MASTERING FINANCIAL LITERACY: BUDGETING AND STRATEGIES
Overview
"Future Ready: Financial Literacy" is an educational resource that focuses on teaching essential money management skills. Participants will learn about budgets, financial risks, and strategies to effectively manage their finances. The course covers important concepts such as budgeting, net worth, financial goals, insurance, and saving and investing. By following the provided guidelines and tips, learners will develop a solid understanding of how to manage money in a healthy and responsible way, paving the path towards a financially secure future.
HOW DO YOU MANAGE YOUR MONEY?
Future Ready
FINANCIAL LITERACY
Learning about budgets, financial risks, and strategies to manage them
How do you manage money?
Photo by Kenny Eliason on Unsplash
LEARNING OBJECTIVES
Understand important money words that will help you understand how to manage your money.
Break down the parts of a plan for your money: a list of what you own and owe, what you want to save for, a spending plan, how you'll protect yourself, and a plan for growing your money.
Make a plan for keeping your money organized and easy to manage.
Understand the concept of a budget and how it helps you keep track of your money, plan for expenses, and achieve your financial goals.
MANAGING MONEY IN A HEALTHY WAY
When people hear the word "budget", they often think of having to give up things they want and being tight with money. But if you plan ahead and decide how much money you want to save and give, it can actually be very fulfilling. With a good plan, you might be able to save up enough money to do something really fun with your friends, like go on an amazing vacation! In this assignment, you'll learn how to manage your money and create a budget that works for you.
VOCABULARY
budget
A careful plan for how much money you will spend and what you will buy with it
net worth
A list of what you own and owe
financial goals
What you want to save for
insurance
Something you buy to protect yourself in case something bad happens, like a fire or a flood. If that happens, the insurance company will give you money to help pay for what was damaged or destroyed.
saving and investing
A plan for growing your money
net income
The money you earn from your work or that you receive from investments after taxes
HOW DO YOU MANAGE MONEY?
Different financial experts have different ideas on managing money, but there are a few common tips they all agree on.
Figure out why you're spending too much and avoid those reasons, like being bored, sad, or feeling pressure from others.
Keep track of everything you spend because little purchases can add up quickly.
Make a budget by setting goals that are specific, measurable, achievable, important, and have a deadline.
Don’t get into debt or use credit cards too much in order to make smart money decisions and handle your finances well.
THINKING CAREFULLY
Walk through the thinking process for understanding budgeting, financial risks, and strategies to manage them.
Here are 7 guidelines that will help you plan a working budget:
Determine your income: Make a list of all sources of income, including salary, investments, and any other sources of money that you regularly receive.
Identify your expenses: Make a list of all your monthly expenses, including rent or mortgage payments, utilities, food, transportation, entertainment, and other bills. The amount of money you have, minus the amount you owe is your net worth.
Prioritize your expenses: Decide which expenses are most important, such as housing and food, and allocate your money accordingly.
Track your spending: Keep a record of how much money you spend and on what, so you can see where your money is going and identify areas where you may be overspending.
Set aside money for emergencies: It's important to have a reserve of money for unexpected expenses, such as car repairs or medical bills.
Plan for long-term goals: Think about your future financial goals, such as buying a house, saving for retirement, or going to college, and make a plan for how to save for these expenses.
Review and adjust your budget regularly: Your expenses and income may change over time, so it's important to review your budget regularly and make adjustments as needed to ensure you are staying on track.
YOUR TURN
Use what you have learned to answer the questions.
Net worth is the amount you have, plus the amount you owe.
True
False
A budget is a _____.
A plan for spending money
A list of expenses
A way to save money
All of the above
Answer: A. A plan for spending money
CHOOSING THE RIGHT ANSWER.
Read the following and answer the question below. Then read why each answer is correct or incorrect.
