Page | 1 2.2.4 RECOMMENDED GRADE
LEVELS AVERAGE TIME TO COMPLETE
EACH LESSON PLAN IS DESIGNED AND CONTINUALLY EVALUATED “BY EDUCATORS, FOR EDUCATORS.” THANK YOU
TO THE FOLLOWING EDUCATORS FOR DEVELOPING COMPONENTS OF THIS LESSON PLAN. 10‐12 Anticipatory Set & Facilitation: 50 minutes Conclusion/Assessment Options: 15‐30 minutes Time does not include optional items. Kathie Beck, Family and Consumer Sciences Educator, Holland, Michigan
NATIONAL STANDARDS LESSON PLAN OBJECTIVES
The curriculum is aligned to the following national standards: National Standards for Financial Literacy American Association of Family and Consumer Sciences Council for Economic Education National Business Education National Jump$tart Common Core English Language Arts Upon completion of this lesson, participants will be able to: Evaluate the purpose of an Income and Expense Statement Identify sources of income individuals have Explore typical expenses individuals incur Create an Income and Expense Statement
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ATERIALS MATERIALS PROVIDED IN THIS LESSON PLAN MATERIALS SPECIFIC TO THIS LESSON PLAN BUT AVAILABLE AS A SEPARATE DOWNLOAD MATERIALS TO ACQUIRE SEPARATELY DEPENDING ON OPTIONS TAUGHT Evan’s Income and Expense Statement 2.2.4.A1 Income and Expenses 2.2.4.A2 Claire’s Income and Expense Statement 2.2.4.A3 My Income and Expense Statement 2.2.4.A4 Income and Expense Statement Vocabulary List 2.2.4.E1 Income and Expense Statement Template 2.2.4.E2 Income and Expense Statement Information Sheet 2.2.4.F1 Income Cards 2.2.4.H1 Income and Expense Statement Note Taking Guide 2.2.4.L1 Income and Expense Statement Answer Key 2.2.4.C1 Income and Expense Statement Excel Template 2.2.4.E3 Income and Expense Statement PowerPoint Presentation 2.2.4.G1 Managing Your Money Unit Multiple Choice Test Bank and Answer Key 2.2.0.M1 & C1 Index cards D‐rings White boards, dry‐erase markers, and wipes Computer and Internet accessI
NCOME AND
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Advanced Level
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ESOURCES EXTERNAL RESOURCES External resources referenced in this lesson plan: The Cosby Show episode titled “Theo’s Holiday” in Season 2 Episode 22. Found on YouTube, Hulu, or various other websites.TAKE CHARGE TODAY RESOURCES
Similar lesson plan at a different level: None available Optional lesson plan resources: Vocabulary Reinforcement Activities Active Learning Tool 3.0.36 Four on the Floor Active Learning Tool 3.0.10 Financial Facts Feud Active Learning Tool 3.0.19 Tablet Applications for the Personal Finance Classroom Active Learning Tool 3.0.52
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ONTENTEDUCATOR MATERIALS PARTICIPANT READING
Materials to support educators when preparing to teach this lesson plan are available on the Take Charge Today website. Income and Expense Statement Information Sheet 2.2.4.F1
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PTIONALI
NSTRUCTION This lesson is designed to be taught as a stand‐alone lesson. However, background content knowledge from the following lesson plans is directly related to this lesson and may be helpful for participants. Statement of Financial Position Lesson Plan 2.2.3 Spending Plans Lesson Plan 2.2.5 The Basics of Taxes Lesson Plan 2.2.2L
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ACILITATION PREPARE Visual indicators to help prepare the lesson INSTRUCT Instructions to conduct the lesson facilitation CUSTOMIZE Potential modifications to lesson facilitation VOCABULARY ACTIVITY Quiz Me Cards Approximate time: 15 minutes prior to instruction and 15 minutes at the end Materials to prepare: Vocabulary Reinforcement Activities Active Learning Tool 3.0.36 o 10 Quiz Me Cards 3.0.36.H1 per participant Income and Expense Statement Vocabulary List 2.2.4.E1 Before instruction: 1. Go to the Vocabulary Reinforcement Activities 3.0.36 and reference the Quiz Me Cards Vocabulary Activity 3.0.36.J6. 2. Follow the directions and use the template provided to create Quiz Me Cards. Vocabulary is listed on the Income and Expense Statement Vocabulary List 2.2.4.E1 3. An example Quiz Me Card for a vocabulary term in this lesson is: If time is limited, complete the Quiz Me Cards for a limited number of terms. Have participants complete the quiz me cards during facilitation instead of using the note taking guide.Page | 3 2.2.4 After instruction: 4. Complete the bottom half of the quiz me card (picture and sentence). ANTICIPATORY SET The Costs Add Up Approximate time: 5 minutes Materials to prepare for the anticipatory set: Income and Expense Statement PowerPoint Presentation 2.2.4.G1 1. Present the Income and Expense Statement PowerPoint Presentation 2.2.4.G1 a. Slide 2: The Costs Add Up i. Have participants estimate what each item would cost if it was purchased every day for a month. ii. For each item show the average cost and the approximate cost per month if purchased every day. iii. The approximate cost per year if the item is purchased every day is also provided to reinforce discussion. iv. Discuss how small purchases can unknowingly become expensive items if purchased frequently. This is why it is important to keep track of where money is spent. RECOMMENDED FACILITATION Approximate time: 45 minutes Materials to prepare for the facilitation: Print and cut apart Income Cards 2.2.4.H1 so there is 1 per participant. Some will have a duplicate if there are more than 15 participants. 1 Income and Expense Statement Template 2.2.4.E2 per participant o An electronic version Income and Expense Statement Excel Template 2.2.4.E3 is also available Four on the Floor Active Learning Tool 3.0.10 o 1 Four on the Floor for Income and Expense Statement 3.0.10.H1 for every 3‐5 participants Part 1: The Income and Expense Statement 1. Slide 3: The Income and Expense Statement a. Distribute an Income and Expense Statement Template 2.2.4.E2 or E3 per participant. 2. Slide 4: Money Management Tools Vocabulary Word Graphic or Picture Sentence using the word Definition in your own words Income I hope my income increases as I get older. Money received Provide participants with white boards or another writing device and have them record their estimates for The Costs Add Up. Have participants write down at least three things they have purchased in the past week and then estimate how much they spend on that item annually. As each section of the Income and Expense Statement is discussed, have participants highlight their copy. The Income and Expense Statement Note Taking Guide 2.2.4.L1 is provided but not included as part of the recommended facilitation instructions or approximate time.
