Lesson 16 - Mr. Wilson: The Digital Classroom



AOF Principles of FinanceLesson 5Personal BudgetingStudent ResourcesResourceDescription Student Resource 5.1Reading: SMART Financial Goals Student Resource 5.2Writing Activity: SMART GoalsStudent Resource 5.3Note-Taking Guide: BudgetingStudent Resource 5.4Reading: BudgetingStudent Resource 5.5Group Activity: Monthly Budget ExampleStudent Resource 5.6Directions: Budget Analysis SummaryStudent Resource 5.1Reading: SMART Financial GoalsSMART GoalsEveryone makes goals all the time. Whether the goals are short-term and easy to accomplish, like getting to school on time, or long-term and challenging, like getting an A in a difficult subject or saving enough money to buy a car, our goals help us organize our lives. Some goals are barely formed thoughts—“I’d better run or I’ll miss the bus”—and others are formal, well-thought-out plans that, if accomplished, will make us—and those we care about—happier. For example, most of us want to have enough money to not have to worry about how we’re going to pay for the things we need. This is a goal. But what can you do to achieve it? Think back to the last goal that you created. Maybe it was to get better grades, or eat nutritious meals, or save enough money to purchase a car. Regardless of the goal, the question is, was it ever achieved? Was it specific enough? Could you measure your success? Was it something that you could truly attain? Did you give yourself a realistic time frame? Finally, was it “SMART”? What is a SMART goal? The SMART strategy is a popular method used by individuals and even companies to help provide a framework for how a goal should be created. SMART goals must be: Specific: The goals are clear and detailed and explain what you are going to accomplish and how. For example, consider the following goals:My goal is to save a lot of money.My goal is to save $100 each month from my earnings for the next 12 months so I can purchase a new laptop computer.Obviously the second goal is more specific. It clearly defines what you are going to do, how you are going to do it, when you are going to do it, and why. Measurable: Progress that you can measure helps you to stay on track and reach your goal. Measurable goals allow you to gauge your progress as you work towards achievement. Goals that are not measurable are difficult to accomplish. For example, saving a lot of money is not measurable, but saving $100 each month is definitely measurable. Attainable: Goals that are attainable should be challenging but not too easy either. Attainable goals should also not be so far off from your own personal values that you can’t accomplish them. Realistic: Goals that make sense for who you are and what you are doing are considered realistic. For example, if you don’t have a steady job and just babysit on occasion to make a little bit of extra spending money, then saving $100 each month may not be a realistic goal for you. However, saving 20% of what you earn from each babysitting job may be realistic. Time-bound: You must have a time frame for your goal. A time frame gives you a clear target to work towards. Without a time limit, your goal is indefinite and you could lose your motivation and focus. Placing a time frame on your goal also allows you to review your progress as time passes. Factors That Influence Goal SettingThere are many factors that influence your goal setting. Your personal values along with your family, age, habits, hobbies, and culture all contribute to the types of goals that you will create. Also, your peers, along with peer pressure, all can affect the type of goals that you will want. For example, if you are someone who values what your friends think and all of your friends have smart phones except for you, obtaining a smart phone would probably be one of your priorities. Obviously, economic factors can influence your goal setting as well. Consumer prices, your own money supply, the demand for goods and services, and even the unemployment rate are all economic factors that can affect how and when you achieve your goals. Financial goals are similar to other goals that you have created in that they represent a result that you are hoping to achieve. The difference is that financial goals state what you want to accomplish with your money. Creating financial goals forces you into adhering to a financial plan and/or a budget because you realize that the money you save now will help you to achieve your goal for the future. Essentially, setting goals helps you to get what you want! Student Resource 5.2Writing Activity: SMART GoalsStudent Name:_______________________________________________________ Date:___________Directions: Abraham Lincoln once said, “A goal properly set is halfway reached.” With this in mind, think back to the three financial goals that you already wrote. Begin by writing down the basic goals and then transform them using the SMART strategy. Basic goal:Next, transform your goal into a SMART goal by rewriting it using the following questions to guide you.Specific: Include who, what, when, where, and why, as applicable.Measurable: How will you measure your progress?Attainable: Can it really happen? What steps are needed to complete it?Realistic: What knowledge, resources, skills, people, and/or abilities are needed to achieve this goal?Time-bound: What type of deadline did you attach to it?SMART goal:Basic goal:Next, transform your goal into a SMART goal by rewriting it using the following questions to guide you.Specific: Include who, what, when, where, and why, as applicable.Measurable: How will you measure your progress?Attainable: Can it really happen? What steps are needed to complete it?Realistic: What knowledge, resources, skills, people, and/or abilities are needed to achieve this goal?Time-bound: What type of deadline did you attach to it?SMART goal:Basic goal:Next, transform your goal into a SMART goal by rewriting it using the following questions to guide you.Specific: Include who, what, when, where, and why, as applicable.Measurable: How will you measure your progress?Attainable: