Unit Four: Financial Literacy Week Two: Managing Money

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1 Name: Date: THE ART OF BUDGETING Most people could not tell you how their money is spent; all they know is that all too often, their money is gone almost as soon as they earn it. Learning how to manage your money effectively includes learning the art of budgeting - setting goals and deciding in advance how much of your income you will commit to necessities and savings, and how much you can spend on whatever you want. Budgeting does not mean you are a penny pincher and have no fun. By tracking your expenses, you might be surprised to discover you are spending $10 a day on lunch, which equates to $ a year. By creating a budget, you may decide to brown bag it instead, and save that money for a vacation. As such, budgeting may be just what you need to find the money for the fun things you want to do! DISSECTING A BUDGET What is it? What is required? Why is it important?

2 Name: Date: SETTING UP AND MAINTAINING A BUDGET An important aspect of money management is the ability to set up and maintain a personal budget. Creating and following a budget for a specified period of time will allow you to see where your money is going. A budget serves as a foundation for long-term financial security because it supports your personal and financial goals. Follow these steps to set up a personal budget: Step One: Step Two: Step Three: Step Four: Step Five: Step Six:

3 REVIEWING A BUDGET Use the following information to evaluate Michael s financial situation. First, complete a Budget Planning Sheet based on his monthly income and expenses. Then, answer a series of questions to determine if Michael is on the right track when it comes to effective financial planning. Michael s Planned Income Michael works part-time at a greeting card company, and part-time at a record store. The net monthly income from his first job is $1000. The net monthly income from his second job is $800. Michael s Fixed Regular Monthly Expenses $200 for rent (he shares an apartment with two friends) $175 for car payment $220 for car insurance $85 for Internet Michael s Fixed Irregular Monthly Expenses (estimated) $150 for groceries $80 for utilities $40 for transportation $50 for cell phone Michael s Flexible Monthly Expenses (estimated) $100 (to save for post-secondary education) $50 for clothes $60 for entertainment $30 for personal and household items How Michael s Month Actually Went He made $50 in overtime pay working at the greeting card company on a holiday. His rent went up to $225, starting this month. His monthly car payment was $175. His monthly car insurance premium, as of this month, went up to $295. His Internet bill was $85. He spent $190 on groceries (he hosted a dinner party for which he hadn t budgeted). He spent $80 on utilities. He spent $30 on gas, and $30 on oil (his car needed an oil change). He spent $34 on parking and bridge tolls. He spent $220 on car repairs. He spent $50 for his cell phone bill. He spent $80 on a new pair of running shoes. He spent $70 on entertainment. He spent $60 on personal items. He spent $36 on a birthday present for his mother. He got two speeding tickets in one week, the total cost of which was $230.

4 FOLLOW UP QUESTIONS 1. What is the difference between Michael s planned expenses and his actual expenses? 2. In what areas did he overspend? 3. In what areas did he spend less than he planned? 4. How much did he spend for the use of his car this month? 5. How much money did he have at the end of the month to put into savings? 6. Is there anything you would change about Michael s budget? Explain. 7. Overall, do you think that Michael has an effective budget? Explain your opinion, using specific examples.

5 MONTHLY BUDGET PLANNING SHEET Income Budget Actual Difference Job #1 $ $ $ Job #2 $ $ $ Total Monthly Income $ $ $ Expenses Budget Actual Difference Fixed Regular Expenses Rent $ $ $ Car Payment $ $ $ Car Insurance $ $ $ Internet $ $ $ Fixed Irregular Expenses Groceries $ $ $ Utilities $ $ $ Transportation $ $ $ Bus Fare $ $ $ Gas $ $ $ Oil $ $ $ Parking and Tolls $ $ $ Repairs $ $ $ Other (eg., tickets) $ $ $ Phone $ $ $ Flexible Expenses Savings $ $ $ Clothing $ $ $ Entertainment $ $ $ Eating Out $ $ $ Personal Items $ $ $ Household Items $ $ $ Tuition $ $ $ School Expenses $ $ $ Medical Expenses $ $ $ Total Monthly Expenses $ $ $