Managing your money wisely involves making a plan to spend your money on the things you need and want, while also saving for future goals. This plan is called a budget. To make a budget, you add up all the money you make in a month and subtract the money you save, give to charity, and spend on bills and other expenses. There are different ways to make a budget, like using envelopes for different categories of expenses or using computer programs or apps, like Mint, Personal Capital, YNAB, Every Dollar, and Goodbudget. The important thing is to find a method that works best for you. By creating a budget and sticking to it, you can make smart choices with your money and reach your financial goals.
Why is a budget important?
It helps you keep track of your wants
It helps them make smart choices with their money
It helps you spend your money freely
A plan to spend as much money as possible on long-term purchases and goals.
Check to see if you chose the right answer.
A budget helps you to plan and manage your spending and saving, allowing you to make informed decisions with your money. It helps you prioritize your needs and wants, while also saving for future goals, and ensures that you don't overspend or run out of money before the end of the month. So, the correct answer is B: "It helps them make smart choices with their money".
The other options are incorrect because a budget doesn't necessarily help you spend your money freely (Choice C) or on long-term purchases and goals (Choice D) without any plan or consideration. It also doesn't only help you keep track of your wants (Choice A), but rather helps you to balance your wants and needs with your financial goals.
NOW IT’S YOUR TURN.
When you're answering the following questions, follow these tips to make sure you get them right:
Pay attention and read everything closely. If you don't understand something, ask yourself questions or read it again.
Trust your gut, but double-check your answer by looking back at the text.
Find specific examples from the text that can help you answer the question.
Think about what the writer is saying and why they're saying it. This can help you understand their main ideas and conclusions.
What is the first step in creating a budget?
Identifying your expenses
Prioritizing your expenses
Determining your income
Tracking your spending
Why is it important to track your spending?
To see where your money is going
To identify areas where you may be overspending
To make adjustments to your budget
All of the above
What is the importance of setting aside money for emergencies?
To have money for unexpected expenses
To pay off debt
To save for long-term goals
To buy luxury items
Which of the following is a common tip agreed upon by financial experts to manage money?
Spend money when you feel bored or sad.
Don't keep track of your spending.
Make a budget with specific goals.
Get into debt and use credit cards excessively.
WRITING THE BEST ANSWER POSSIBLE
Study the model below. It’s a good example of a written answer.
HOW TO START BUDGETING
To start budgeting, you need to keep track of your expenses for one month. Think about where your money goes. Do you pay for your own lunches or your portion of the family's cell phone bill? Do you go to the movies often? Do you buy clothes or makeup regularly? Keep track of everything you spend money on for a week or two if you have trouble remembering.
Next, figure out how much money you make each month, including allowance, payment for chores, and money from jobs after taxes or selling things (that is, your net income). Don't include occasional gifts or rewards that you only get once or twice a year. Add everything up to find your net monthly income.
Then, put your spending into categories like food, clothing, transportation, and entertainment. Add up how much you spend in each category, and include any money you save or donate to charity. Make sure to calculate everything on a monthly basis.
Describe how you would create a system to organize your financial information in two to three sentences.
To keep track of my money, I would create a plan using a computer program that shows how much money I earn and spend each month, and I will make it look nice with colors and pictures. I will also learn more about important money ideas like saving and investing so that I can be smarter with my money in the future.
The student's answer summarizes how to organize finances in a clear and concise way, including using a computer program and educating themselves. However, they could provide more detail on categorizing expenses (eg, food, clothes) and tracking progress over time (eg, weekly expense tracking).
NOW IT’S YOUR TURN.
Read the following and answer the question. Use what you have learned from the model.
BUDGETING 101: CREATING A PLAN THAT FITS YOUR LIFE AND GOALS
Creating a budget is easy once you know how much money you make and how much you spend each month. First, list all your income in one column and your expenses in another. It's important to remember your financial goals, like having enough money to cover living expenses for a few months. You should also have a stash of money for unexpected emergencies. After listing all your expenses, including savings and donations, subtract that from your total income. If you have money left over, that's great! You have a balanced budget. But if you spend more than you make, you'll need to adjust your expenses until you have a balanced budget.
