. oo 17. Complete Worksheet 17, Cable and Internet. oo 18. Complete Worksheet 18, Dining Out. oo oo 19. Complete Worksheet 19, Philanthropy, by using the Internet or newspaper to choose a worthy cause and then decide how much money or time you will contribute each month. 20. Complete Worksheet 20, Education, using the Educational Debt amount from your Life Scenario. oo 21. If you have children, complete Worksheet 21, Child Care. oo 22. Complete your budget by transferring the amounts from the shaded total box on each worksheet to the Expenditure Amount column on Worksheet 22, The Budget. Subtract all the expenses from your NMI. Budget + Extension Activity 4 oo 23. Prepare the final worksheets as instructed by your teacher. 19

24 1 Worksheet Net Monthly Income (NMI) 1 Complete Lines 1-7 to calculate your net monthly income (NMI). Use your Life Scenario card to identify your gross annual income (GAI) and your federal income, Social Security, and Medicare tax amounts. Line 1: Line 2: Line 3: Line 4: Line 5: Gross annual income Gross monthly income (divide Line 1 by 12 months) Monthly federal income tax amount Monthly Social Security tax amount Monthly Medicare tax amount Line 6: Total monthly taxes (Add Lines 3, 4, and 5) Line 7: Monthly income (Line 2 minus Line 6) Line 8: Net Monthly Income (NMI) Transfer Line 8 (Net Monthly Income) to the NMI lines onto Worksheet 3, Budget Guidelines, and Worksheet 22, The Budget. 20

25 2 Worksheet Average Household Budget 2 Discuss the following with your group: In which category is the most money spent? Compare the top three categories. Does anything surprise you? Are there any categories here that you would not include in your own budget? 21

26 3 Worksheet Budget Guidelines 3 Using the formula percentages provided, calculate all the minimum and maximum guideline percentages for each of the budget categories. Write the amounts on the lines provided. Refer to these amounts as you begin to make your budget decisions. All budget decisions must be between the minimum and maximum guidelines listed. Formula: Guideline Percentage x NMI = Guideline Amount Example: 0.17 x 2,365 = (Percent written as a decimal. Ex: 17% = 0.17) Amount from Line 8, Worksheet 1, Net Monthly Income Budget Category Pay Yourself First (savings/investment) Minimum Guideline Percentage Minimum Guideline Amount Maximum Guideline Percentage 2% of NMI Personal Choice Housing (rent/mortgage) 18% of NMI 24% of NMI Utilities Electric/Power 3% of NMI 7% of NMI Water/Sewer/Trash 1% of NMI 5% of NMI Transportation Fixed Cost Monthly Payment Transportation Variable Cost Gas and Maintenance 8% of NMI 10% of NMI 4% of NMI 8% of NMI Grocery 16% of NMI 20% of NMI Health Insurance 2% of NMI 6% of NMI Phone 1% of NMI 5% of NMI Clothing and Accessories 3% of NMI 7% of NMI Home Improvement and Furniture 8% of NMI 12% of NMI Entertainment 2% of NMI 6% of NMI Cable and Internet 1% of NMI 3% of NMI Dining Out 1% of NMI 5% of NMI Philanthropy 1% of NMI Personal Choice Education 1% of NMI 5% of NMI Child Care NA to 5% 9% of NMI Maximum Guideline Amount 22

27 Percentage Bank Optional Worksheet A Although there are 17 different budget categories, there are only 14 total minimum and maximum NMI percentages. By calculating each value now, you ll save time when you determine your spending limits for each category in JA Finance Park. To figure out each value in the Percentage Bank: Change the percentage into a decimal number. Multiply the result by your total NMI. Round each answer up or down to the nearest dollar. Example: If you wanted to calculate 5% of a 3,139 NMI, you would: Change 5% into its decimal form: 0.05 Multiply 0.05 by your NMI: (0.05 x 3,139) = Round to the nearest dollar: 157 When you re finished, transfer each value to Worksheet 3, Budget Guidelines. Note that each category needs a minimum and a maximum guideline amount. Net Monthly Income: 0% 15% 1% 16% 2% 18% 3% 19% 5% 20% 6% 24% 7% 25% 23