Page | 4 2.2.4 a. The Income and Expense Statement is the second money management tool. b. Compare the Statement of Financial Position and the Income Expense Statement. The Income and Expense Statement tells you where your money came from and where it went. i. For more information, refer to The Statement of Financial Position Lesson Plan 2.2.3. 3. Slide 5: How can an Income and Expense Statement help you manage money? a. An Income and Expense Statement is an important money management tool. b. It will help you objectively evaluate past financial decisions. c. Evaluating past financial decisions helps you improve your financial well‐being by setting goals, reducing money stress, and increasing net‐ worth. 4. Slide 6: Three Components a. An Income and Expense Statement includes three sections: income, expenses, and net gain or net loss. Part 2: Income 5. Slide 7: What is Income? a. Ask participants what income is and discuss the definition. 6. Slide 8: Income Categories a. There are three income categories. Discuss the definition of each category. b. Prepare the Income Cards 2.2.4.H1 by printing and cutting apart enough for one per participant. i. 15 cards are available so cards will need to be duplicated if there are more than 15 participants. c. Designate three areas of the room – one for each type of income. d. Provide each participant with one Income Cards 2.2.4.H1 e. Instruct participants to determine which of the three income categories their card belongs and move the area of the room designated for that income category. f. After everyone has classified their income card into a category, discuss the income types in each category and correct any mistakes. 7. Slide 9: Earned Income a. If needed, review the types of earned income. If participants did well classifying their income into categories then skip to slide 14. 8. Slide 10: Gross Income vs. Net Income a. Gross income is recorded on the Income and Expense Statement, because taxes and other deductions are listed as an expense in the expense category. 9. Slides 11‐12: Unearned Income a. Only savings and investments that were used to pay for expenses during the time period of the Income and Expense Statement should be recorded in the income section. b. Selling assets can be an important source of income and can be a better choice than using credit (because you avoid paying interest). But, it is important to understand that this action lowers your net worth and To help explore income and expenses show all or part of The Cosby Show episode titled “Theo’s Holiday” in Season 2 Episode 22. In this episode Mr. and Mrs. Cosby turn their house into an apartment to teach Theo a lesson regarding real‐life money situations. Rather than using the Income Cards 2.2.4.H1, read each example and have participants write a U=unearned, E=earned or G=government on a white board.
Page | 5 2.2.4 asset sales are not a source of income that can be relied upon in the next time period. 10. Slide 13: Received Income from Government Programs a. If needed, review the types of income received from government programs. b. Examples of government programs include worker’s compensation, Social Security, unemployment benefits, and Medicaid. c. Have participants refer to the Income and Expense Statement and place a checkmark next to income they have and would record on their Income and Expense Statement. Part 3: Expenses 11. Slide 14: What are Expenses? a. Ask participants what expenses are. Discuss the definition. 12. Slide 15: Expense Categories b. Everyone’s expenses will be a little different based on values, but can be divided into the following categories: taxes, saving and investing, insurance, housing, transportation, food, and other. 13. Slide 16: Taxes a. Taxes include income, payroll, and property taxes paid. b. Most income and payroll taxes are deducted directly from a person’s paycheck, so the information may be found on the paycheck stub. c. Property taxes are included within other categories since they are paid on property owned, such as a house or motor vehicle. d. Sales and excise tax are not listed separately, because they are included within the costs of other items listed on the Income and Expense Statement. 14. Slide 17: Saving and Investing a. Saving and investing includes any money saved or invested for future use. Discuss the definition of savings. b. Invested money commonly includes money invested into a retirement account. Some retirement accounts are sponsored by employers, so the amount invested is deducted directly from a person’s paycheck and can be found on a paycheck stub. 15. Slide 18: Why can savings and investments be both an income and expense? a. Point out that savings and investments are included in both the income and expense section of the Income and Expense Statement. b. It may be income if money is taken from money saved or invested to pay for expenses during that time period. c. It is an expense when you are adding money to savings or investments to use in the future. 16. Slide 19: Insurance a. Insurance is a product that transfers risk from an individual to an insurance company or organization. b. Insurance helps pay for large unexpected financial losses. c. There are many types of insurance, but the most common are health, property and liability (purchased to cover losses related to home and automobile), life, and disability. 17. Slide 20: Four on the Floor For more information about taxes, teach The Basics of Taxes Lesson Plan 2.2.2.
