Unit 4: Money Management

Lesson 5: Creating a Budget

OBJECTIVES

1. Figure your monthly take home pay.

2. Keep track of all money spent for one month.

3. Identify at least 10 categories of expenses.

4. Develop a budget.

MATERIALS NEEDED
Income/Expense Tracking Form

Income/Expense Category Form

marker board or something to write on

calculators

SUPPLEMENTAL RESOURCES
Money Management – A $13.95 book by Educational Design, Inc. (1800 221-9372).

Janus Life Skills: Budgeting and Buying – A $7.95 workbook by Globe Fearon (1800 848-9500).

INSTRUCTIONAL FORMAT
This lesson will take the students through the process of developing a budget. This process will take at least a month. If this is impractical due to time constraints, meet with the students one time to cover the information on how to track income and expenses for a month and what decisions should be made based on the information gathered. Students will need basic math skills to calculate income, expenses, and the difference between the two. In addition to helping students learn to budget money in general, trainers should focus on work-related expenses (transportation, child care, uniforms, etc) as taking priority when students are deciding how they need to modify their spending habits.

1. Instruct the students on the concepts of income and expense. Using a marker board, draw a line down the middle to make two columns. Write "INCOME" at the top of the left column and "EXPENSES" at the top of right column. Ask the students if they can define income or expenses. The respective definitions are money that the person earns or receives versus the money the person spends or gives away. Ask the students to identify different sources of income. Write this information in the appropriate column. Then ask the students to indicate different things for which they spend money. Categorize this information using the "Income/Expense Category Form" as a guide and write the information on the board. Keep in mind that there are several expense categories.
   
   

2. At this point, instruct the students to keep track of their expenses for one month. A lot of budgeting training only requires students to keep track for a week or two. The problem with this is that if a person's rent or a utility bill does not come up during that period, then it is difficult to account for that money. Hand out the "Income/Expense Tracking Form" for the students to use over the next month. Students who pay their own bills with a checking account should be instructed to go back over the last six months and find the average monthly expense of variable expenses (some utility bills, clothes, car maintenance, etc. This is done by adding up the total of the payments and dividing by six. For example, a person's average gas bill may be based on these six payments:
   January $85.61
   February $74.32
   March $56.50
   April $49.01
   May $48.67
   June $37.89
   The monthly average is $58.67. Although the student will pay more during the winter months and less during the summer, he still has an average amount on which to base his budget.
   
   

3. During the month, trainers should meet at least weekly with the students to provide assistance and ensure that they are keeping track of their income and expenses correctly.
   
   

4. When the class reassembles after the month, instruct them on how to set up their budgets. First, have them transfer their income information to the "Income/Expense Category Form." Add these figures. Ask if anyone had any income that was totally unexpected and probably would not happen frequently (i.e., won $100 in a contest). If anyone does, have them subtract this amount from their total. This is their estimated monthly income. Next, have them categorize their expenses. They should use the "Income/Expense Category Form" to organize this information. Instruct each student to look at each expense they recorded in the month, decide what category it belongs in, and then put that amount in the appropriate column. If an expense does not "fit" into any of the categories, there is space to add new categories. Once the students have recorded all of their expenses on the "Income/Expense Category Form," instruct them to add up the expenses in each category. This will provide an estimated amount of money spent in a month for each category. Then, instruct the students to add up the totals in each of the categories. This sum will provide an estimated total of monthly expenses. If a student paid a monthly expense (rent, utility, insurance, etc.) twice or not at all, adjustments should be made. For example, if a student paid rent late one month and then early another month, the two payments might show up in his expenses for rent. Because this would overestimate the amount he needs to budget for rent, the student should be instructed to remove one of the payments before adding up the total.
   
   

5. Once the students have the estimated total of monthly income and monthly expenses, have them subtract the expenses from the income. If the balance is positive, the student is in good shape. Look carefully at her expenses. If she is spending $100 for rent in bad housing and $400 for nice clothes each month, you may want to counsel that person about adjusting her spending. Also, check to see if she is putting any money in savings.
   
   
   If the balance is negative, the student will need adjust his spending habits. First, have him prioritize what expenses are needed. Rent, food, clothing, transportation, child care, medical, etc. must be prioritized. If there are other expenses related to work such as uniforms, this should be included as well. If a student's expenses are greater than his income only accounting for necessities, the student may need some training in comparative shopping to try to save money when buying food, clothes, etc. Assist the student in developing a plan to reduce spending on items he may want but does not really need. Try to include a few dollars for savings each month into a person's budget.
   

SIGNS OF GENERALIZATION
Students will be able to track their income and expenses if they need to readjust their budget. Students will keep out of significant debt by following a budget.

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