28 Savings and Investments 4Worksheet 4 Most financial advisers recommend having three separate savings accounts: emergency fund, general savings, and retirement. People who invest at a young age for their retirement will reap the greatest benefits because they can grow their savings through compound interest, which is interest paid on previously paid interest. Also important is having emergency savings in case you lose your job, have unexpected medical expenses, or suffer other financial setbacks. Financial advisers recommend a minimum of three months net monthly income in a separate savings account that provides ready access to cash should an emergency arise. A general savings account is for future vacations, major purchases, and other specific long-term goals. Start with at least 2 percent of your NMI for your savings, but it is better for your financial future if you can start with 5 percent or more. How much have you saved so far? Transfer the amounts from your Life Scenario and NMI Worksheet. Household NMI Retirement Savings Emergency Fund Your savings goal: Set an overall savings goal. You can decrease or increase your savings to meet your needs. To save 2% of my NMI each month, I would save: To save 5% of my NMI each month, I would save: To save 10% of my NMI each month, I would save: My monthly savings amount: Allocation: Determine how you will divide these funds into each saving account. Retirement Saving Emergency Fund Other savings Total Savings Line 1: Enter the total amount you have chosen to save this month Transfer the Line 1 amount to the Pay Yourself First line on Worksheet 22, The Budget. 24

29 Investment Portfolio Optional Worksheet B Many people think investing is only for the rich. Nothing could be further from the truth. Investing is smart for everyone, and the earlier you begin saving and investing, the more money you will earn. Time is money! A stock s value can change at any moment, depending on the market and other conditions. The market report (stock reports), printed daily in the business section of the newspaper, keeps investors up to date on what s happening in the investment market. As part of your savings plan, you can choose to invest your retirement savings in the stock market. You will need to find stocks on the Internet or in the newspaper. Create your stock portfolio by selecting three stocks that interest you. Write those stocks on the three lines below and on Optional Worksheet C, Personal Investment Report. For five days during this simulation, you will review your stock value in the stock reports of your local newspaper. You must determine the value of each stock and record it on the Personal Investment Report. At the end of the five days, you will be able to see the growth or decline of your total portfolio. Remember, to determine the current value of your stock each day, you must multiply the number of shares you own by the price of the share at the close of that day. Stock Value Formula Number of Shares x Close Price = Total Value of Stock Example: PZZA 70 x = 2,905 GE 50 x = 1,300 COF 20 x = 1,670 Total Value of Portfolio = 5,875 Select three stocks and determine their value for today: Stock Symbol # of Shares Close Price Total Value x = x = x = Total Value of Portfolio = 25

30 Personal Investment Report Optional Worksheet C Complete the personal investment report using a newspaper stock report to track your stocks for five days. Calculate the total value of your portfolio each day, and answer the questions at the bottom of the page. Stock Symbols # of Shares Day 1: price per share Day 1: total value Day 2: price per share Day 2: total value Day 3: price per share Day 3: total value Day 4: price per share Day 4: total value Day 5: price per share Day 5: total value Example: MSFT Total Portfolio Value 1. What was the Total Portfolio Value on Day 1? 2. On which day was your Total Portfolio Value the highest? How much was it worth? 3. Which stock was worth the most on Day 5? 4. What was the highest price per share for the week? List the name of the stock and the price. 5. What was the Total Portfolio Value on Day 5? 6. What was the difference between the Total Portfolio Value on Day 1 and Day 5? 26

