budgeting

0 | Playbookk for Life Teacher’s Guide: Budgeting

Table of Contents

I. Learning objectives

II. Chart: The budget pie

III. Script and slides for lesson on budgeting

IV. Budget worksheets

V. Case studies

Module #2 Budgeting

Teacher’s Guide


Introduction

The Playbook for Life is a national educational program created by The Hartford Financial Services Group, Inc. to help student-athletes and young adults gain a solid

understanding of personal finance. The program was developed as part of The

Hartford’s philanthropic focus on education and its corporate partnership with the National Collegiate Athletic Association (NCAA).

Since its launch in March 2005, the Playbook for Life has been widely praised by

coaches, teachers and parents as a valuable resource for college students and young

adults interested in getting a head start on their financial future. The guidebook and Web site, available at www.playbook.thehartford.com, contain practical, easy-to-use

information on personal finance basics, such as budgeting, managing credit and

debt, understanding job benefits, and realizing the importance of saving and investing. The program has been presented at many colleges and universities across

the United States, and the materials are available to students everywhere.

This Playbook for Life Teacher’s Guide was developed in direct response to feedback

from educators and NCAA CHAMPS/Life Skills Coordinators, many of whom had

expressed interest in utilizing the Playbook for Life program with their student-athletes. This guide and presentation slides are designed to be used with the

Playbook for Life guidebook, copies of which can be downloaded or ordered free at www.playbook.thehartford.com. The Hartford is pleased to make this resource

available to teachers, coaches, advisors and others who are helping students learn

important life skills.

As with the Playbook for Life guidebook, these materials are designed to provide

general information and should not be construed as specific financial, tax, legal or accounting advice. Students should consult a qualified advisor in these matters.

(Please see the back cover of the Playbook for Life guidebook for more detail).

A special thanks to Dr. Susan Coleman, Ansley Professor of Finance at the University

of Hartford, for her assistance in developing this lesson on budgeting. This teaching module is designed as a follow-on unit to the Playbook for Life overview

presentation.

We welcome your feedback regarding the Playbook for Life program and how these

teaching tools have worked for you. Your input is invaluable as we continually strive

to enhance and refine the program. Please contact us with your comments at [email protected].


Table of Contents I. Learning objectives....................................................... 3

II. Script and slides........................................................... 4

III. Budget worksheets...................................................... 25

IV. Case studies............................................................... 26

V. Web sites................................................................... 29

VI. Evaluation form.......................................................... 30


I. Learning Objectives:

• Students will learn the importance of evaluating their current situation before starting the budgeting process.

• Students will gain an understanding of the link between personal goals and the budget.

• Students will establish a personal budget that includes major income and expense items.

• Students will learn to track their budget on a monthly basis by comparing

budgeted items to actual income and expenses.

• Students will learn alternate budgeting strategies that will allow them to achieve

their goals.

• Students will learn the importance of communicating priorities to individuals who

may be affected by their spending behavior.


II. Script and Slides for

Lesson on Budgeting


Slide 1: Introduction

In the Playbook for Life overview presentation, you were introduced to some of the major financial issues that you will likely face within the next few years. One of

those topics was “Budgeting” – the focus of our program today. Your budget is your financial roadmap, and it should reflect your financial circumstances as well as your

goals and priorities.

As indicated in more detail on the back cover of your Playbook, this presentation is

designed to provide general information about various personal finance topics, and

so, of course, it has some limitations as described there. Among other things, please note that you should consult a qualified advisor for individual guidance on any of the

topics covered.


Slide 2: The budgeting process

Let’s look at the steps in the budgeting process:

• First, evaluate your current situation. Are you employed or do you expect to be, and what will be your income and expenses?

• Second, establish goals and priorities, both short-term and long-term. An

example of a short-term priority might be getting and apartment or buying a car. Longer-term priorities include getting a graduate degree, buying a house,

or starting a family.

