Making Your Money Work:
Where Are You Now?

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Objectives for this Lesson:

• Determine Credit Obligations
• Compare Income to Expenses
• Determine Net Worth

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Resources for this Lesson:

• Educator Guide
  PDF version
  View on web
• PowerPoint Presentation*
• Content Guide for Where Are You Now? (PDF version):
  Where Are You Now?
• Work Sheets (PDF version):
  How Much Do You Owe Work Sheet*
  Income and Expenses Work Sheet*
  Net Worth Work Sheet*
  

Key Points	For Educator: What to Say	For Learner:
Slide #1: Making Your Money Work:
Where Are You Now?	Introduce yourself	Participant Introductions
Slide #2: Objectives:
Determine Credit Obligations Compare Income to Expenses Determine Net Worth	Explain: By the end of this lesson you will be able to determine your credit obligations, compare your income to your expenses and determine your net worth. Question: Have you ever heard the saying, “I owe. I owe. So off to work I go.”? Explain: For many of us the motivation to go to work each day is to pay our bills. Everyone in the room is at a different place in his or her life. Everyone is working to accomplish different financial goals.
	Activity: To begin this session, fill out the How Much Do You Owe Work Sheet* to determine where you are financially.	Activity: How Much Do You Owe Work Sheet
	Work Sheet Instructions: Read the instructions to the participants. Ask if there are any questions about completing the work sheet. Acknowledge participants’ responses. Allow time for participants to fill out the work sheet.	Questions about work sheet. *Participants may have to finish completing the work sheet at home due to time constraints or because they do not have all of the information.
Slide #3: How Much Do I Owe?
Credit Obligations Monthly repayments for all non-mortgage consumer debts, including home-equity credit-line loans. *Also known as Consumer Debt. Credit Obligation should not exceed 15%-20% of take-home pay.	Question: What are credit obligations or consumer debts? Explain: Credit obligations are monthly repayments for all non-mortgage consumer debts, including home-equity credit-line loans. Examples are credit card bills, car payments, college loans, etc. A family should not commit more that 15-20% of their take-home pay to consumer debts.	Respond to question.
Slide #4: How Much Do I Owe?
Example #1: Take-Home Pay = $1,200/Month 15% = $180/Month($1,200 x .15) 20% = $240/Month($1,200 x .20) Example #2: Take-Home Pay = $2,000/Month 15% = $300/Month($2,000 x .15) 20% = $400/Month($2,000 x .20)	Explain: For example, if your take-home pay is $1,200 per month, you would not want your debts to exceed $240 which is 20% of your income. If your take-home pay is $2,000 per month, you would not want your debts to exceed $400 which is 20% of your income.	Questions about the examples.
Slide #5: How Much Do I Owe?
Consumer Debt-Service Ratio A formula to determine how much of your take-home pay goes toward repaying your debt each month. Formula: Consumer Debt (Monthly) Take-Home Pay (Monthly)	Question: What is a consumer debt-service ratio? Explain: The consumer debt-service ratio is a formula to determine how much of your take-home pay goes toward repaying your debt each month. This ratio is calculated by dividing your monthly consumer debt by your monthly take-home income.	Respond to question.
Slide #6: How Much Do I Owe?
Example #1 Car Loan = $125 Credit Card = $ 50 Loan = $ 50 Consumer Debt =  $225/Month Take-Home Pay = $1,200/Month $225/$1,200 = 18.75%	Question: How can you use the Consumer Debt Service ratio?	Respond to question.
	Explain: To determine if you have more of your take-home pay committed to pay off consumer debt than the average family – which is 15% to 20%.
	Explain: Let’s use a similar example. Your take-home pay is still $1,200 per month. Your monthly debts are $225 per month. To determine your Consumer Debt-Service Ratio, you divide $225 by $1,200 which calculates your ratio to be 18.75%. Your percentage needs to be below 20%. A higher percentage will make it very difficult to qualify for a mortgage.	Ask questions about how to make this calculation.
Slide #7: How Much Do I Owe?
Example #2 Car Loan = $250 Credit Card = $150 Loan = $100 Consumer Debt =  $550/Month Take-Home Pay = $2,000/Month $225/$2,000 = 27.5%* *Should be less than 20%.	Explain: Let’s look at this second example. Your take- home pay is $2,000 per month. However, your monthly debts are $550 per month. To determine your Consumer Debt-Service Ratio, you divide $550 by $2,000 which calculates your ratio to be 27.5%. Again, your percentage needs to be below 20%. Now, let’s talk about determining your income and expenses.	Ask questions about how to make this calculation.
Slide #8: Income and Expenses
Cash Flow: Money going into your pocket and out again	Question: What is cash flow? Explain: Cash flow is the money going into your pocket and out again. It is matching your income with your expenses. Although lots of people don’t take the time to do this, it is an important step in knowing where your money goes.	Respond to question.
	Activity: To help you determine your cash flow, it is a good idea to use an entire year’s financial information for an accurate budget. To help you learn what records you will need, this work sheet provides space for two months. Before you begin filling out this work sheet, let’s talk about some definitions you might need to know.	Activity: Income and Expenses Work Sheet *Discuss the definitions and examples before participants begin filling out the work sheets with their own information.
	Instructor Note: The definitions and examples that follow are needed to complete the worksheet.
Regular Income Income that is received at regular times.	Question: What is regular income? Explain: Income that is received at regular times. For example, a paycheck you receive every two weeks or a Social Security check received monthly.	Respond to question.