31 5 Worksheet Housing 5 One of life s basic necessities is shelter. Rent or mortgage payments usually take the largest chunk out of a person s income. That means housing is usually one of the first categories to consider when creating a budget you need to know how much you have to spend before you can search for housing. Before you begin researching, be sure you know your housing budget guidelines (found on Worksheet 3, Budget Guidelines). You must keep your housing cost between the minimum and maximum housing guidelines. You can use the Internet, newspaper ads, or real estate guides to help you decide which type of housing you can afford to rent or buy. You may not use tents or recreational vehicles. Also, be sure your final housing selection is adequate for your entire family and is in your local area. As you research, keep in mind: Will you rent or buy? If your credit score is lower than 680, you must rent. If you are single and choose to live alone, you may rent or buy a condominium, efficiency, or studio unit/apartment. This usually will be less expensive than a house. If you are single, you may choose to live with a maximum of two roommates. This will cut housing and utility costs. If you choose to have roommates, you will need to rent a space that ensures everyone has their own bedroom. Whether you rent or buy, the size and energy efficiency of your housing will affect your monthly utility bills. Buying a Home Buy if you can! It is often wise to invest in a home (a home might be a house, condominium, or townhouse). Check advertisements for a variety of price options, noting that location affects pricing. If you purchase a home, you will receive tax advantages at income tax time. A home buyer almost always has to make a down payment (a large cash deposit to be paid at the time of the sale) on the purchase price. This deposit is deducted from the price of the home to determine how much you must borrow from a financial institution. There are many ways to finance a home, but the more you can invest in the down payment, the sooner you can repay your loan and build equity (the difference between your home s market value and the remaining balance on your mortgage.) A common amount for down payment is 20 percent of the purchase price, though in some cases may be as little as 3.5 percent. In this budget practice, you will make a 20 percent down payment. After deducting the 20 percent down payment from the purchase price, you must get a mortgage (home loan) for the remaining balance and pay it off in 30 years (360 months). This loan will include the principal (the amount actually borrowed) and the interest (the fee the mortgage company charges to lend you money to buy the home.) Interest on a 30-year mortgage can run into tens and even hundreds of thousands of dollars depending on how expensive the home is. A home mortgage also will include an additional amount each month to cover the annual cost of homeowner s insurance and property taxes. You will be expected to pay off this amount in monthly payments. Use an online mortgage calculator or the formula on the next page to compute your monthly mortgage payment. 27

32 6 Worksheet Home Buyer 6 Loan Amount Formula Example: You want to buy a 180,000 home. You will calculate your 30-year mortgage loan amount plus the total interest paid over the life of the loan. 180,000 (home price) 20% (down payment) = 180,000 x.20 =36,000 down payment 180,000 36,000 = 144,000 (mortgage amount) Add 40% for interest. 144,000 x.40 = 57, , ,600 = 201,600 (mortgage loan) To calculate your monthly mortgage payment, divide the mortgage loan total by , = 560 (monthly payment) Add 30% (insurance, taxes) 560 x.30 = = 728 Directions: After locating the home that you wish to purchase, use the formula above to compute your monthly mortgage payment. Or use an online mortgage calculator like to compute your monthly payment. Input the amount on Line 8. Housing Line 1: Cost of condominium, house, or townhouse Line 2: Down payment amount, 20% (Line 1 x.20) Line 3: Mortgage loan amount (Line 1 minus Line 2) Line 4: Add 40% for interest (Line 3 x.40) Line 5: Mortgage with interest (Line 3 plus Line 4) Line 6: Monthly mortgage amount (Line 5 360) Line 7: Add 30% for taxes and insurance (monthly mortgage amount x.30) Line 8: Adjusted monthly mortgage payment (Add Line 6 and Line 7) (Be sure this amount is within your budget guidelines.) 28

33 7 Worksheet Home Renter 7 If you decide to buy, transfer Line 8 to the Housing line on Worksheet 22, The Budget. If your credit score is lower than 680, you need to rent. If you have decided to rent, you have several options. You may rent an apartment, mobile home, condominium, townhouse, or house. If you are single, you may choose to have up to two roommates. Be certain your choice fits your family size and the cost is below your maximum budget guideline for housing. Also, remember the size of your rental choice will affect the cost of utilities (electricity and water/sewer/trash). If you choose to live alone, you must pay all your cable and utility bills. If you choose to have roommates, you can share those expenses. Keep in Mind If you are single, you can have one or two roommates. If you have roommates, you must have a separate bedroom for each person living with you. Examples: If you live alone, you may rent a one-bedroom home. If you have one roommate, you must rent a home with at least two bedrooms. If you have two roommates, you must rent a home with at least three bedrooms. Directions: After locating the home you wish to rent, compute your total rent payment below. Housing Line 1: Cost of home rental If you have one roommate, divide Line 1 by 2. Enter that amount on Line 2. If you have two roommates, divide Line 1 by 3. Enter that amount on Line 2. If you live alone, then transfer the Line 1 amount to Line 2. Line 2: Total rent amount If you decide to rent, transfer Line 2 to the Housing line on Worksheet 22, The Budget. 29