• Third, construct an annual budget – month by month – that realistically reflects your income and expenses.

• Fourth, use this budget to track your actual income and expenses against the

budgeted amounts.

• Fifth, if there is a variance, you may need to adjust your budget and, possibly, your goals.

• Finally, when your budget is completed, communicate your priorities to

“significant others” such as parents, girlfriends, boyfriends, spouses, partners, or roommates. Your priorities will reflect what you are willing to spend

money on – something the people you are close to you should know.

Misunderstandings about money can cause a lot of problems in inter-personal relationships, so it’s best to be very clear about what your priorities are right

up front.


Slide 3: Evaluating your current situation

As we discussed earlier, the first step in the budgeting process is to evaluate your current situation.

Let’s start with possible sources of income: • Are you employed full-time or do you expect to be?

• What do you anticipate your annual salary to be? • Do you expect additional compensation for bonuses, commissions, or working

overtime?

On the expense side, what are your existing financial obligations?

• Do you have student loans?

• Do you have car loans? • Do you have credit card debt?

What other factors may affect your budget? • Will you be living in a city or a more rural area?

• Will you be close to your family or will you have to travel to see them?

• Do you plan to start a graduate degree in the near future? • Are you getting married within the next couple of years?


Slide 4: Establishing your goals and priorities

As you construct your budget, you will also need to establish goals and priorities, both short-term and long-term. Short-term goals are those goals that you expect to

achieve within the next year, while longer-term goals are those that will take longer

than one year to achieve.

Your budget should realistically reflect your current situation and should provide a

means for achieving both your short-term and longer-term goals. For example, if one of your short-term goals is to buy a car, your budget should include car

payments, insurance, repairs and maintenance, and property taxes as expense

items.


Slide 5: Determining your short-term goals

Let’s think of some typical examples of short-term goals.

• You’ll obviously want to get a job. If you don’t, the income section of your

budget will probably look pretty bare.

• Do you want to live in a particular location – perhaps a city with a vibrant social scene, or maybe near your family?

• You’ll need to find a place to live, typically an apartment.

• You may need to buy a car, if your job is not in an area that has good public

transportation.

• And you may have some recreational goals like taking a vacation, joining a

gym, or traveling.


Slide 6: Determining your long-term goals

What are some typical examples of longer-term goals – those that will take longer

than a year to accomplish?

• You may want to start working on a graduate degree, law school, or medical

school.

• You may also plan to get married and have a family at some point in the future.

• You’ll ultimately want to consider buying a house or condo.

• If you do have a family, you will find yourself saving for college for your

children.

• And although this seems a long way off, you will want to prepare and save for retirement. And believe me, you don’t want to wait until you’re 50 to do that!


Slide 7: Constructing a personal budget

When you have evaluated your personal situation and formulated your short-term

and longer-term goals, you are ready to sit down and begin constructing your personal budget.

Typically, the budget is done on a monthly basis. You will have one column for your

budgeted income and expense items, and a second for your actual income and

expenses.

This will allow you to track variances on a monthly basis, which is important. You

don’t want to wait until the end of the year to discover that you are seriously off budget.


Slide 8: Using a budget worksheet

We’ve created a sample budget to show you how each dollar of a salary might be

spent and why it is so important to track.

• Salary: $35,000

• Location: New Haven, Connecticut • Housing: Apartment with three roommates

• Transportation: Used car, commute 10 miles to work

There are a lot of individual items on the budget worksheet, but let’s take a closer

look at a few of them:

• When starting out, sharing an apartment can reduce housing and utility

costs. • A great way to save money is to bring your lunch instead of eating out.

• Even if your employer provides health insurance, you still might have to

pay a small portion each month. • Don’t forget to pay yourself.

• Start saving for retirement now – it will pay off in the long run.

• Pay your student loans on time to establish a good credit history. • Remember to budget for taxes.