Irregular Income Income that is not received at regular times.	Question: What is irregular income? Explain: Income that is not received at regular times. For example, overtime pay that can vary from month to month; bonus checks that may be given when business is good but are not a sure thing; or commissions that may vary from pay period to pay period.	Respond to question.
Slide #9: Income and Expenses
Fixed Expenses Expenses that basically stay the same each month.	Question: What are fixed expenses? Explain: Fixed expenses are expenses that basically stay the same each month. Examples would be rent, mortgage or car payments.	Respond to question.
Flexible Expenses Expenses that change from month to month.	Question: What are flexible expenses? Explain: Flexible expenses are expenses that change from month to month, like food or clothing. This is where you can sometimes save money.	Respond to question.
Slide #10: Regular Income
Example of Work Sheet	Explain: Let’s look at a few examples, beginning with regular income. Instructor Note: Explain example. Allow students to ask questions. Point out the following: Example #1 is a Family of 4. Partner #1 brings in $2,500. Partner #2 also brings in $2,500. Example #1 has a total income of $5,000. Example #2 is a single-parent family with 2 kids. The parent brings in $2,800 every month. The parent receives $200 in child support. Example #2 has a total income of $3,000.	Ask questions about example.
Slide #11: Fixed Expenses
Example of Work Sheet	Instructor Note: Explain example. Allow students to ask questions. Point out the following: Examples #1 and #2 have different fixed expenses. The total expenses for the single parent family is about $600 less than the family of 4. Differences in expenses can be seen in rent, insurance, car payments and savings.	Ask questions about example.
Slide #12: Flexible Expenses
Example of Work Sheet	Instructor Note: Explain example. Allow students to ask questions. Point out the following: Examples #1 and #2 have different flexible expenses. The total expenses for the single parent family is about $500 less than the family of 4. Differences in expenses can be seen in utilities, credit card payments, food costs, clothing, recreation and charity.	Ask questions about example.
Slide #12: Income and Expenses Totals
Example of Work Sheet	Instructor Note: Explain example. Allow students to ask questions. Point out the following: To complete the work sheet, we need to calculate the totals of our expenses and income. The total expenses for the family of 4 are $3,970. The total expenses for the single parent family are $2,895. When you calculate the total income minus the expenses you determine that Example #1 has $1,030 and Example #2 has $105 after expenses are paid. Explain: Be as accurate as possible with this information. A suggestion is to keep an expenditure diary for a week. Subtract your expenses from your income. Is the income more than the expenses or expenses more than income? If your income exceeds your expenses, you will have money to put into a savings plan to use toward achieving your financial goals. If expenses are more than income, take a look at your budget to see if you can find some spending leaks.	Ask questions about example.
	Instructor Note: Share an example of how you have reduced some of your flexible expenses. Encourage discussion.	Discussion: Participants share their own experiences of how their families have reduced flexible expenses.
Slide #14: Determining Net Worth
	Explain: We now need to determine our net worth.
	Activity: This work sheet will help you to determine your net worth. Before you begin filling out this work sheet, let’s talk about some definitions you might need to know.	Activity: Net Worth Work Sheet Participants begin filling out Net Worth Work Sheet with their own information.
	Instructor Note: The definitions that follow are needed to complete the work sheet.
Assets Any financial or material possessions that have monetary value.	Question: What are assets? Explain: Assets are any financial or material possessions that have monetary value. Examples are cash on hand, stocks, bonds or mutual funds, cash value of life insurance, money owed to you, annuities, retirement plans, your home, other real estate, vehicles and household items.	Respond to question.
Liabilities Financial obligations or debts.	Question: What are liabilities? Explain: Liabilities are financial obligations or debts. Examples are mortgages, installment loans, credit card balances, taxes, unpaid bills and any other liabilities.	Respond to question.
Net Worth Total Assets - Total Liabilities	To determine your net worth, you total your assets and total your liabilities. Then subtract your total liabilities from your total assets. The bottom line is your Net Worth.
Slide #15: Net Worth Statement
Net Worth Statement A net worth statement is the best indicator of your financial position at a particular point in time.	Question: What is a Net Worth Statement and how do you use it? Explain: A net worth statement is the best indicator of your financial position at a particular point in time. It is like a photograph of where you are now financially. Net worth is calculated by subtracting liabilities from assets. Knowing what your net worth is at any given point in time will help you determine the progress made toward your financial goals. This information also can be useful when you apply for a loan, write your will, borrow money, determine insurance needs or settle a divorce. Instructor’s Note: Encourage participants to begin their Net Worth Work Sheet during the class and, if necessary, finish it at home.	Respond to question.
Slide #16: Summary
Determined Credit Obligations Compared Income to Expenses Determined Net Worth	Lesson Summary: Congratulations! You have completed Where Are You Now in this Money Management series of classes. We’ve covered a lot of information including how to determine your credit obligations, compare your income to your expenses and determine your net worth.
	Question: Are there any questions?	Participant questions.

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