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Making Your Money Work:
Developing a Spending Plan

Objectives for this Lesson:

* Include in partcipant's packet.

Resources for this Lesson:
Key Points For Educator: What to Say For Learner:
Slide #1: Making Your Money Work:
Developing a Spending Plan Introduce yourself Participant Introductions
Slide #2: Objective:
Evaluate Your Spending
  • Identify Income and Expenses
  • Develop a Spending Plan
  • Determine Ways to Save
 Explain: By the end of this lesson you will be able to evaluate your spending. To achieve this objective, you will identify your income and expenses, develop a spending plan and determine ways to save.
Slide #3: Share your thoughts
What do you need to solve your financial problems? Question: What do you need to solve your financial problems?
Explain: Most people believe they need more money to solve their financial problems. More money would allow them to pay their expenses and to get on sound financial ground.
This is often not the answer. No matter how much money we have, it is important to plan how we spend our money. Some people fall into the trap of spending more money when they make more money.		 Discussion: Participants will share their needs as instructor writes them on the board.
What are some signals that might indicate financial problems are down the road? Question: What are some signals that might indicate financial problems are down the road? Discussion: Participants will share their ideas as instructor writes them on the board.
Slide #4: Signals of Financial Problems
  • Impatience-You want it NOW.
  • Impulse buying.
  • Getting into too much debt.
  • Not saving money.
  • Not knowing the difference between wants and needs.
 Explain: This list of signals (Slide #4), along with the ideas you shared, may indicate some real money problems down the road.
Instructor Note: Highlight the points on Slide #4 that were not listed by participants during discussion.		  
Slide #5: Do You
  • Dip into savings to pay current bills?
  • Pay only the minimum amount due on charge accounts?
  • Delay payment of some bills?
  • Borrow to pay for items you used to buy with cash?
  • Take out new loans to pay old ones or to get lower monthly payments?
  • Really know where your money goes?
Instructor Note: Ask the participants to silently consider the six questions (Listed on Slide #5) as you read them aloud to the class.
Question: Do any of these signals sound familiar?
Explain: If these signals sound familiar, you may have some financial problems.
Teacher Note: Share a personal story of how you have seen these signals in your life at some point. Encourage discussion.
Explain: Even if you recognize some of these signals as actions you take, you can still change your finances. You may feel this is an impossible task, but it is possible for most people to accomplish.		 Silent Response: Participants will listen to instructor and determine if these are things they do.
Discussion: If comfortable sharing, the participants will discuss their signals of money problems.
Slide #6: Tips for a Spending Plan
Explain: One of the best ways to improve your financial situation is to make a spending or financial plan. Achieving a successful financial management plan requires that you make some difficult decisions. Here are some tips:
  • Family Discussions
  • The entire household should have a discussion about its financial goals. Discuss what each person needs to do to help control the family's spending. Include everyone living in the house - grandparents, aunts, uncles and even small children. Start helping them establish skills for managing their money.
    • Family Allowances
    • Everyone in the family should have an allowance (even a small amount). It is important. Everyone needs pocket money to buy what he/she wants/needs.
    • Taking Turns
    • Agree within the family that all family members will take turns getting what they want, but everyone also must be willing to give up something. More than likely everyone will not get what he/she wants every time.
    • Sound Decision Making
    • Learn and practice sound decision-making and shopping skills to get the most for your money. Examples discussed in the “Stop Spending Leaks” lesson include recognizing trigger locations (such as garage sales and eBay) and surroundings (such as malls and flea markets) that tempt you to spend.
    • Savings Plan
    • Pay yourself first. Develop a savings plan and plan to set aside 5% to 10% of your income each month.
    • Living within Your Income
    • Learn to live within your income and keep your credit use under control, or use no credit.
    Instructor Note: Share a personal story about how you and your family decide to spend money. Encourage discussion. Discussion: Participants share their own experiences of how their families choose to prioritize their spending.
    Slide #7: Spending Guidelines
    Housing 31.8-35%
    Food 15.6-20%
    Transportation 17-19%
    Clothing and Services 5-7%
    Health Care 5-9%
    Entertainment 3-6%
    Savings 2-10%
    All other 7-12%
    		Instructor Note: Share a personal story about how you and your family decide to spend money. Encourage discussion. Discussion: Participants share their own experiences of how their families choose to prioritize their spending.