Page | 6 2.2.4 a. Conduct the Four on the Floor activity by following the instructions and using the materials provided in the Four on the Floor Active Learning Tool 3.0.10. i. Four on the Floor is an activity that encourages collaborative brainstorming and question answering in an engaging manner. Multiple sheets of paper with four questions are tossed around the room. If a participant receives a “Four on the Floor” paper they must answer a question by adding a response that has not been previously recorded. 18. Slide 21: What expenses were recorded in the housing category? a. Spread the completed Four on the Floor papers to various participants around the room. b. Ask participants holding the Four on the Floor papers what expenses were recorded in the housing category. c. Use the expenses on the slide to add to the list. 19. Slide 22: What expenses were recorded in the transportation category? a. Have participants pass the Four on the Floor papers to some else and ask those participants to share what expenses were recorded in the transportation category. b. Use the expenses on the slide to add to the list. 20. Slides 23‐25: What expenses were recorded in the food and other category? a. Repeat the process for the remaining expense slides. 21. Slide 26: Make the Income and Expense Statement your own! a. There is not a specific list of categories to be used in the expense section of an Income and Expense Statement as long as all expenses are recorded. b. The more specific the categories, the greater chance of including all expenses. c. Have participants refer to the Income and Expense Statement in front of them and place a checkmark next to the expenses that they have and would record on their Income and Expense Statement. 22. Slide 27: Find a tracking method that works for you a. Use any method that works for you to track income and expenses. Discuss the options provided. b. A written system works better than a purely mental system. Individuals often think they earn more than they do and spend less than they actually do. 23. Slide 28: Net Gain or Net Loss a. Once all income and expenses have been recorded, subtract expenses from income to determine if there is a net gain or loss b. If the number is positive, you have a net gain which is what you want to have. This means you are making more than you are spending. i. Your goal is to have a net gain without having drawn down savings or selling assets. If savings or assets were used, you end with a net gain but have reduced your net worth. c. If the number is negative, you have a net loss which means you are spending more than you are making. 24. Slide 29: Net Gain or Net Loss a. If you have a net gain you have flexibility for unanticipated expenses Refer to the Tablet Applications for the Personal Finance Classroom 3.0.52 resource for specific tracking applications for smartphones and tablets.
Page | 7 2.2.4 and can use that money for savings or other expenses. b. A net loss will make it challenging to increase net worth and therefore become more financially secure. If you have a net loss, you will have to increase income, decrease expenses, or do a combination of both. a. A spending plan is the next of the three money management tools to plan spending in order to have a net gain. 25. Slide 30: Summary Optional: Part 4: Help Evan Create an Income and Expense Statement 26. Slide 31: Meet Evan a. Introduce Evan. Explain that he doesn’t have enough money to pay all of his expenses every month. 27. Slide 32: How does Evan think he is spending his money? a. Explain that Evan thinks that his expenses after saving totals no more than $1,000 per month, but $1,000 isn’t covering all of his expenses every month. 28. Slide 33: Are you sure there isn’t anything else you spend your money on, Evan? a. Evan realizes that he also buys a daily coffee and weekly lunch. b. Even little expenses can add up quickly. His coffee and lunches total $62 per month, which was money he wasn’t including in his estimates. 29. Slide 34: Help Evan Create an Income and Expense Statement a. Explain to participants that they will use the Income and Expense Template to create a statement for Evan. i. Use the Income and Expense Statement Template 2.2.4.E2 or E3 referenced during facilitation. b. Have participants record the information from Evan’s paycheck stub on their Income and Expense Statement Template. 30. Slides 35‐36: Evan Expenses a. Record Evan’s expenses on the Income and Expense Statement Template. 31. Slide 37: Evan’s Income and Expense Statement a. After everyone has completed Evan’s Income and Expense Statement, have them customize his Income and Expenses Statement by removing the categories and sub‐categories that he doesn’t need. If the paper template is being used, participants may simply cross out the categories. b. Show Evan’s Income and Expense Statement on the slide and make sure all participants recorded the right information and have a net loss of ‐ $57.42. c. Evan’s complete Income and Expense Statement is included on slide 37. d. Discuss any errors that were made when completing the Evan’s Income and Expense Statement. 32. Slides 38‐39: Discussion a. According to Evan’s Income and Expense Statement, he has a net loss. What could he do to change his net loss to a net gain? i. There are two options for increasing net loss to net gain: increase income, decrease expenses, or both. Evan will have to do this. He can use a spending plan to help him determine what changes to make the next month. The Evan’s Income and Expense Statement 2.2.4.A1 is also available and includes all information that is in the PowerPoint. Therefore, this scenario may be facilitated with the PowerPoint, worksheet, or a combination of both. Have participants work in small groups to compare their completed Income and Expenses Statements to ensure information is correct. An Income and Expense Statement Answer Key 2.2.4.C1 is available.