Can it really happen? What steps are needed to complete it?Realistic: What knowledge, resources, skills, people, and/or abilities are needed to achieve this goal?Time-bound: What type of deadline did you attach to it?SMART goal:Student Resource 5.3Note-Taking Guide: BudgetingStudent Name:_______________________________________________ Date:___________Directions: Review the terms below and take your best guess at what they might mean. After you read Student Resource 5.4, Reading: Budgeting, add any new information that helps to clarify the definitions. These terms appear in bold in the reading. TermDefinitionBudgetMy best guess:What I learned from the reading:Inflows My best guess:What I learned from the reading:OutflowsMy best guess:What I learned from the reading:Fixed expensesMy best guess:What I learned from the reading:TermDefinitionVariable expenses My best guess:What I learned from the reading:Discretionary income My best guess:What I learned from the reading:Discretionary expenses My best guess:What I learned from the reading:Net savings My best guess:What I learned from the reading:Deficit My best guess:What I learned from the reading:TermDefinitionFinancial planners My best guess:What I learned from the reading:Insolvent My best guess:What I learned from the reading:Student Resource 5.4Reading: BudgetingHow do you decide when to spend money and when to save? Maybe you skip dessert when you’re out to dinner with your friends. Maybe you eat at home rather than at a restaurant in order to save money to buy a computer. If you want that computer, how do you know how much to save? How do you know where to cut back?What Is a Budget?Making a budget will give you a systematic way to answer those questions. Simply put, a budget is a record of how much you earn, spend, and save and a plan for your future earnings and expenses. Not only will a budget help you set your financial goals but it will also help you make sure you avoid financial problems.You can begin budgeting by tracking and recording two major pieces of information: your inflows and outflows. Your inflows include your income, the amount of money you earn after taxes (which can also include tips and overtime pay), and any other sources of income that you may have. Your expenses can also be referred to as your outflows and include food, rent, entertainment, and anything else you might spend money on. Each month, some of your expenses will stay the same and some will vary. For example, rent, insurance, and loan repayments are fixed expenses, also known as fixed costs, because they are the same each month. If you spent $75 on auto insurance last month, you’ll spend the same amount next month, even if you drove 700 miles last month and only plan to drive 100 miles this month. Since fixed expenses stay the same each month, you can plan for them easily in your budget. In contrast, variable expenses, or variable costs, change from month to month depending on how little or how much of something you use. While your auto insurance will stay the same regardless of how much you drive, you will spend more money on gas and car maintenance if you drive more. You can estimate next month’s variable expenses by looking at your variable expenses from the previous few months. Variable expenses also include those expenses that only happen a few months a year, such as holiday gifts or back-to-school clothes. After your fixed expenses and your essential living expenses have been paid, the money you have left over is your discretionary income. And what about the things that you want to buy but don’t need? These are called discretionary expenses, or discretionary costs, because these are nonessential purchases that you make for fun. Discretionary expenses can range from major purchases such as a computer to smaller purchases such as a meal at a restaurant instead of at home. Your discretionary expenses can fluctuate from month to month, both in terms of how much you spend and in terms of what you decide to buy.Once you know your income and your expenses, you can calculate your net savings at the end of each month. For instance, let’s say a family earns $2,800 in income and spends $2,500 in outflows for a net savings of $300 a month. On the other hand, if they spend more than they make, they would have a monthly deficit.How Can You Use This Information? As you can see from the information above, by saving $300 per month, the family can save about $3,600 a year, which can grow even more when deposited in an interest-bearing bank account! If they decide they want to save $4,800 next year to put toward a college savings account, they can look to their budget and make adjustments accordingly. First, they can calculate that to save $1,200 more a year, they’ll want to save $100 a month. From there, they can look at a variety of options. Maybe they could cut their fixed expenses by switching car insurance carriers to save $25 a month. They could save another $75 a month by brewing coffee at home each morning instead of buying coffee at a local cafe. That’s one of the powers of budgeting. Saving $1,000 sounds hard, but by making a budget and tracking expenses, it is easy to see how small purchases add up over time.Sticking to Your BudgetTo stay on track, financial planners (professionals who examine the finances of their clients and suggest steps to reach their financial goals), recommend that you record your expenses and income regularly on a computer or in a notebook. Be careful to note any regular expenses, such as a cup of coffee that costs $2 every morning. Over the course of a year, that cup of coffee will add up to more than $700! When tracking your expenses, carefully note whether your expenses are fixed, variable, or discretionary. Be realistic when listing these expenses, particularly with your discretionary spending. Financial planners often recommend rewarding yourself by making a discretionary purchase at least once a week. Doing this will help you avoid spending too much at one time and will make sure you enjoy your money.Financial planners also