34 Utilities 8Worksheet 8 Utility bills differ depending on the size and energy efficiency of a home. Whether you own or rent your home, use the formula below to calculate electric and water/sewer/trash bills. Remember, if you have one roommate, divide all utility bills by two; with two roommates, divide all utility bills by three. Children are not considered roommates. If you install a renewable energy home improvement (see Worksheet 15, Home Improvement and Furniture), deduct 25 from your electricity bill. Electricity If your rent or mortgage payment is between: Your electric payment is: 200 and and and and and and 1, Deduction for renewable energy improvements Adjustment for roommates (divide amount by number of people) Line 1: Total electric/power payment Transfer the Line 1 amount to the Electric/Power line on Worksheet 22, The Budget. Water/Sewer/Trash If your rent or mortgage payment is between: Your water/sewer/trash payment is: 200 and and and and and and 1, Line 2: Total water/sewer/trash payment Transfer the Line 2 amount to the Water/Sewer/Trash line on Worksheet 22, The Budget. 30

35 9 Worksheet Transportation Fixed Costs 9 Most families want to own a new or used vehicle. Use the Internet, a newspaper, or a magazine to select a car. Be realistic. Match the car to your life scenario. Children, for example, do not fit in a twoseat sports car. To keep maintenance costs low, buy the newest car you can afford. You must have a credit score of 620 or higher to get a loan for a new car. If your credit score is below 620, shop for a used car. Or, if you choose, buy a monthly bus pass for each adult and child and enter the total cost on Line 8. You will receive a car loan and pay monthly installments that include interest charges. Assume you have saved 20 percent of the purchase price as a down payment. Note that new car financing is 60 months, and used car financing is 36 months. Complete lines 1-8 to determine your fixed transportation costs: Line 1: Purchase price from ad Line 2: Down payment (Line 1 x.20) Line 3: Amount financed (Line 1 minus Line 2) (Divide Line 3 by 60 months for a new car or 36 months for a used car to determine monthly payment.) Line 4: Monthly payment Auto Interest Chart Monthly car payment Monthly interest Monthly car payment Monthly interest Line 5: Monthly interest (see Auto Interest Chart) (Add lines 4 and 5 to determine car payment for Line 6) Line 6: Car payment (continued) 31

36 9 Worksheet Transportation Fixed Costs 9 (continued) Insurance and Registration and Tax Chart Insurance Registration and Tax Fuel Efficient (35 mpg or higher) 40 a month 20 a month Not Fuel Efficient (below 35 mpg) 50 a month 25 a month Line 7: Insurance, and registration and tax Line 8: Total fixed transportation costs (Add Lines 6 and 7) Transfer Line 8 to the Transportation Fixed Costs line on Worksheet 22, The Budget. 32

37 10 Worksheet Transportation Variable Costs 10 Variable transportation expenses include gas and car repair and are not included in your payment and insurance costs. Review your Life Scenario to determine the number of miles you drive daily to and from work. Use the Fuel Cost Chart and the Maintenance Chart to calculate your Total Variable Transportation Expenses. To keep your vehicle in good repair, you must set aside money for maintenance. Even a new car with a warranty will have some maintenance costs. Fuel Cost Chart Miles Driven to Work Daily Estimated Total Miles per Month FE = Fuel Efficient, 35 mpg or better; NFE = Not Fuel Efficient, below 35 mpg Maintenance Chart Auto Age Years Auto Age Years Auto Age 6-10 Years Auto Age up to 5 Years FE NFE FE NFE FE NFE FE NFE , Age of Automobile Monthly Maintenance Costs Age of Automobile Monthly Maintenance Costs Up to 1 year old years old years old years old years old years old years old years old years old 40 Line 1: Monthly fuel cost (Fuel Cost Chart) Line 2: Monthly maintenance cost (Maintenance Chart) Line 3: Total gas and maintenance (Add Lines 1 and 2) Transfer Line 3 to the Transportation Variable Costs line on Worksheet 22, The Budget. 33