Page | 8 2.2.4 b. Were Evan’s mental calculations accurate? i. The expenses that are the same every month such as rent and car insurance were accurate, but many of the other expenses including entertainment, personal care, and groceries were not accurate. He was also missing expenses such as coffee and lunches at restaurants. c. What does this say regarding only thinking about your finances versus writing the information down? i. It is easy to underestimate or forget smaller expenses if they are not written down. d. How has creating an Income and Expense Statement helped Evan manage his money? i. By creating an Income and Expense Statement, Evan has a much more accurate sense of his expenses. He now realizes why he is short on cash every month. He can now use his Income and Expense Statement to create a net gain instead of net loss. CONCLUSION OPTIONS There are three conclusion options provided for this lesson. Option 1: Quiz Me Cards Option 2: Reinforcement Worksheet Option 3: Financial Facts Feud Option 1: Quiz Me Cards Approximate time: 15 minutes Materials to prepare: Vocabulary Reinforcement Activities Active Learning Tool 3.0.36 o 10 Quiz Me Cards 3.0.36.H1 per participant Income and Expense Statement Vocabulary List 2.2.4.E1 If Quiz Me Cards were completed at the beginning of the lesson, have participants complete the cards with a graphic or picture and write a sentence using the word. Option 2: Reinforcement Worksheet Approximate time: 20 minutes Materials to prepare: 1 Income and Expense 2.2.4.A2 per participant 1. Complete the Income and Expense 2.2.4.A2 worksheet as directed. Option 3: Financial Facts Feud Approximate time: 30 minutes Materials to prepare: Financial Facts Feud Active Learning Tool 3.0.19. o Feud Questions for Income and Expense Statement Lesson Plan 3.0.19.K2 o Financial Facts Feud PowerPoint for Income and Expense Statement Lesson Plan 3.0.19.G3. 2 Tap lights or buzzers at the front of the room set up for a face‐off For additional vocabulary reinforcement, have participants gather signatures from adults on the back of the card when they use the word in daily conversation.
Page | 9 2.2.4 1. Conduct the Financial Facts Feud activity. This activity is similar to the television game show Family Feud©. Instructions and questions for this activity are included in the Financial Facts Feud Active Learning Tool 3.0.19. ASSESSMENT OPTIONS There are two assessment options provided for this lesson. Option 1: Claire’s Income and Expense Statement Option 2: My Income and Expense Statement Option 1: Claire’s Income and Expense Statement Approximate time: 30 minutes Materials to prepare: 1 Claire’s Income and Expense Statement 2.2.4.A3 per participant 1 Income and Expense Statement Template 2.2.4.E2 per participant o An electronic version Income and Expense Statement Excel Template 2.2.4.E3 is also available 1. Using Claire’s Income and Expense Statement 2.2.4.A3, participants create a statement based on a scenario and answer reflection questions. a. Two templates are provided to create the Income and Expense Statement: Income and Expense Statement Template 2.2.4.E2 to complete by hand, and a Microsoft Excel template Income and Expense Statement Excel Template 2.2.4.E3 to create electronically. Option 2: My Income and Expense Statement Approximate time: 30 minutes class time plus time outside of class to complete tracking Materials to prepare: 1 My Income and Expense Statement 2.2.4.A4 per participant 1 Income and Expense Statement Template 2.2.4.E2 or Expense Statement Excel Template 2.2.4.E3 per participant 1. Complete My Income and Expense Statement 2.2.4.A4. Have participants track their income and expenses, create a personal Income and Expense Statement, and answer reflection questions. a. Modify the time period of the Income and Expense Statement to work for your classroom and schedule. A minimum of one week is recommended. b. If this assessment is completed, participants may use their Income and Expense Statement to complete a spending plan in the Spending Plan Lesson Plan 2.2.5.
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Income and Expense Statement Vocabulary List
TERM DEFINITION 1 Expense Money spent 2 Gross income An individual’s income earned as salary or wages before taxes and other deductions 3 Income Money received 4 Income and Expense Statement Lists and summarizes income and expense transactions that have taken place over a specific period of time, usually a month or year 5 Insurance A product that transfers risk from an individual to an insurance company or organization 6 Mortgage A payment, usually monthly, applied to the balance of a home loan used when purchasing housing 7 Net gain When income is greater than expenses 8 Net income Take home pay 9 Net loss When expenses are greater than income 10 Savings The portion of current income not spent on consumptionPage | 11 2.2.4.L1
Income and Expense Statement Note Taking Guide
Total Points Earned Name Total Points Possible Date Percentage Class Directions: Use the prompts provided to help you take notes during the lesson. Income and Expense Statement for: Time Period: Amount Income Earned Income Wages or salary before deductions Unearned Income Interest earned this time period Money from savings and investments to help pay expenses during this time period Received Income from Government Programs Total Income $ Expenses Deductions Often Taken from Paychecks Contributions to retirement programs (401k, 403b, pension, IRA) Federal Income Tax and State Income Tax Social Security and Medicare Saving and Investing (Pay Yourself First) Contribution to savings and investments Insurance Premiums Health, automobile, home or renters, life Housing Costs Transportation Costs Food Costs Family Member Care Communication and Computers Telephone landline, cell phone, Internet, cable/satellite television Medical Costs Not Covered by Insurance Clothing and Personal Care Educational Expenses Pet Care Entertainment Gifts and Charitable Contributions Credit Costs Student loan, credit card, other loan payments Total Expenses $ Net Gain or Net Loss (Income less Expenses) $ What is an Income and Expense Statement?Income
Circle where income is located on the Income and Expense Statement. What is income? Place a star next to the three categories of income on the Income and Expense Statement. What is one example of earned income? What is gross income? What is net income? Is gross income or net income recorded in the income section of the Income and Expense Statement? What is one example of unearned income? What is one example of received income from government programs?Page | 12 2.2.4.L1
Expenses
