3 rd Topic X: Budgets

Size: px

Start display at page:

Download "3 rd Topic X: Budgets"

John Webb
5 years ago
Views:

1 Date:02/13-18/2015 3rd Class Objective: Apply the concept to develop and interpret a cash flow chart Apply the concept to develop and interpret a frequency budget plan Apply the concept to develop and interpret a year-long expense budget plan Agenda: Bell ringer (ex: 9 page 505)(ex: 12 page 519) Vocabulary: cash flow analysis, cash flow, pro-rate, envelope accounting system, frequency budget plan, year-long expense budget plan Examples (page ) Class work (page 339) Closing Activity Homework

2 Warm up Page 508 Express algebraically The average of x, y and 2w is k more than 15 x y 3 2w k 15

3 Bell ringer ex: 9 page 505

4 Bell ringer ex: 9 page 505 Jason's trasportation budget $ 100 0

5 Bell ringer ex: 2 page 518 The Larson use the average of six months as their budget starting point in each category Find the average July Aug Sept Oct Nov Dec average Groceries $785 Dinner Out Fuel (Car) Cell Phone Land Line phone Electricity water $150 $260 $117 $83 $135 $55

6 Vocabulary A cash flow analysis: (page 508) A cash flow analysis is not a budget Rather, it is a detailing of how money comes in and how money goes out a fixed period of time By carefully monitoring your cash flow, you can get a better sense of the possibility of meeting your goals A cash flow analysis is a closer look at your current income and spending habits Pro-Rate: (page 511) is used for non-monthly expenses, to find the monthly expenses, divide them by 12 or 6 months

7 Example 1 page 509 Dave and Joan want to chart their monthly cash flow Create a spreadsheet that will help them keep track of their income and expenses for the month Financial Report Income Dave and Joan, monthly after-tax income: $5,600 Secondary job, monthly after-tax income: $500 Monthly Expenses Rent $2,400 Car loan $200 Education Loan payment $150 Car insurance Premium $60 Renter s insurance $50 Electricity $ 80 Dining out $ 150 Gasoline $ 160 Water $ 30 Credit card debt $160 Non-Monthly Expenses Medical: $600 Auto-related: $700 Home-related: $500 Cash Life insurance: $600 Tuition : $3,000 Vacation: $1,200 Gifts: $400 Contributions: $400 Repairs: $600 Taxes: $4,000 Groceries $800 Personal loan $80 Savings $300 Cell phone $120 Medical insurance $50 Entertainment $200 Pro rate 1,000 12, flow total income total expenses 6,100 5, INCOME Primary Employment Secondary Employment Other Employment TOTAL INCOME FIXED EXPENSES Rent/Mortgage Car Loan Payment Education Loan Payment Personal Loan Payment Health Insurance Premium Cable/Internet Car Insurance Premium Homeowner's/Renter's Insurance TOTAL FIXED EXPENSES VARIABLE EXPENSES Groceries (food) Dining Out Fuel (car) Cell Phone Land Line Phone Electricity Water Sanitation Entertainment Savings Debt Reduction Other TOTAL VARIABLE EXPENSES MONTHLY EXPENSES (per year) Medical/Dental Auto-related Home-related Life Insurance Computer Vacation Gifts Contributions Repairs TOTAL NON-MONTHLY EXPENSES (per year) TOTAL NON-MONTHLY EXPENSES (per month) TOTAL NON-MONTHLY EXPENSES MONTHLY CASH FLOW

8 Vocabulary The envelope accounting system: (Page 512) is a way to manage your income with real dollars envelopes are set up to hold the allocated amount for weekly or monthly budget categories Example: Budget $50/week for dining out, if there is money remaining at the end of the week, that money can be transferred to another envelope that need more

9 Vocabulary Frequency budget plan: (Page 512) is a budget in terms of the frequency that payment or credits are made over the course of a year Year-Long expense budget plan:(page 512) is a budget in which entries are made under each of the months of year