38 11 Worksheet Groceries 11 All households need groceries. You ll need to view the choices you have as you think about the amount of cooking you plan to do and the types of meals you want to eat. Use the chart below to determine your monthly food budget or complete the optional worksheets for food expenditures. The amount you pay each month for groceries will vary depending upon family size, age of family members, and the type of food they like. The most expensive ingredients are meat, dairy, and processed foods. Notice the cost of generic versus name brand products and the cost of basic starches like pasta, rice, and potatoes versus prepared foods. Some options limit beef and focus on less expensive chicken, tofu, or beans for adding protein to your diet. Grocery Budget Base Cost Each Additional Adult Each Additional Child Generic Name Brand Organic Gourmet Line 1: Total monthly grocery purchases On this budget, you are not buying name brand products. You are clipping coupons and eating simple meals. Your family doesn t eat beef often. You can t afford many snack foods or desserts. Dinner may be mac and cheese; lunch is a sandwich or can of soup; and breakfast is fruit, toast, or cereal. You can afford to buy name brands most of the time, and you re able to choose more of what you want to eat. You won t have meat at every meal, but you can afford more options, including snacks and desserts. Organic foods have limited synthetic chemicals and pesticides. You pay extra for produce and meats, but for you it s worth the extra cost to go natural. Some consumers believe organic food is safer or healthier and tastes better, but it s a personal choice. Gourmet grocery choices are associated with fine food and drink. This budget would include elaborate meals made with high-quality ingredients. Regular servings of meat, including beef and seafood, would be a part of this grocery selection. Transfer Line 1 to the Grocery line on Worksheet 22, The Budget. 34

39 Food, Household, and Hygiene Optional Worksheet D To complete the food and household budget category, you will need to make a weekly menu, then complete a grocery list to buy the groceries you need. Use Optional Worksheet E, Weekly Menu, to make your menu, then use grocery ads or fliers to complete Optional Worksheet F, Grocery List. Consider the following: Children have different dietary needs than adults. For this simulation, you are between 25 and 35 years old. You eat differently than you did as a teenager. Include beverages for all meals. Assume you have kitchen basics, such as sugar, flour, spices, and salt. On the Grocery List, include at least five household or personal hygiene items, such as soap, toilet paper, or shampoo. Include perishable foods that are eaten regularly, such as bread, milk, meat, and snacks. You can demonstrate grocery purchases by using receipts, food ads, or fliers. Highlight your purchases on the receipts or ads. Coupons for individual items are acceptable. Highlight the specific item on your grocery list and attach the coupon. Any meals eaten out Monday through Friday must be budgeted in this grocery section. Any meals eaten out Saturday and Sunday will be budgeted in the Dining Out category of your budget. You may not use special stores, price clubs, or military commissaries to buy your food. Ask your parents or other adults for advice. They have experience and can be a big help. 35

40 Weekly Menu Optional Worksheet E Use this weekly menu to make your grocery list. Breakfast Lunch Dinner Snack Monday Tuesday Wednesday Thursday Friday Saturday Sunday 36

41 Grocery List Optional Worksheet F This list should reflect your family s grocery needs for one week. Assume you have the kitchen basics (sugar, flour, and spices). Using the example as a guide, complete the columns for each of your items. Be sure to include at least five household or personal hygiene items. Item Size/Amount Quantity Cost Per Total Cost Skim milk gallon Line 1: Total weekly grocery purchases (Add the Total Cost column and round off to the nearest dollar.) Transfer Line 1 to Line 1 on the Food Expenditures, Optional Worksheet G. 37