Slide 9: Sources of income

Let’s talk about some of the income and expense items that should be included in

your budget, starting with sources of income.

• The most obvious source is earnings from your job, but make sure you base

your income on your take-home pay rather than your salary. Take-home pay is your salary minus taxes, health insurance premiums, and 401(k)

contributions. That’s what you actually have available to spend.

• Another source of income might be bonuses or commissions, particularly if

you work in some type of sales position. These may not be paid every week or month, but are often paid only once a year, based on the company’s

earnings.

• If you have stock or bond investments you may have dividend or interest income. These, too, will be paid at less frequent intervals. Dividends, for

example, are paid quarterly.

• Alimony and child support payments are additional sources of income.

• And, if you’re lucky, you may receive financial gifts from your parents,

grandparents, or other relatives.


Slide 10: Your major expenses

Now let’s list some of your major expense categories:

• The most obvious is taxes and Social Security, which will have been taken

out before you even get your paycheck. If you own a car or house, however, you may have to pay property taxes to the state or town you live in.

• Health insurance. Even if your employer provides coverage, you will likely

pay some portion of the premium. That, too, is usually taken out before you

get your paycheck.

• Housing is a major expense, and you will need to decide whether to rent an apartment, buy a condo, or perhaps live with your parents. Depending on

your choice, you may have additional expenses in the form of utilities, cable, heat, water, cell phone, Internet service, etc.

• Where you live will help determine your transportation needs. If you are in

an urban area, you may have the option of public transportation, and will

have to buy a train or bus pass. If you live in a more suburban or rural area, you will likely have to buy a car, along with insurance, gas, and possibly

property taxes.

• Retirement savings should be a priority for you – even in your 20’s.

Although it is listed as an expense category, saving for retirement is really an investment in your future. If you participate in your company’s 401(k) plan,

that contribution will have been taken out before you get your paycheck. You

may also want to allocate additional savings to an Individual Retirement Account (IRA), mutual funds, CD’s, or individual stocks and bonds.


• Education expenses in the form of student loan payments and/or expenses

that will help you to advance your career or possibly change careers. If you decide to go back to school for another degree, you may have expenses for

tuition, books, and sometimes travel to school. Sometimes your employer

will pay all or part of these expenses, but that doesn’t always happen.

• Food, travel and entertainment.


Slide 11: Discretionary expenses

Many of the expenses we just discussed relate to necessities, but there are also a number of expenses that are much more discretionary in nature such as food,

clothing, and recreation.

• Do you plan to cook at home or eat out a lot?

• Does your job require a professional wardrobe, or can you dress more

casually? (Don’t forget, dry cleaning and laundry bills add up.)

• Do you like to go out at night a lot with your friends, or do you prefer to stay

home with a video or a good book?

As you construct your budget, you may find that you have to make some

compromises in these discretionary areas, particularly if you tend to do a lot of spending.


Slide 12: The budget breakdown

What expenses might a 25-year-old expect to have? Let’s take a look at this chart.

If you get a job with a starting salary of $35,000, your expenses may be:

• 19 percent for taxes

• 8 percent for Social Security and Medicare

• 25 percent for rent

• 14 percent for transportation

• 10 percent for utilities

• 6 percent for costs associated with health and dental insurance

• 5 percent for savings

That leaves 13 percent for everything else: food, clothing, entertainment, travel, and

other activities, that’s about $380 a month.


Slide 13: Fixed versus variable expenses

Before we leave the topic of expenses, let’s touch on fixed versus variable expenses.

A fixed expense is one that remains the same every month or every year. Examples

include rent, car payments, gym membership, insurance payments, and some

utilities.

In contrast, variable expenses are those that vary depending on usage. Examples of

these might include groceries, eating out, clothing, entertainment, and travel.