    Explain: Use these guidelines (Referring to those listed on Slide #7) when you determine what percentage of your income to spend on various items.
    It is important when you are setting your spending guidelines to make sure that the combined percentages equal 100 percent.
    Although not written in stone, these guidelines are based on national data and give us some general ideas of what the average household spends.
    Every family decides what it spends its money on, and what its financial priorities are.
    Slide #8: Spending Guideline Examples
    Example #1: Single Parent, 2 Children
    Household Income = $3,000/Month
    Housing 32% = $960
    Food 15% = $450
    Transportation 18% = $540
    Clothing and Services 5% = $150
    Health Care 10% = $300
    Entertainment 5% = $150
    Savings 5% = $150
    All other 10% = $300
    		Explain: This slide provides an example of how a single parent family with two children, with a household monthly income of $3,000, might set their spending guidelines.
    Instructor Note: Highlight the spending percentages and dollar amounts on Slide #8.
    Slide #9: Spending Guidelines
    Example #2: Family of 4
    Household Income = $5,000/Month
    Housing 32% = $1600
    Food 15% = $750
    Transportation 18% = $900
    Clothing and Services 5% = $250
    Health Care 10% = $500
    Entertainment 5% = $250
    Savings 5% = $250
    All other 10% = $500
    		Explain: This slide provides an example of how a family of four, with a household monthly income of $5,000, might set their spending guidelines.
    Instructor Note: Highlight the spending percentages and dollar amounts on Slide #9.
    Slide #10: Calculating Percentages
    If Housing = $960/Month
    and Take Home Pay = $3,000/Month
    $960/$3,000 x 100 = 32%    		 Explain: This slide gives an example of how to calculate spending percentages.
    If you spend $960 a month on housing and your take-home pay is $3,000, you are spending 32% of your income on housing.
    Instructor Note: If needed, explain in more detail how to determine spending percentages using the figures on Slide #9 as an example.
    Slide #11: A Piece of the Pie
    Explain: Think of your paycheck as a pie. If you cut too large of a piece for one creditor, then there will not be enough slices left for everyone else. If you spend more than what you have, you will have to borrow money to makes ends meet.
    Slide #12: Income Sources
    Transition Statement: Putting information in writing is a great way to help guide spending. Sometimes seeing it in black and white helps to identify problem spending areas.
    Explain: Let's begin making a spending plan by filling out the 5 steps in the worksheet.
    Step 1:
    Explain: Everyone can't use the same budget or spending plan. Each family has unique needs, wants and resources. Therefore, the money should be managed so that you are able to meet your needs and wants and still get the most from your income.
    Explain: Add up your total income, including any funds you receive in addition to your earnings. Do not include any irregular income, such as overtime or bonuses, when calculating your total income.     		Activity: Weekly Spending Log Work Sheet. Participants will follow along as examples of each step are provided on overheads.
    Slide #13: Income Sources Example
    Explain: This is an example of a family who makes $700 per week in take-home wages for a total of $2,800 each month in income.
    Instructor Note: Give participants time to fill out this section.
    • Ask if there are any questions about this part of the plan.
    		 Participant Questions.
    Slide #14: Fixed Expenses & Savings
    Step 2
    Explain:     Next let's complete step two, which is estimating your fixed expenses and savings. Figure out your total fixed expenses, such as rent or mortgage, insurance premiums or car payments.
    Slide #15: Fixed Expenses and Savings Example
    Explain: This is an example of a family who spends $600 a month on rent, $25 on cable TV, $150 for a car payment, $20 a month for life insurance, $250 for health insurance, $60 for car insurance, $20 for household insurance, $50 for contributions, $20 in taxes and licenses, $100 for credit payments, and $40 for both short-term and long-term goals, with $20 for other major items. The monthly total comes to $1,120.
    Instructor Note: Give participants time to fill out this section.
    • Ask if there are any questions about this part of the plan.
    		 Participant Questions.
    Slide #16: Emergency Fund
    Step 3
    Explain:     The third step in this plan is to provide for a savings/emergency fund that's adequate to meet emergencies and achieve special goals. Ideally your emergency fund will have enough money to cover three to six months worth of expenses.