Circle where expenses are located on the Income and Expense Statement. What are expenses? What taxes are recorded on the Income and Expense Statement? What is savings? What is insurance? What are two types of insurance? What are two examples of expenses in the housing category? What are two examples of expenses in the transportation category? What are two examples of expenses in the food category? What are two examples of expenses in the other category?Net Gain/Loss
Circle where net gain/net loss is located on the Income and Expense Statement. How is a net gain/loss calculated?Tracking Income and Expenses
Explain two different ways that income and expenses may be tracked?Page | 13 2.2.4.E2
Income and Expense Statement Template
Total Points Earned Name Total Points Possible Date Percentage Class Income and Expense Statement for: Time Period: Amount Income Earned Income Wages or salary before deductions Commissions/tips/bonuses Tax refunds Unearned Income Interest earned this time period Investment earnings earned this time period Sales of assets Money from savings and investments to help pay expenses during this time period Scholarships/grants from non‐government sources Money from others Child support Other Received Income from Government Programs Scholarships/grants from government sources Government programs Total Income $ Expenses Deductions Often Taken from Paychecks Contribution to a retirement program (401k, 403b, pension) Individual retirement account contribution (IRA) Federal Income Tax State Income Tax Social Security Medicare Saving and Investing (Pay Yourself First) Contribution to savings and investments Insurance Premiums Health insurance, Medicaid and Medicare Renters or homeowners insurance Automobile insurance Disability insurance Life insurance Housing Costs Property taxes (if house or condo is owned) Housing payment (rent or mortgage) Utilities (gas, electricity, water, garbage)Page | 14 2.2.4.E2 Household furnishings Household maintenance and repairs Transportation Costs Automobile payment Fuel (gasoline/diesel) Automobile repairs and maintenance Public transportation fees Automobile license and registration (yearly fee) Food Costs Food at the grocery store Meals at restaurants Snacks away from home (coffees, treats) Non‐food kitchen supplies (plastic wrap, dish soap) Family Member Care Child care or other dependent care Personal allowances Communication and Computers Telephone land line Cell phone Internet Cable/satellite television Computer related expenses Medical Costs Not Covered by Insurance Medical care Dental care Eye care (check‐ups, glasses, contact lenses) Medications – prescription, over‐the‐counter Clothing and Personal Care Clothing
Personal care (shampoo, haircuts, cosmetics, laundry, etc.)
Educational Expenses Tuition for private school or higher education Private lessons Sports and organization fees Educational supplies (books, news) Pet Care Pet food Pet supplies (toys, medicine) Veterinary services Pet care (pet walking, overnight stays, grooming) Entertainment Movies, books, and other entertainment Vacations Other Gifts and Charitable Contributions Gifts to others and charitable contributions to organizations Credit Costs Student loan payment Credit card payment Other: Total Expenses $ Net Gain or Net Loss (Income less Expenses) $
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Income Cards
Wages or salary before
deductions
Commissions
Tips
Bonuses
Tax refunds
Interest earned
Investment earnings
Sales of assets
Money from savings
Money from investments
2.2.4.H1 2.2.4.H1 2.2.4.H1 2.2.4.H1 2.2.4.H1 2.2.4.H1 2.2.4.H1 2.2.4.H1 2.2.4.H1 2.2.4.H1Page | 16 2.2.4.H1
Scholarships/grants from
non‐government sources
Money from others
Child support
Scholarships/grants from
government sources
Government programs such
as Social Security and
worker’s compensation
2.2.4.H1 2.2.4.H1 2.2.4.H1 2.2.4.H1 2.2.4.H1
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Evan’s Income and Expense Statement
Total Points Earned Name 16 Total Points Possible Date Percentage Class Step One: Use the information below and the template provided to create an Income and Expense Statement for Evan for the month of March. (10 points for completion) Evan summarized the information from his March paycheck in the table to the right. This is his only form of income. Gross Income $1600.00 Federal Income Tax $200.00 Social Security $99.20 Medicare $23.20 Net Income $1277.60 Evan used an app on his smartphone to track his expenses for the month. The information from his smartphone is summarized in the table below. Categorize each expense.Date Expense Category
3/1 Automatic transfer to savings account $255.52 3/1 $400 check for rent payment 3/1 Health insurance $100 3/2 Withdrew $20 in cash to purchase daily coffee 3/3 Lunch $6.50 3/3 Hockey game admission ‐ $10 3/5 Purchased gas for $40 3/6 Movie theater ticket $7.50 3/7 Groceries $52 3/10 Lunch $8 3/12 Basketball game admission $15 3/15 Cell phone payment $70 3/15 Car insurance payment $40 3/15 Renter’s insurance payment $10 3/16 Haircut $15 3/17 Purchased gas for $40 3/20 Lunch $7.50 3/25 Bowling with friends $15 3/27 Groceries $38 3/27 Concert ticket ‐ $45 3/28 Purchased gas for $40 3/31 Electricity payment $50 3/31 Water payment $50
Page | 18 2.2.4.A1 Step Two: Customize Evan’s Income and Expense Statement by removing the categories and sub‐categories that you believe he would not need. (2 points for completion) Step Three: Use Evan’s Income and Expense Statement to answer the questions below. 1. According to Evan’s Income and Expense Statement, he has a net loss. What could he do to change his net loss to a net gain? (1 point) 2. Why do you think Evan’s mental calculations were not accurate? (1 point) 3. Using your answer to question 2, what does this say about thinking about your finances versus writing the information down? (1 point) 4. How has creating an Income and Expense Statement helped Evan manage his money? (1 point)
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Income and Expenses