42 Food Expenditures Optional Worksheet G Record all meals eaten out from Monday through Friday in the table below. Multiply the cost per person by the number of meals to calculate the total weekly cost of meals. Cost of Meals Type of Meal Cost Per Person Number of Meals Casual dine in lunch (adult) 15 x = School lunch (child) 3 x = Fast food/takeout 10 x = Formal dinner (adult) 30 x = Formal dinner (child) 10 x = Total Weekly total Complete the following lines to determine your Food, Household, and Personal Hygiene Expense. Line 1: Total weekly food purchases from Grocery List Line 2: Total weekly cost of meals eaten out (Cost of Meals table) Line 3: Total food cost for one week (Add Lines 1 and 2) Line 4: Total monthly food, household, and hygiene expenses (Multiply Line 3 by 4 weeks) Transfer Line 4 to the Grocery line on Worksheet 22, The Budget. 38

43 12 Worksheet Health Insurance 12 Insurance provides protection against the unexpected injuries and illnesses many people will face in their lifetimes. It also helps cover costs of annual physicals and well-child care. An affordable health care insurance policy is sometimes defined as 9.5 percent or less of a family s household income. Your out-of-pocket cost for health insurance is less if your employer pays part of the premium. Some employers pay more than half of employee health care insurance premiums. This benefit, when available, adds significantly to overall employee compensation. Should you die, life insurance can help provide money for those who depend on you financially. Health and Life Insurance Expense Your employer pays a separate portion of the premium. Each adult x 65 per month Each child x 45 per month Line 1: Total health and life insurance Medical and Dental Expense Copayments and cost not covered by insurance. Each adult x 130 per month Each child x 115 per month Line 2: Total medical and dental expense Line 3: Total health, life, medical, and dental (Add Lines 1 and 2) Transfer the Total Health, Life, Medical and Dental Insurance from Line 3 to the Health Insurance line on Worksheet 22, The Budget. 39

44 13 Worksheet Phone 13 Phone bills can vary widely because different families need different services to meet their needs. Do you want a landline or only mobile? What about text or data services? There are many choices when it comes to being connected. Selecting a plan that meets your needs can be confusing, and services can be expensive if you want more than basic talk service. Many phone providers allow you to choose individual services such as messaging or Web browsing or bundle multiple services together. If you are single, you do not need a family plan. But if you have a spouse or older children, you might want to consider whether they will have cellphones. Choose the plan that best fits your lifestyle. Plan Name Plan Cost Description Basic Mobile Plan 45 Unlimited talk and text; 1 phone Landline 20 Home phone line Shared Mobile Plan 70 Unlimited talk and text; 2 phones Add a device 10 Add a tablet or game device Add a device 20 Add a laptop or netbook Add: Data option 1 55 Share 2 GB data (1 or 2 phones/devices) Add: Data option 2 70 Share 4 GB data (1 or 2 phones/devices) Add: Data option 3 90 Share 8 GB data (1 or 2 phones/devices) Line 1: Monthly plan cost Line 2: Any additional services Line 3: Total monthly phone expense (Add Lines 1 and 2) Transfer Line 3 to the Phone line on Worksheet 22, The Budget. 40

45 14 Worksheet Clothing and Accessories 14 You and your family have a basic wardrobe, but new clothes are needed periodically. Based on your Life Scenario, select at least one item for each member of your family. Calculate this expense by completing the table below. You are required to show prices listed from websites, catalogs, newspaper ads, store fliers, or store receipts. Single with One Child: One adult item Two children s items Single with No Children: One adult business item One adult casual item Married with No Children: One clothing item for each adult Two accessories Married with Two Children: One business item for each adult One casual item for each adult One pair child s shoes One child s sweater Item Quantity Cost Per Item Total Price Line 1: Total clothing and accessories expense (Add the amounts in the Total Price column.) Transfer Line 1 to the Clothing and Accessories line on Worksheet 22, The Budget. 41