10 Example 3 page Create a frequency budget plan for Dave and Joan using their cash flow analysis from Example 1 food 800 * personal trasportation utility other 110 health insurance * AFTER TAX INCOME CATEGORES INCOME AMOUNTS FREQUENCY ANNUAL AMOUNT Primary Employment Secondary Employment Interest Dividends Other income Food Personal transportation Public transportation Household childcare Dinner out Entertainment Other(contribution) MONTHLY EXPENSES Rent Utilities Land Line Phone/ Cell Phone Car Loan Education Loan Personal Loan Health Insurance Cable/Internet Car Insurance Renter's Insurance Savings Debt Reduction Other TOTAL INCOME WEEKLY EXPENSES TOTAL WEEKLY EXPENSES TOTAL MONTHLY EXPENSES EXPENSES AMOUNTS OTHER FREQUENCY EXPENSES Medical/Dental Auto-related Home-related Life Insurance Computer Vacation Gifts Contributions Repairs Taxes Other TOTAL OTHER FREQUENCY EXPENSES TOTAL EXPENSES ANNUAL SURPLUS or DEFICIT

Example 3 page 512-513 Create a frequency budget plan for Dave and Joan using their cash flow analysis from

11 Example 3 page Create a frequency budget plan for Dave and Joan using their cash flow analysis from Example 1 food 800 * personal trasportation utility other 110 health insurance *

12 Example 4 page Construct a year-long expense budget spreadsheet using the cash flow data from Dave and Joan A B C D E F G H I J K L M INCOME Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Primary Employment Secondary Employment Other Employment TOTAL INCOME FIXED EXPENSES Rent/Mortgage Car Loan Payment Education Loan Payment Personal Loan Payment Health Insurance Premium Life Insurance Premium Car Insurance Premium Homeowner's/Renter's Insurance Cable/Internet Life Insurance Tuition Taxes VARIABLE EXPENSES Groceries (food) Dining Out Fuel (car) Cell Phone Land Line Phone Electricity Water Sewer Sanitation Medical Medical/Dental Auto-related Home-related Vacation Gift Contributions Repairs Entertainment Savings Debt Reduction Other

Example 4 page 514-515 Construct a year-long expense budget spreadsheet using the cash flow data from Dave and Joan CHECK YOUR UNDERSTANDING Use the spreadsheet to create row 43 in which the totals

13 Example 4 page Construct a year-long expense budget spreadsheet using the cash flow data from Dave and Joan CHECK YOUR UNDERSTANDING Use the spreadsheet to create row 43 in which the totals for each month will be calculated What formula would be used for January? What entries will appear for each of the months in this row if the same formula is applied to the remaining months? Total, , 190 5, 140 5, 240 5, 390 5, 140 6, 190 6, 740 7, 140 6, 2905, 190 5, 740

14 Net worth: (Page 516) Vocabulary is the difference between your assets (what you own, income) and your liabilities (what you owe, debt) The result can to be a positive or a negative number

15 Example 5 page 516 Liam Brown is single, in his mid-twenties, and owns a condo in a big city He has calculated the following assets and liabilities Assets Current value of condo: $580,000 Current value of car (as listed in Kelley Blue Book): $17,000 Balance in checking account: $980 Combined balance in all savings accounts: $22,500 Current balance in retirement account: $24,800 Current value of computer: $2,900 Current value of collector bass guitar: $6,700 Current value of stocks/bonds: $18,300 Liabilities Remaining balance owed on home mortgage: $380,000 Remaining balance owed on student loans: $51,000 Combined credit card debt: $1,600 a)calculate Liam s net worth b)last year at this time, he calculated his net worth as $205,780 Compare both values What do the changes mean?