Total Points Earned Name 23 Total Points Possible Date Percentage Class Directions: Help Rory create his Income and Expense Statement by answering his questions below. Make sure to provide an explanation to each answer to help Rory learn more about the Income and Expense Statement. 1. According to Rory’s paycheck, he earned $800 last month, but before taxes and other deductions were taken out he earned $1,050. Which amount should be recorded as income in his Income and Expense Statement? (2 points) 2. Rory is surprised to learn that there are many other types of income besides the wages he earns in this paycheck every month. Describe at least three other types of income that may be included on an Income and Expense Statement to help Rory identify if he has any other types of income that need to be recorded. (3 points) 3. Now that Rory understands how comprehensive income is, he is wondering if he needs to record the $500 scholarship he was awarded from his local community to help pay his college tuition. If so, in which category of income should it be recorded: earned income, unearned income, or received income from government programs? (2 points) 4. Rory makes it a habit to save $80 every month before using his paycheck to purchase anything else. He isn’t sure if his savings should be recorded as an income or an expense on his Income and Expense Statement. Should his $80 deposit to his savings account be recorded as an income or an expense? (2 points)Page | 20 2.2.4.A2 5. Rory understands that taxes are one of his largest expenses. However, he doesn’t understand why expenses doesn’t include a “taxes” specific category. Explain to Rory where taxes are recorded on the Income and Expense Statement. (3 points) Directions: Answer the following questions with complete sentences. 6. How does an Income and Expense Statement differ from a Statement of Financial Position? Identify at least one difference. (2 points) 7. Give two examples of expenses that may be included in each of the following categories: (5 points) Insurance 1. 2. Housing 1. 2. Transportation 1. 2. Food 1. 2. Other 1. 2. 8. Describe a method of tracking income and expenses that you would use; justify your choice by giving examples of how the method would fit your lifestyle. (2 points) 9. Why is it important to have some type of written system for tracking income and expenses? (1 point) 10. Once a person determines whether they have a net gain or net loss, what would be the next step in financial planning that would help make changes to the Income and Expense Statement? (1 point)
Page | 21 2.2.4.A3
Claire’s Income and Expense Statement
Total Points Earned Name 20 Total Points Possible Date Percentage Class Claire is applying for a loan to purchase a pre‐owned car. She is told that the monthly payment for the loan would be $200. She wants to make sure that she can afford this monthly loan payment, so she is creating an Income and Expense Statement to summarize her financial transactions for a month. Claire saved her paycheck stub and all receipts for the month of August and summarized the information below. Use this information to help Claire create an Income and Expense Statement for the month. Claire was lucky to land her dream job several years ago. She is paid $4,000.00 per month before deductions. Her August paycheck stub indicated that she pays $800.00 in Federal Income Taxes, $230.64 in Social Security and $53.94 in Medicare taxes. As part of her job she receives benefits including an employer sponsored retirement account which she pays $280.00 into every month. She appreciates that this is automatically deducted from her paycheck. To ensure she is prepared for retirement, she also saves $50.00 per month in a personal retirement account. As part of her job she also receives excellent health insurance, a benefit for which she only pays $120.00 per month. Even though her health insurance covers the majority of her medical expenses she still has to pay a small percentage of the out‐of‐pocket costs, so she budgets $75.00 per month. Claire understands the importance of saving money for future use and emergencies so she diligently saves $400.00 per month by having the money automatically transferred to her savings account. After saving for a down payment, last year Claire was able to reach her goal of home ownership and she purchased a small house. She pays $800.00 per month towards her mortgage which also includes her property taxes. Other costs of owning her home include $150.00 for all utilities and $50.00 for homeowner’s insurance. Her house was only a couple years old when she purchased it so maintenance costs are low. She tracked about $50.00 per month in various household maintenance and cleaning expenses. Claire owns a car that is fully paid for. She spent $100.00 on gas in August as well as $50.00 on repairs and maintenance. She pays $50.00 per month for automobile insurance and budgets $20.00 per month to pay her yearly license and registration fee. Even though Claire owns a car that runs well she feels like she is doing well financially and would like to upgrade to a newer car with fewer miles. Claire enjoys dining out, so she spends $150.00 per month at restaurants as well as $120.00 on groceries and $20.00 on other kitchen supplies like dishwasher detergent. Claire owns a cell phone that costs her $60.00 per month. She spends $30.00 per month on clothing and $50.00 per month on personal care, such as hair‐cuts and make‐up. Claire enjoys reading and owns an e‐ reader and allows herself to purchase $15.00 per month in e‐books. Claire also spends $75.00 per month on other forms of entertainment such as renting movies and spending time with friends. Using the template provided, complete Claire’s Income and Expense Statement. (10 points for completion)Page | 22 2.2.4.A3 When the statement is complete, analyze the statement to answer the questions below. 1. Does Claire have a net gain or a net loss? What amount? (2 points) 2. After examining her Income and Expense Statement, if you were Claire’s financial advisor, what is one change you would recommend Claire make to her financial decisions? Explain. (2 points) 3. Do you think Claire missed any expenses that should be recorded on her Income and Expense Statement in the future? (2 points) 4. From the information in her Income and Expense Statement, would you recommend that Claire purchase the new car and begin making the monthly loan payment of $200.00? Provide at least two reasons to support your answer. (3 points) 5. What other information would help Claire make a decision regarding whether or not to purchase a new car? (1 point)
Page | 23 2.2.4.A4
My Income and Expense Statement
Total Points Earned Name 32 Total Points Possible Date Percentage Class Step One: Determine a tracking method that will work best for you. Track all of your income and expenses for the period of time designated by your instructor. (5 points for completion) Step Two: Using the template provided, create an Income and Expense Statement for yourself for the week your tracking was completed. (10 points for completion) Step Three: When your Income and Expense Statement is complete, analyze the statement to answer the questions below. 1. What tracking method did you use? Would you use this method again or try a different method? Explain. (2 points) 2. Do you have a net gain or a net loss? What amount? (2 points) 3. If you have a net loss, what can you do to change that net loss to a net gain? If you have a net gain, what could you do with this money? (2 points)Page | 24 2.2.4.A4 4. Were you surprised by the numbers on your Income and Expense Statement? Explain. (2 points) 5. Now that you see a comprehensive view of your income and expenses, what is one change you would like to make to your financial decisions? Write a SMART goal to make this change. (5 points) 6. How can creating an Income and Expense Statement help you manage your money? Identify at least one specific way. (2 points) 7. How do you anticipate your Income and Expense Statement changing in the next five years? Identify at least two specific ways. (2 points)