What's a good budget to follow? Some people use the 50-30-20 Rule if they have a family or live on their own. That means you should spend half of your income on things you need, like food, clothes, and housing, 30% on things you want, and 20% on savings. But if you live with your parents, it's good to save around 10-40% of your income and have a 10% emergency fund. This leaves the rest of your money for fun things like shopping, eating out, and activities.
Everyone manages their money differently. It's crucial to create a budget that suits your specific situation to make the best financial decisions.
In two to three sentences, how can budgeting help achieve long-term financial goals?
GET READY FOR YOUR FUTURE!
To ace the following questions, remember these steps:
Read carefully and don't skip anything. If you're confused, stop and ask yourself questions or go back and read it again.
Go with your first guess, but make sure it's right by checking the text.
Look for specific parts of the text that can help you answer the question.
Think about what the writer is trying to say and why they're saying it. This will help you understand their big picture and main points.
Which of the following is NOT part of a plan for your money?
What you own and owe
What you want to save for
A spending plan
A plan for investing in stocks
What is net worth?
The money you earn from your work or investments after taxes
A careful plan for how much money you will spend and what you will buy with it
A list of what you own and owe
What you want to save for
What is insurance?
A plan for growing your money
How you'll protect yourself
A list of what you own and owe
What you want to save for
What is the purpose of making a budget?
To figure out why you're spending too much
To keep track of everything you spend
To allocate your money for your most important expenses
All of the above
What is one of the guidelines for planning a working budget?
Determine your income
Track your spending
Set aside money for emergencies
All of the above
Which of the following is NOT a common tip for managing money?
Keep track of everything you spend
Figure out why you're spending too much
Use credit cards as often as you can
Make a budget
What are the five parts of a plan for your money?
How can you make sure you're not overspending on little purchases?
Why is it important to set aside money for emergencies?
Explain the concept of budgeting and how it helps you manage your money. Provide at least three examples of how you can make a budget and why each method might work well for certain individuals or situations.
Financial Stability and Budgeting
Having financial instability can cause many problems, like breaking up families and causing arguments. Money is very important to people and affects everything we do, like politics and wars. It's important to have financial stability because it gives us freedom and peace, and helps us reach our dreams. You don't have to be rich to be financially stable, you just need to manage your money well. Creating a budget can help you do that by separating your needs, like food and car payments, from your wants, like going out with friends. If you spend more than you earn, that's a problem, so you should try to cut back on some things. Making goals and tracking your expenses can help you stick to your budget and save money. If you're disciplined with your money, it can even help you make more money in the future. So, if you want to be financially stable and achieve your dreams, you should start by creating a budget.
REFERENCES, ATTRIBUTION, AND LICENSE
References
Butler, Tamsen. The Complete Guide to Personal Finance for Teenagers and College Students. Atlantic Publishing Group, 2016, p. 79.
Pant, Paula. "The 50/30/20 Rule of Thumb for Budgeting." Balance, December 21, 2018. https://www.thebalance.com/the-50-30-20-rule-of-thumb-453922.
Attribution
Lesson by
Benjamin Troutman, Griffin Bay School, San Juan Island School District
Portions of content adapted from
Budgeting Compass Points Activity by Lexi Shafer | CC BY-NC
Weekly Budget Journal Templete for Financial Literacy by Heather LaGoy | CC BY-NC-SA
Foundations for College Success, Financial Literacy, Readings by Forrest Lane and Heather F. Adair | CC BY
License
Except where otherwise noted, Future Ready Financial Literacy Learning about Budgets, Financial Risks, and Strategies to Manage Them by San Juan Island School District is available under a Creative Commons Attribution 4.0 International License. All logos and trademarks are the property of their respective owners. Sections used under the fair use doctrine (17 U.S.C. § 107) are marked.