As we mentioned earlier, you are likely to have somewhat more control over variable expenses than you do over fixed expenses. Therefore, if you find you are exceeding

your budget in one area, you can look at your variable expenses for ways to cut back

– at least temporarily – elsewhere. We all do that. If we spend too much money on holiday gifts in December, we may opt not to eat out at restaurants in January and

February to make up for it.


Slide 14: Balancing out the budget year As you construct your budget, remember that some of your income and expense

items may not occur every month. For example, if you get an annual bonus, it may

come in January to reflect your work for the prior year. As we noted earlier, dividend income is typically paid out quarterly, and bond interest, semi-annually.

The same is true of expense items. Property taxes on a car are paid once a year while property taxes on a house are paid twice a year. Car insurance can be paid

annually or broken down into monthly or quarterly installments.

Make sure that your monthly budgets reflect the timing of the non-monthly income

and expense items. In other words, don’t forget them just because they don’t occur every month.


Slide 15: Making ends meet

When you begin working fulltime, you will probably find that you’ll want or need

more things than you have income to pay for. That’s unfortunately the way it works for most of us. So, how can you stretch your budget dollars?

You can make your money go farther by either increasing your income or reducing your expenses. For example, you might take a part-time job a couple of nights a

week or on the weekend. Alternately, if your job gives you summers off, you might take on another summer job.

To reduce expenses, you could live at home for a few years or share living expenses with a roommate. You could car pool to work or take public transportation, if it’s

available; you’d save money either way.


Slide 16: Being over and under budget Your actual income and expenses do not always equal your budgeted income and

expenses. That is called a budget variance, and it can be either good or bad.

A good variance is when you budget for a salary of $35,000 and your boss gives you

a 5 percent raise in the middle of the year. Or, if you budget $200 a month for gas

and discover that you can cut that in half by car-pooling.

Unfortunately there are also bad budget variances. You might budget $1,000 for

medical expenses for the year and discover that you need to have a root canal. If you don’t have dental insurance, there goes your entire $1,000 and then some.

Bad variances can also occur when you don’t pay enough attention to how you are

spending money. This happens pretty often with credit card bills that come in twice

as high as expected because you charged a lot of meals, clothes, and entertainment. That’s why it’s important to do your budget on a monthly rather than an annual

basis, so if you are faced with a negative variance, you can take corrective action to

get your budget back on track.

In this example, you budget $1,000 for a vacation, but actually overspend by $500.

It’s easy to do on vacation if you are eating out or buying souvenirs and gifts. Again, if that happens, you need to cut back somewhere else or find a way to earn the extra

income.


Slide 17: Avoid the credit card trap What about just charging those bad budget variances to your credit card? Bad idea!

If you get into that habit, you will not only move farther and farther away from your

budget, but you will also eventually get buried under a pile of credit card debt, which will add to your monthly expenses.

Budgeting involves some qualities that you, as students, should understand; discipline and the ability to set priorities. You need to bring those same qualities to

bear in managing the financial side of your life.


Slide 18: Sharing your budget strategies After you have established your goals and developed a budget to meet those goals,

it’s important to communicate your priorities and budget strategies to your

significant others. They may include your parents if you still live with them, your roommates if you share an apartment, friends with whom you spend a lot of time

and money, and eventually, your spouse or partner.

Misunderstandings about money and financial priorities are a common source of

friction in interpersonal relationships, so it is important to communicate clearly and

often.


Slide 19: Life changes affect the bottom line

Finally, you should re-evaluate your goals and budget at regular intervals. You will

need to do a new monthly budget each year, and that’s a good time to review the prior year’s budget and actual income and expenses to see if you were on target. If

you had a lot of big variances, you’ll want to understand why, so you can create a

more realistic budget going forward.

Over the course of your life, your goals, life situation, income and expenses will likely

change. You may change careers, which could lead to a higher or lower income. You may get married, which may affect both your income and expenses. And, you

may have children, which will certainly affect your expenses.

Because of these life changes, as well as unexpected events, good and bad, you will

need to re-visit your budget at least annually to ensure that it continues to reflect your situation and priorities.