16 Example 5 page 516 a)calculate Liam s net worth Find the sum of the Assets: $580,000 $17,000 $980 } 673, 180 $22,500 $24,800 $2,900 $6,700 $18,300 Find the sum of the Liabilities } 432, 600 $380,000 $51,000 $1,600 b)last year at this time, he calculated his net worth as $205,780 Compare both values What do the changes mean? 240, ,780 32, 800 Net worth 673, , ,580 NET WORTH increase from the previous year, represent and improving trend in Liam's financial well-being

17 Example 5 page 516 b)last year at this time, he calculated his net worth as $205,780 Compare both values What do the changes mean? 240, ,780 $32, 800 NET WORTH increase from the previous year, represent and improving trend in Liam's financial well-being CHECK YOUR UNDERSTANDING What can Liam do to continue his improving net worth trend? Save more and pay down his debt

18 Vocabulary Debt reduction plan:(page 517) A thoughtful debt reduction plan requires an honest accounting of an individual's net worth as well as a calculation of a personal debt to income ratio

19 Vocabulary Debt-to-income ratio: (Page 517) is a ratio, expressed as a percent, offers some stark reality as to where you stand financially with the amount of debt presently being carried A ratio of less than equal 15% is recommended A ratio of 20% and higher should alert you to the fact that you need to put a debt reduction and spending plan in place

20 Vocabulary Debt-to-income ratio by setting up a debt reduction plan that contain some or all of the following : (Page 517) 1 Lower debts that have highest interest rates 2 Pay more than the minimum amount 3 Look for a way to cut costs daily 4 Use an online debt management calculator 5 Face your debts Make a list of what you owe and keep that handy to discourage your from incoming more debts 6 Slow down of eliminate you credit card spending

Example 6 page 517 Tome s monthly liabilities and assets are shown in the table Find the sum of the Assets: Find the sum of the Liabilities Debt-to-income ratio 7,800 380 120 8,300 2,300 750

21 Example 6 page 517 Tome s monthly liabilities and assets are shown in the table Find the sum of the Assets: Find the sum of the Liabilities Debt-to-income ratio 7, ,300 2, ,400 debt 3, pre tax income 8,300 the Debt-to-income ratio is approximately 40 5% which is very high the recomended ratio would be Tome should develop a debet reduction plan 15 %

22 CHECK YOUR UNDERSTANDING page 517 Tome anticipates that next year, his car and student loans will have been paid off and he will have received a 10% salary increase If everything else remains the same, calculate that debtto-income ratio Find the sum of the Assets: 7,800(110) ,080 Find the sum of the Liabilities Debt-to-income ratio 2, ,500 debt 2, pre tax income 9,080 the Debt-to-income ratio is approximately 27 5% which is high the recomended ratio would be Tome should develop a debet reduction plan 15 %

23 Class work Workbook ex: (1-8) Page

24 Exit ticket page 504 Name: date: Ex 12 page 519 Mariana s monthly liabilities and assets are shown in the table Monthly Liabilities (debt) Monthly Pre-Tax Assets (Income) Rent $1,400 Gross Salary $8,900 Student Loan Payment $ 300 Stock Dividends $ 350 Minimum Credit card Payment $ 140 Interest $ 190 Car loan Payment $ 130 Graduate School Loan $ 600 a) Find Mariana s debt-to-income-ratio Express that ratio as a percent b) How would your categorize her debt-to-income-ratio?

25 Exit ticket page 504 Name: date: Ex 12 page 519 Mariana s monthly liabilities and assets are shown in the table a) Find Mariana s debt-to-income-ratio Monthly Liabilities (debt) Express that ratio as a percent 28% Find the sum of the Assets: 8, ,440 Find the sum of the Liabilities 1, ,570 Debt-to-income ratio debt 2,570 pre tax income 9,440 Monthly Pre-Tax Assets (Income) Rent $1,400 Gross Salary $8,900 Student Loan Payment $ 300 Stock Dividends $ 350 Minimum Credit card $ 140 Interest $ 190 Payment Car loan Payment $ 130 Graduate School Loan $ b) How would your categorize her debt-to-income-ratio? the Debt-to-income ratio is approximately 28% which is very high the recomended ratio would be 15 % Mariana should develop a debet reduction plan

26 Homework Text Book ex: (8,9) Page 524

2 nd Topic X: Budgets

2 nd Topic X: Budgets Date:02/09-12/2015 2 nd Class Objective: Apply the concept to model exponential growth and decay. Apply the concept to visualize and interpret a budget using a pie chart, a bar graph, and a line graph