2.2.4.F1
Income and Expense Statement
Advanced Level
Do you know where your money is coming from and where it is going? An Income and Expense Statement is an important financial management tool that summarizes your past transac ons to determine how you are earning and spending your money. It helps you objec vely evaluate your past financial decisions. The Income and Expense Statement lists and summarizes income and expense transac ons that have taken place over a specific period of me, usually a month or year. Whereas a statement of financial posi on documents your present financial posi on and net worth, an Income and Expense Statement documents your past financial transac ons; it tells you where your money came from and where it went. Reviewing your Income and Expense Statement can help you establish financial goals, increase your net worth, lead to the reduc on in money stress and improve your financial well‐being. Components of the Income and Expense Statement are described below.Income
Income is money received. In addi on to compensa on for work, there are several other types of income.
Income is divided into three categories: earned, unearned and received from government programs. Earned income
Earned income is any money earned from work, such as:
Wages or salary ‐ Gross Income is an individual’s
income earned as salary or wages before taxes and other deduc ons. It is important to record your gross income and not your net income (take home pay) in the income sec on of your Income and Expense Statement. Taxes and other deduc ons from your
paycheck will be listed as expenses in the expense sec on of your Income and Expense Statement. Net
Income is what is le in your paycheck a er taxes and other deduc ons. Net income is o en referred to
as “take home pay.”
Commissions/ ps/bonuses – A commission is income earned upon a sale and is o en calculated as a
percentage of the purchase price. It is some mes paid in addi on to a wage or a salary. Realtors receive a commission once the sale of property is complete between two par es. Sales associates at some stores receive a commission on items purchased by customers who they have assisted. Tips are sums of money given to someone as a way of rewarding them for quality service. Tips are commonly earned by those in customer service fields such as restaurant servers, hair stylists, and taxi drivers. A bonus is an amount of money added to wages on a seasonal basis as a reward for good performance
.
This sum of money is paid in addi on to the employee’s wage or salary. Tax refunds – Tax refunds received from your state and federal government are considered earned income, because they reflect over‐withholding from your paycheck in a prior period. Net Income Statement of Financial Posi on Income & Expense Statement Spending Plan What is my financial posi on today? How have I managed my money in the past? What is my future money management plan?2.2.4.F1
Income, con nued
Unearned Income Unearned income is income received from sources other than employment such as: Interest earned ‐ Any interest from depository ins tu on accounts earned during the me period of the Income and Expense Statement. Investment earnings – Any money earned from financial investments during the me period of the Income and Expense Statement. Money from savings and investments –Any money withdrawn from savings or received from sale of a financial investment and used to pay for expenses during the me period on your Income and Expense Statement Sales of assets –The amount of money earned from the sale of an asset such as a car, jewelry, a home, or a business you own. Selling an asset can be an important source of income to cover expenses, especially unexpected expenses. But, it is important to understand that this ac on lowers your net worth (the monetary value of everything you own, minus your debt). And, like tapping your savings to cover expenses, asset sales are not a source of income that you can rely upon in the next me period, because once you’ve sold an asset it is gone. For example, if you use some of your savings to throw a party, you have a smaller savings balance available next month to cover emergencies or any other spending. Only you can judge whether the party was “worth it,” but you will definitely have fewer assets to start the next month. If you sell your car to pay for tui on at your community college, (invest in yourself) you may be temporarily poorer, but the decision can eventually pay off in terms of higher earning poten al. A decision to sell assets to pay for current spending requires careful thought. But, if you face a me period in which your expenses are going to exceed the rest of your income, selling assets (or tapping savings) can be a be er choice than using credit, because you avoid paying interest on a loan. Scholarships/grants – Money received from scholarships and grants from non‐ government sources to help pay for educa on. Money from others – Any money received from others, such as friends and family. Child support – Child support is court‐ordered money paid for the care of one's minor child. Received Income from Government Programs There are many different government programs that offer a form of temporary income for people who qualify. Examples of federally funded government programs include Workers’ Compensa on, Social Security, and Unemployment Benefits. Any scholarships and grants provided by the government should also be included in this sec on of income. What forms of income do you have?Expenses
An expense is money spent. All expenses are divided into the following categories: taxes, saving and inves ng, insurance, housing, transporta on,food, and other. Taxes: Taxes include income, payroll, and property taxes. Income and payroll taxes are deducted directly from your paycheck. Refer to your paycheck stub to find out the amount you pay. Property taxes, such as those on houses and vehicles are usually charged annually by state or local governments and are billed directly to the owner. These taxes are reflected on the Income and Expense Statement within the expense category to which they apply, such as housing or transporta on. Sales and excise taxes are usually added to the price of an item purchased and charged at the point of sale, so they are reflected on the Income and Expense Statement within the costs of specific items purchased.