recommend that you save at least 10% of your income each month. Planning your budget this way will help ensure that you don’t run into financial problems if you have unexpected expenses such as car repairs, medical problems, or other unplanned expenses. Good budgeting will help you make sure you can buy what you need and at least some of what you want. Without a budget, it’s easy to lose track of your spending and run a monthly deficit. Over time, spending more than you make will make it impossible to purchase major items such as a car or a home. Worse yet, you run the risk of becoming insolvent, and you may find yourself unable to pay your debts as they fall due. Student Resource 5.5Group Activity: Monthly Budget Example Student Name:_______________________________________________________ Date:___________Directions: Work with your group to assess the financial situation given to you on the scenario card. Use the following budget table in conjunction with your scenario card to complete the assignment. Remember, depending upon the information given to you, not all of the columns or rows will necessarily need to be filled in. Although you should work collaboratively with your group, each member will need to complete the resource individually, as you will be referring back to it later in the lesson.Sources of IncomeBudget Amount Actual AmountDifferenceSalaryInterest incomeInvestment incomeOther:_______________Income subtotal:Fixed ExpensesMortgage or rentTaxesInsuranceCar paymentsAuto insuranceMedical insurance (dental and vision)Child supportLoansOther:_______________Fixed expenses subtotal:SavingsEmergency fundSavingsOther: ______________Savings subtotal:Variable ExpensesBudget Amount Actual AmountDifferenceUtilities (water, sewer, gas, electricity)Telephone (cell and land)Transportation costs (gas, maintenance, tolls, bus, etc.)GroceriesDay careOther: _______________Variable expenses subtotal:Discretionary ExpensesEntertainmentDining outEducationPet (food, grooming, boarding, vet)Gifts and donationsClothingBeauty/hygiene (toiletries, haircuts, manicures, etc.)Other:_______________Discretionary expenses subtotal:Total expenses: (add all subtotals)Your balance: (subtract all expenses from income)Student Resource 5.6Directions: Budget Analysis SummaryStudent Name:_______________________________________________________ Date:___________Directions: Imagine that you are a financial planner and that you have just been asked by the individual(s) described in your scenario to give an overview of their financial situation. Use the information that you filled out in Student Resource 5.5, Group Activity: Monthly Budget Example, along with the scenario card to compose a summary that analyzes their financial situation. Be sure to read through the assessment criteria and ask the teacher any questions you have before you start writing.Before You BeginJot down three facts, opinions, and observations that you remember about your specific scenario and/or budget outline. Also write down any financial goals mentioned in your scenario and evaluate them against the SMART criteria (specific, measurable, attainable, realistic, and time-bound). Improve the language of the goals so that they meet the SMART standards. New observation:Next, reconvene with your original group. Share your responses with one another and add one new observation to your list. Which of these observations or financial goals do you think you will or could incorporate into your budget analysis summary? Assessment CriteriaYour budget analysis summary must include the following:A general and accurate overview of the financial information as presented on the scenario card Two realistic actions that the individual or family could do to improve their financial health (for example, cut down on discretionary expenses, create a college fund, etc.) A specific and realistic description of how the action can be achieved (for example, if you suggest that an individual should create a college fund, you must also describe the steps that could be taken to achieve this) An objective and professional voice throughoutMust be neat and legible and use proper spelling and grammarExampleGeorge and Maria, a newly married couple, have just decided to combine their finances. They both have steady full-time jobs and are looking to purchase their own home within the next five years. George manages a ski shop and Maria is an X-ray technician at the local community hospital. George’s take-home pay is $2,200 per month and Maria’s monthly take-home pay averages between $2,300 and $2,800, depending on whether or not she works overtime. Their credit card debt totals $3,000, against which they only pay the minimum balance of $69 per month, and their fixed and variable expenses are pretty typical: car payment, insurance, rent, food, transportation costs, utilities, and so on. One of the major financial issues facing George and Maria is that they have not been able to save any money. Because they don’t have any money in their savings account, the thought of purchasing a home within the next five years does not seem realistic. George and Maria need to do two things before they can begin thinking of purchasing a home. First, they must take control of their spending, particularly their discretionary spending. In fact, George and Maria spend over $400 a month on average eating out. They can easily cut this expense down by cooking at home more often. George and Maria also need to pay off their credit card debt. By only paying the minimum balance each month they will never pay it off! Instead, they should use the money they save by not dining out and pay off their high-interest debt. The combination of these two small actions, not dining out and paying off their credit card, will clear up close to $500 per month that they could place in a savings account. This money could then serve as a down payment for their home in the future, which should be motivation enough to pass up that expensive meal at their favorite restaurant! ................
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