III. Budget Worksheets


IV. Case Studies

Mini-case #1: Erica

When Erica, a soccer player at (school) graduated in May of 2006 with a degree in

marketing, her dream was to work for a major marketing firm in New York City. She had visited New York as a child for family outings to Radio City, Rockefeller Center,

and the Metropolitan Museum of Art, and was enthralled by the city’s energy and its many cultural attractions. Fortunately, a (school) alumnus had some contacts in New

York and was able to help Erica secure an interview with a major firm.

Impressed with her academic record and the commitment required to be a student-

athlete, the firm hired her at a starting salary of $50,000. As a part of her

compensation package, Erica received two weeks of paid vacation each year and health and dental insurance; her employee contribution was $100 per month. The

company also offered a 401(k) retirement savings program and would match Erica’s

contributions up to 5 percent of her salary. In addition, the company would cover the cost of tuition and books for a graduate degree.

Having secured the job of her dreams, Erica now had to decide where to live. She really wanted an apartment in New York in order to take advantage of the city’s

activities after work and on weekends. At the same time, she recognized that rents in New York were very expensive, and would consume a sizeable chunk of her take-

home pay. After doing some research, Erica found that she could get a one-bedroom

apartment in Manhattan for $2,000 per month. The same apartment would cost her $1,000 in Brooklyn, a 30-minute commute by train. Alternately, if Erica was willing

to have a roommate, she could get a two-bedroom apartment in Manhattan for

$3,000.

1. What income and expense items should be included in Erica’s monthly

budget?

2. Use the following additional information to construct a monthly budget for Erica for each of the 3 apartment alternatives:

a. Taxes are 30 percent of her gross income b. Utilities (heat, gas, water, cable, phone) are 30 percent of her

monthly rent

c. If Erica decides to live in Brooklyn, she can get a train pass for $150 per month

d. After graduation Erica needs to start paying off her college loans

at the rate of $200 per month

3. Which of the three housing alternatives is “the best?” What benefits would Erica gain by selecting this alternative over the others? What

might be some possible disadvantages in selecting this alternative?

4. Can you think of any other alternatives that Erica might pursue to either

a) increase her income, or b) reduce her expenses?


Mini-case #2: Adam

Adam graduated from (school) in May of 2006 with a degree in education. After

playing basketball for four years for (school team), he felt fortunate to secure a

coaching position at an area high school where the long-time coach was retiring after a 35-year career. As Adam prepared to begin his coaching career, he realized that

he had a lot of choices ahead of him aside from the obvious ones of selecting his team and developing a playbook.

Adam’s starting salary at his new position would be $35,000 with the opportunity for additional earnings if he ran a summer basketball camp. Assuming 27 percent for

taxes and Social Security, Adam’s take-home pay would be about $25,500. Since

Adam would be working for a public school, his benefits package was excellent. He would have both health and dental coverage for only $50 per month, and he would

also be covered by a pension. In spite of the pension coverage for retirement, his

parents urged him to open an Individual Retirement Account (IRA) and put in at least $2,000 per year. According to the terms of his contract, Adam was expected to

complete his Master’s degree within five years. The school district would pay for those courses as well.

Adam still had to make some important decisions about living arrangements and transportation. The high school was in a relatively small town. He could rent an

apartment there or in a neighboring town for about $700 per month. However, there

wasn’t much of a social scene in town, and Adam wasn’t so sure that he wanted to live in the same town where he worked. So, he was considering moving to a larger

city 25 miles from the high school where he would be teaching. That city had an

active nightlife, and there were would be more opportunities to meet friends and socialize. Apartments there were more costly, ranging in price from $1,000 to

$2,000 per month for a one-bedroom. He estimated that utilities (electricity, cable,

internet access, phone) would be another $300 per month wherever he chose to live.