    Slide #17: Emergency Fund Example
    Explain: This is an example of a family who sets aside $500 a month in an emergency fund. In a year, this family sets aside $6,000, with a goal of setting aside $24,000 in 4 years.
    Instructor Note: Give participants time to fill out this section.
    • Ask if there are any questions about this part of the plan.
    		 Participant Questions.
    Slide #18: Flexible Expenses
    Step 4
    Explain:     Step four is about estimating those flexible expenses we all have. Estimate how much you need for day-to-day living expenses.
    Slide #19: Flexible Expenses Example
    Explain: This is an example of a family who spends $400 a month on food, $270 a month on household costs, $80 a month on clothing, $400 a month on child care, $70 on gas, $20 on personal allowance, $30 for entertainment and $50 for personal care. Other expenses equal $50 for a monthly total of flexible expenses being $1,060.
    Instructor Note: Give participants time to fill out this section.
    • Ask if there are any questions about this part of the plan.
    		 Participant Questions.
    Slide #20: Comparison
    Step 5
    Explain:     We now total all expenses and compare with our expected income. If the income exceeds expenses, we should plan for more debt payment, savings, etc. If expenses exceed income, we need to rework the plan to reduce the flexible expenses, reschedule debt repayment, etc.
    Slide #21: Comparison Example
    Explain: This slide shows the total from each of the work sheets we just completed. The monthly total income was $2,800. The emergency fund was $500 and the fixed expenses were $1,120. The flexible expenses were $1,060 for a total of $2,680 in monthly expenses. The balance is a positive $120.
    Instructor Note: Give participants time to fill out this section.
    • Ask if there any questions about this part of the plan.
    Summary: While these steps are listed in sequence, it's likely you will arrive at your final estimates by considering them as a group.
    You may need to do some adjusting of the amount in each step until you have what you feel is a satisfactory plan.
    After going through each step and filling out the Work Sheet, you will have a better idea about where your money is going and how much you have left over or if you will have a negative balance.     		Participant Questions.
    Slide #22: Plan for Savings
    Explain: One thing to keep in mind when you are developing your budget is to plan for savings first. You can grow richer each month if you pay yourself first.
    Two strategies for saving money:
    • Pay Yourself First
    • Pay Yourself First - Before paying any bills, determine an amount to pay yourself first-say 5 or 10% of your paycheck. Paying yourself first gives you a systematic way to make your money grow. Regardless of the kind of job you have or your income, this system works.
    • Money Jar
    • Money Jar - Empty your change into a money jar each day. At the end of the month, roll the coins and put them into your savings account. You may be able to save up to $30 a month this way.
    Question: Do you have other strategies for saving money?
    Explain: Remember, good money management is more than a mathematical formula. Family life is unpredictable, which is why savings are so important. It provides security for your family during those unpredictable times, such as the loss of a job or spouse, a car accident, medical emergencies or a decrease in family income.     		Discussion: Participants share their own strategies for savings money as instructor writes the suggestions on the board.
    Slide #23: Savings Considerations
    Transition Statement: As you strive to save, you should keep in mind that it is not an easy task. These savings considerations could be encouraging to you as you work toward your financial goals.
    Explain:
    • Life situation changes may change your plan.
    • Your money management plan always is subject to change if your life situation changes.
    • It is about reaching your goals! It is NOT about conforming to rigid rules.
    • The objective of a good budget is to use your money to help reach your goals, not to force you to conform to rigid rules.
    • A plan takes time! You will have to make revisions.
    • Don't be discouraged if this budget plan doesn't work right away. You may have to revise it several times until it fits your wants and needs.
    • Review your plan.
    • Review it from time to time to be sure it continues to help you use your income in the best way.
    Slide #24: Summary
    • Identified Income and Expenses
    • Developed a Spending Plan
    • Determined Ways to Save
    		 Lesson Summary:
    Congratulations! You have completed Developing a Spending Plan in this Money Management series of classes.
    We've covered a lot of information about a spending plan, including identifying your income and expenses, developing a spending plan and determining ways to save money.
    Question: Are there any questions? Participant questions.

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