2.2.4.F1
Expenses, con nued
Food Purchases from a store that include food and some household items (cleaning materials and other consumable goods,) fall into the “food” category. Be sure to include all meals and drinks purchased away from your home as expenses in this category. Saving and Inves ng The Saving and Inves ng category of expenses includes any por on of current income that is saved and/or invested for future use. This money may be placed in a savings account at a depository ins tu on, or it may be invested in financial assets such as stocks and bonds. O en these investments are made through a re rement account. Some employers sponsor re rement accounts for workers and deduct the employee’s contribu on to the account directly from a person’s paycheck. The amount can be found on a paycheck stub (just like income and payroll taxes). Insurance Insurance is a product that transfers risk from an individual to an insurance company or organiza on. Insurance helps pay for large unexpected financial losses. There are many types of insurance, but the most common are health, life and disability and property and liability (purchased to cover losses related to home and automobile). Housing There are many expenses associated with housing. Perhaps the largest housing expense is the monthly payment made to pay your rent or mortgage. A mortgage payment is applied to the balance of the home loan used when purchasing housing. In addi on to the monthly payment, u li es such as your electric, water, and garbage service bills must be paid. In some situa ons your u li es are included in your monthly rent. Property taxes (paid only by those owning property), maintenance costs, and household furnishings (furniture, appliances, etc) are other costs associated with housing. Homeowner and renter’s insurance is another housing ‐ related cost. Transporta on There are two primary types of transporta on that people rely upon: public transporta on and a personal automobile. If you rely on public transporta on, your expenses may include taxi, bus, or subway fares. If you own your own car you may have a monthly loan payment. Other expenses associated with a personal automobile include fuel, license and registra on (due annually), repairs and maintenance, and insurance (which is included in the Insurance sec on). What are five expenses you currently have?2.2.4.F1
A wri en system is more accurate than a mental system when tracking your income and expenses. We can easily trick ourselves into thinking we earn more and spend less than we actually do. Tracking our income and expenses can be overwhelming so it is important to find a system that works well for you. Consider some of these op ons for tracking your income and expenses:
Record in wri ng ‐ If you are crea ng an Income and Expense Statement for a short period of me (such as a month) to get an idea of how much you typically spend, you may be able to carry a small notebook and write down each source of income and expense as it occurs. Smartphone ‐ If you own a smartphone, you can use the notepad feature or another applica on to record income and expenses. Inves gate the numerous free or paid apps that are available to help you do this. Other Other expenses incurred by people may include: Family member care: Expenses paid for the care of children (daycare costs) or elderly parents. Communica on and computers: This includes your internet, cell phone, and tablet monthly service plans, plus any communica on device purchases and computer‐related purchases and maintenance costs. Medical costs: Any out‐of‐pocket costs not covered by insurance including monthly prescrip ons or over‐the‐counter medica ons.
Clothing and personal care: This category includes clothing purchases, laundromat charges and personal care expenses including shampoo, toothpaste, haircuts, and cosme cs, etc.
Educa onal expenses: Includes tui on payments, costs associated with private lessons or tutoring, supplies (paper, books, pens, etc.) and dues to professional organiza ons Pet care: Expenses include pet food, veterinary costs and medicine, toys, grooming, and boarding. Entertainment: Entertainment varies from person to person, but includes cable or satellite television, movies, music and the device on which it is played, and vaca ons just to name a few.
Gi s and charitable contribu ons: Dona ons to a charitable cause or gi s to family members. Credit costs not included elsewhere: These expenses may include credit card payments or other payments toward liabili es not included in other expense categories.
Expenses, con nued
You have values, needs and wants that are different than others and help determine which expense categories are included in your Income and Expense Statement. This statement should be customized to reflect you. The more specific you make your categories, the greater your chance of including all of your expenses.Tracking Income and Expenses
What is one expense that you could reduce or eliminate today?2.2.4.F1 Once you have tracked and recorded all of your income and expenses for the me period desired, you can easily subtract your expenses from your income. Your goal should be to have income (from all sources other than drawing down savings or selling assets) greater than expenses. This would create a net gain. This means you are making more than you are spending and therefore you are living within your means. A net gain also allows you the added advantage of some flexibility in paying unan cipated expenses. Think about using your net gain to increase your savings or investments. If your expenses are greater than income, you have a net loss and are spending more than you are earning. For many, the money used to cover the gap in income would most likely come from borrowing (credit). A consistent net loss across many me periods will make it challenging to increase your net worth. Take another close look at your spending habits and obliga ons, as well as your earnings. Maybe there are changes you could make to decrease the possibility of a monthly net loss. Can you decrease your spending or increase your income? Developing a personal spending plan (or budget) is another financial tool that will help you plan your spending.
Net Gain or Net Loss
Expenses
Net Gain or Loss
Income
Keep receipts ‐ To track expenses, keep all of your receipts for a specific period of me. Some apps actually let you scan receipts and will categorize them according to the type of expense. Depository ins tu on account statements ‐ If you use online banking with your depository ins tu on then most likely your banking website will include a record of your account statements. If you don’t have access to online banking make sure you file away your monthly (hard copy) statements. Money management computer so ware program ‐ If you use a money management computer program, it will create an Income and Expense Statement for you as long as you are diligent about entering your financial informa on.
