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“Take Charge of Your Finances” Advanced Level

Financial Planning &Spending Plans

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 2Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Typical Spending Plan Pie Chart

30%

20%15%

7%

18%

10%

Housing

Transportation

Food

Insurance

Other

Saving andInvesting

Provides guidance when creating a spending plan

What variables may cause these percentages to be different?

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 3Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Having a plan

Financial planning - a tool used for planning ways to achieve financial goals

A continual, cyclical process of tracking, then anticipating, income & expenses

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 4Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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What is Financial Planning? Make financial planning your road map on a trip to financial

success! Where are you going? (goal or destination) What road will you use to get there? (I-85) Will you have changes along the way? (Take a scenic byway or visit a state

park) Will you move faster through some roads than on others? (Rural or

interstate) Will there be unexpected detours? (bridge out) What tools might you need? (to change lat tire) Where will you stop to get fuel? Where will you stop to eat? Where will you stay overnight?

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 5Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Steps in Financial Planning

1. Identify financial goals2. Prepare a balance sheet showing what you own & what

you owe3. Track income and expenditures for a set time period,

usually a month, and record in an income and expense statement

4. Analyze amount of money earned and how it was spent

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 6Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Steps in Financial Planning5. Prepare a spending plan with anticipated income and

expenses to meet financial goals during the next time period

6. At the end of the time period, revise financial goals, if needed, and use the actual income and expenses to again analyze income and how it was spent

7. Prepare your next spending plan

Spending Plan Development

Process

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 7Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Benefits of Financial Planning Learn to live within one’s means Helps avoid financial difficulties Have resources for one’s desired standard of

living Reduces the need to use credit Increases sense of security Lessens anxiety about money matters Stay in control of finances Become financially independent

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 8Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Financial Statements Three types of

financial statements are needed for financial planning.

Balance Sheet

Income and Expense Statement

Spending Plan aka Budget

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 9Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Balance Sheet/Net Worth Statement

Net worth statement - describes an individual or family’s overall financial condition on a specified date - shows the assets, liabilities, and net worth of an individual or family on a set date

The components include: Assets – Everything a person owns with monetary value Liabilities – Debts or what is owed to others Net Worth – the amount of money left when liabilities are subtracted from assets

(indicates wealth)

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 10Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Sample Balance Sheet BALANCE SHEET*

Date

ASSETS LIABILITIES

Cash Credit card balance

Savings account Car Loan balance

Vehicle College Loan balance

Electronic Equipment   Other:

Total assets Total liabilities

Owner's equity (Net Worth)

(Total assets-Total liabilities)

•Both sides of the balance sheet must be equal •Assets = Liabilities + Owner’s Equity

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 11Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Who is Wealthier?Juanita – earns $35,000 per yearAssets

Home $60,000

Retirement $24,000

Automobile $8,000

Total Assets $92,000

Liabilities

College loan $6,000

Mortgage $35,000

Total Liabilities $41,000Net Worth $51,000

Alexis – earns $100,000 per yearAssets

Home $75,000

Retirement $35,000

Automobile $8,000

Total Assets $118,000

Liabilities

College loan $10,000

Automobile loan $4,000

Credit card debt $20,000

Mortgage $65,000

Total Liabilities $99,000

Net Worth $19,000

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 12Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Net Worth Activity

Essential Question: What is the Net Worth Formula?_______________ - ________________ = Net

Worth/Owner’s EquityScenario 1

Taylor has assets of $189,750. Their total liabilities are $172,250. What is Taylor’s net worth?

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 13Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Net Worth Activity Scenario 2 Harry Stevens has assets as follows: cash in bank $18,500,

IBMstock $25,000, vehicles $32,000, record collection $2,500 and artwork $1,000. Harry owes $12,500 to MasterCard, $21,750 for his mortgage. What is Harry’s net worth?

Scenario 3 Malinda has the following assets: cash $32,000, savings $15,000,

car $13,000. Malinda’s has the following liabilities: college loan $35,000, car loan $3,000, and Visa card $2400. What is her net worth?

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 14Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Income & Expense Statement Shows income (revenue) and expenses (expenditures) for

a specified time period usually a month or a year• Income - Total earnings received

• Includes wages, salary, tips, commission, gifts, bonuses, interest, dividends

• Expenses - Any expenditure; anything that costs money• Includes utilities, food, entertainment, transportation costs, health

care, shelter, clothing, taxes• Formula: Income – Expenses = Profit/Loss

IF Income > Expenses = PROFIT IF Expenses > Income = LOSS

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 15Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Income & Expense Statement A historical type of record that serves as the basis for a

spending plan Shows whether individual/family was able to live within

his/her/their means Shows where income was spent Shows when expenses exceed income and areas of

excess expense Shows if income was sufficient to meet expenditures

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 16Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Elana RoceraIncome Statement

For Month Ending November 30, 20xx

IncomeSalary $3,200 Commission $1,050 Interest $45 Dividends $35 Total Income $4,330

ExpensesUtilities $200 Car payment $350 Car maintenance $250 401-K $800 Insurance $750 Clothing $200 Entertainment 0Food $300 Total expenses $2,850 Net Surplus/Deficit $1,480

Is there a Surplus or a Deficit?

What is the formula to calculate surplus or a Deficit?

What could Elana do with this information?

Sample Income Statement

Net Gain/Profit/Surplus or Net Loss/Deficit?

• Net gain/profit/surplus- there is remaining money to either save, spend or invest

• Net loss/deficit - an individual is spending more money that he/she is earning and has to use credit (borrowed money) to meet their financial obligations

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 18Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Profit/Surplus or Loss/Deficit Business

What is the basic financial (profit) formula? ______________ - _______________ = Profit/LossBusiness 1Taylor’s Grocery Store revenue for this year is $91,750. The

owner noticed an increase of $3,000 in the store’s expenses. She determined that total expenses equal $81,000? Will this business net a profit or loss? _______ How much profit or loss? ________

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 19Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Profit/Surplus or Loss/Deficit Business

Business 2Harry’s Shoe Store has noticed a significant increase of revenue of

$123,000. The manager has also determined that the total expenses equal to $128,000. Will this business net a profit or loss? _______ How much profit or loss? ________

Business 3Malinda’s Auto Dealership of Imported Cars made $895,000 in revenue.

The accountant determined total expenses equal to $598,000. Will business net a profit or loss? _____ How much profit or loss? ________

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 20Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Profit/Surplus or Loss/Deficit Individual

Family 4The Breck family had income of $71,250 this year. The family spent

$81,000. 1. How much profit or loss? ________2. How do you think they took care of this financial situation in the

short term?Family 5Mr. Hennessee earned $72,000 and Mrs. Hennessee earned $44,000

last year. Their stock earned $1000 in dividends. Mr. Hennessee totaled all expenses for the family equal to $109,000.

1. What is their total family income ? 2. How much is the surplus or deficit?

© Family Economics & Financial Education – Updated May 2011 – Spending Plan Unit – Spending Plans – Slide 21Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences at the University of Arizona

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Profit/Surplus or Loss/Deficit Individual

Family 6Last year Jimmy earned $54,000 in salary and commission @ 2%

of $185,000 salesJimmy spent $45,987. 1. What is Jimmy’s total income? 2. How much Surplus or Deficit does Jimmy have? 3. What changes might Jimmy make to his budget (spending

plan) because of this information?