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Managing Your Money. Lesson from the Council for Economic Education Financial Fitness for life publication. Exercise 8.1. Five students volunteer to participate in a call-in show activity. Roles : Budget Bob Dr. Penny Saver Connie Calvin Minnie. Questions from script.

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managing your money

Managing Your Money

Lesson from the Council for Economic Education Financial Fitness for life publication

exercise 8 1
Exercise 8.1
  • Five students volunteer to participate in a call-in show activity.
  • Roles :
    • Budget Bob
    • Dr. Penny Saver
    • Connie
    • Calvin
    • Minnie
questions from script
Questions from script
  • What is disposable income?
  • What does Dr. Saver recommend as the three parts of a family budget?
  • What are fixed and variable expenses? Use examples.
  • What does “pay yourself first” mean?
  • What is net worth?
exercise 8 2 a
Exercise 8.2 A
  • Read the background information about John and Marcia
  • Questions:
  • Who are John and Marcia?
  • What is their lifestyle?
  • What is their immediate financial goal?
exercise 8 2 a budget
Exercise 8.2 A: Budget
  • Fixed Expenses: Expenses that continue at relatively stable levels, month after month or year after year
  • What are some examples of John and Marcia’s fixed expenses?
    • Housing, life and disability insurance, renters insurance, auto insurance, student loan, etc…
  • Variable Expenses: A cost to a person or business that varies over time according to a number of factors.
  • What are some examples of John and Marcia’s variable expenses?
    • Meals, utilities, fuel, medical care, child care, clothing, etc…
exercise 8 2 a budget1
Exercise 8.2 A: Budget
  • John and Marcia have decided to practice the "pay yourself first" approach to saving for a second car. How do they pay themselves first?
  • Examine John and Marcia’s monthly spending plan. What sacrifices do you think John and Marcia should make in their variable expenses to meet their goal? Note: at-home food expenses can’t be reduced below $220.
    • Complete the “After Column” with ways that you believe they can adjust their budget.
  • What are the benefits and costs of your recommended decisions for John and Marcia?
assessment activity
Assessment Activity
  • John and Marcia want to buy a house!
  • Down Payment: $10,000
  • Home Price: $150,000
  • Step 1:
    • Calculate mortgage payment for a 30 year, fixed rate mortgage at 6% interest.
      • Payment = $840 PI (Principal and interest)
    • Step 2:
    • Calculate costs that include mortgage payment plus insurance and real estate taxes of $210/ month
      • $840+$210= $1050 PITI ( Principal, interest, taxes, and insurance)
john and marcia buy a house cont
John and Marcia Buy a House cont…
  • John and Marcia’s Fixed Expenses:
  • John and Marcia’s Variable Expenses
  • Notes: Add the additional $65 utilities cost to the total variable.
john and marcia buy a house cont1
John and Marcia Buy a House cont…
  • Do John and Marcia have enough flexibility in their budget to accommodate the additional costs of homeownership (mortgage payment, taxes, insurance, and higher utilities)?
    • Not right now. Their expenses will be $5500, representing fixed expenses of $3240 and variable expenses of $2260 (with the added $65 in utilities).
    • If not, what are some expenses they may need to reduce in order to afford the home they want?
      • Enter suggestions for variable expenses in the Homeowner column in budget form from exercise 8.2B)
john and marcia buy a house cont2
John and Marcia Buy a House cont…
  • Calculate if John and Marcia qualify….
    • $5400 x .28= $1,512; the PITI is expected to be $1,050
    • $5400 x .36 = $1,944; Monthly PITI plus other consumer debt such (car, loan, and credit card payment) is $1480.
  • Do you think John and Marcia can afford to pay 28 percent of their monthly gross income as a monthly house payment? Why or why not?