46 Clothing Discount to Designer Optional Worksheet H You and your family have a basic wardrobe, but new clothes are needed periodically. Based on your Life Scenario, use the pricing chart below to select at least one item for each member of your family. It is up to you to decide which price bracket to choose from. Use the table below to calculate this expense. CHILDREN Discount Department Designer Jacket Pajamas Shirt Pants MEN Discount Department Designer Sneakers Casual shirt Jeans Suit WOMEN Discount Department Designer Blouse Dress Jeans Boots Item Quantity Cost Per Item Total Price Line 1: Total clothing and accessories expense (Add the amounts in the Total Price column.) Transfer Line 1 to the Clothing and Accessories line on Worksheet 22, The Budget. 42

47 15 Worksheet You are required to spend a minimum of 600. Assume you have basic furnishings, including appliances. You can replace and improve your home furnishings or consider a home improvement project, such as improving the sustainability of your home by installing a wind generator, solar panels, or other renewable energy. If you choose an energy-saving home improvement, deduct 25 from the utility bill on Worksheet 8. The debt for these purchases, including interest, is paid over a two-year period. Make a list below of the furnishings or projects you wish to buy. Use catalogs, fliers, newspaper ads, and other appropriate resources such as an Internet search to find the prices and pictures of your items. Do not include the examples below in your total. Example: New kitchen paint 50 Example: Entertainment center 350 Your Choice Your Choice Your Choice Home Improvement and Furniture 15 Line 1: Total cost Line 2: Monthly payment (Divide Line 1 by 24 months) Monthly Interest Chart Monthly Payment Interest Charge Monthly Payment Interest Charge Based on your monthly payment (Line 2), locate your interest charge on the Monthly Interest Chart. Line 3: Monthly interest charge (Monthly Interest Chart) Line 4: Total monthly home improvement and furniture cost (Add Lines 2 and 3) Transfer the Line 4 amount to the Home Improvement and Furniture line on Worksheet 22, The Budget. 43

48 16 Worksheet Entertainment 16 You are required to set aside money for entertainment and recreation. When planning for this budget category, do the following: Choose at least four activities for the month. You may include up to two free activities in your community. Video arcades and mall-walking are not acceptable activities. If you are married with children, plan to spend one evening out. Your babysitter charges 6 an hour for one child and 8 an hour for two children. Dining out on Saturday and Sunday and cable television are considered entertainment expenses but are included on a separate worksheet. Suggested activities: Hikes Hobbies Movies, concerts, theater clubs Museums and galleries Sporting events Remember, dining out is not included in this budget category. Activity # of People Attending Cost Line 1: Total monthly entertainment expense (Total the cost amounts) Transfer Line 1 to the Entertainment line on Worksheet 22, The Budget. 44

49 17 Worksheet Cable and Internet 17 There are many choices when it comes to connectivity. Selecting a plan that meets your needs can be confusing, and services can be expensive if you want more than basic service. Many Internet providers allow you to choose individual services such as Web browsing or movie channels or bundle multiple services together. Companies typically offer a variety of cable packages ranging from basic to multi-level with special service add-ons for movies and sports. Use the table below to determine your cable budget. Plan Name Plan Cost Description Basic Cable Plan Local channels Family Plan Up to 150 channels and DVR Premium Plan Up to 400 channels and DVR Add: Movie service Can be added to Family or Premium plans only Add: HD service Can be added to Family or Premium plans only Bundle: Basic Plan and Internet Local channels and Internet Bundle: Family Plan and Internet channels/dvr/internet Bundle: Premium Plan and Internet channels/dvr/high-speed Internet Internet Only Basic Download speed up to 3 MBPS Professional Download speed up to 12 MBPS Premium Download speed up to 24 MBPS Max Download speed up to 45 MBPS Cable and Internet Line 1: Monthly plan cost Line 2: Any additional services Line 3: Adjustment for roommates (Divide amount by number of people) Line 4: Total monthly cable and Internet expense (Add Lines 1, 2, and 3) Transfer Line 4 to the Cable and Internet line on Worksheet 22, The Budget. 45