Adam also needed to buy a car. As a student, he had been able to catch rides with friends, and he used his parents’ car when he went home for vacations. Those days

were over. Given the amount of time that he would spend driving to scout games,

Adam felt that he would need something with 4-wheel drive. He also needed something relatively spacious given his height and the height of his players. He

decided on a sport utility vehicle with a sticker price of $28,000. His parents told

him that they would give him $5,000 toward the purchase of a car as a graduation present. Since he had no savings to speak of, he would have to finance the balance

of $23,000. After checking around, Adam found that he could get a new car loan for

7 percent to be paid over 5 years. That would give him monthly payments of $450. Car insurance would be another $2,000 per year, and Adam would also have to pay

property tax on the car of $1,000.

1. What income and expense items should be included in Adam’s monthly

budget?

2. Are there any additional sources of income or expenses that he may not

have thought of?

3. What other alternatives does Adam have for finding a place to live and

securing transportation?


4. How would your suggestions affect Adam’s monthly budget?

5. What do you think Adam should do?

6. What are the possible benefits and risks associated with your recommendation?


V. Web sites:

How many of you have referred to various Web sites for help in creating a budget?

Let’s start a list.

http://www.playbook.thehartford.com

http://www.money.cnn.com http://finance.yahoo.com

http://www.fool.com

http://www.kiplinger.com http://www.frugalliving.com

The Internet addresses of other companies’ websites are provided for users’ convenience only. The Hartford Financial Services Group, Inc. and its affiliated companies (collectively, “The

Hartford”) do not control or review the listed sites or any content appearing on the sites, nor does the provision of any address imply an endorsement or association of non-Hartford

websites. The Hartford is not responsible for, makes no representation or warranty regarding,

and does not endorse, certify, approve, or warrant the quality, reliability, or performance of any goods or services associated with, used in, marketed through, made available through, or

provided through the listed sites, or the contents, completeness, accuracy, or security of any materials on such sites. If you decide to access such non-Hartford sites, you do so at your

own risk and Hartford shall not be liable for any damages, losses or liabilities of any kind or nature related to or arising out of any content on the listed site.


Playbook for Life Instructor’s Evaluation Form

Module #2: Budgeting

How useful did you find the teaching module on Budgeting?

Maybe Very useful

Somewhat useful

Not at all useful

Was it clear and easy for you to follow? Yes

No

Did the students appear to understand the material?

Yes

No

How would you rate their reaction to the presentation?

Very interested Somewhat interested

Not at all interested

What was the average age of your audience?

Freshman Sophomore

Junior

Senior/Fifth-year student

Was the content age-appropriate for the audience?

Yes No

Which specific topics elicited the most interest? (Check those that apply.)

Identifying goals

Constructing a budget The budget breakdown

Budget variances

The credit card trap Other

On what topics did they ask the most questions?

At the end of the session, did the students appear to understand how to complete

the budget worksheet? Yes

No

Did not do it


Did you use one or both of the mini-case studies?

Yes No

If yes, how would you rate student engagement and participation? Very good

Good Fair

Poor

What additional information do you think should be included in this module?

Do you believe the stated learning objectives were met?

Yes No

Unsure

Would you use these materials again with a second group of students?

Yes No

If no, why not?

Would you recommend these materials to a colleague?

Yes No

If no, why not?

Do you plan to present any of the other available modules? Yes

No

Maybe

Any additional suggestions on how the Budgeting module can be improved?

# of students in session _______________

Thank you for your feedback on these materials. It is invaluable to us in our efforts

to continually enhance and improve the various components of the Playbook for Life

program.

Please return this evaluation form to:

Pamela Rekow

Corporate Relations T-12-56

The Hartford Financial Services Group 690 Asylum Avenue


Hartford, CT 06115

Fax: 860-757-1686

[email protected]

budgeting

Education

life teachers guide

credit card debt

life overview presentation

provide general information

individual retirement account

bad budget variances

learning objectives

property taxes