About 2 hours
- Lesson: ~30 min
- Guided Practice: ~45 min
- Independent Practice: ~30 min
- Challenge: ~10 min
- Check for Understanding: ~15 min
none
Why do we work? To be financially secure and successful. Working is not enough! Financial planning has to happen to help you achieve the goal of financial security. This lesson will help you understand how to do that.
Participants will be able to:
- Plan a budget
- Describe the difference between saving and investing and some of the different tools available for investing
- Plan for their own budgeting needs
- The building blocks of financial literacy: Earning, Budgeting, Saving, Investing
- Understanding credit cards and credit scores
This Financial Literacy Slideshow follows the lesson outline.
Four main tennets of financial literacy:
- make money
- save money
- invest money
- maintain good credit
Making Money:
Some ways to make money are dependent on your time.
Other ways to make money are called residual income streams and are independent of your time.
Almost all wealthy people make money from investments.
Depending on how much money you make, you will be required to pay Federal and State Taxes. There are different tax rates if you are single or if you are married (see the link below for more details about the tax brackets). If you do not pay your taxes there are large penalties and fees. The government knows how much you owe because your employer reports your earnings.
Budgeting:
- There are many formulas for budgeting but more recently the 50-30-20 model has been widely accepted. Using this model, 50% of your income is spent on your living expenses; 30% is for your wants (clothing, traveling, going out, spending on friends and family, other spending that is not a need); 20% is for savings (3-6 months emergeny fund and other savings, and investments)
Saving Money:
- Pay yourself first! The most important thing you can do for your future self is to start saving now!
- Save enough money to have 3-6 months of emergency living expenses
- Save before you make big purchases and use cash, not credit to pay for your big expenses
- Invest money so that you are preparing for your own security later in life
Investments: There are many ways to invest money and this presentation names some of them. This list is not exhaustive and there are many resources to learn more about them. Start researching early to learn the advantages and disadvantages of investing in each.
One rule of thumb for investors is to diversify your investments so that if one investment isn't good and you lose money, you have other investments that are dong well and you are making money.
Credit Cards: The good, the bad, and the uh-oh! Credit cards have a purpose - to build your credit score. But using credit cards to make purchases when you don't have money is a bad idea. You end up paying for your purchase and also paying the credit card company interest. It is wise to only spend what you know you can pay off on a credit card. That way you will build credit and you will stay debt free!
Credit Scores: The most important parts of maintaining a good credit score are:
- always pay your bills on time; setting them on autopay from the bank is a great way to not miss any payments
- only allow credit checks when it is absolutely neccessary; too many credit checks lowers your score
- maintain a debt to income ratio that is reasonable
- Mission Economic Development Agency
- MEDA creates opportunity for habitually underresourced families throughout the San Francisco Bay Area. In other words helps people in economic development.
- MyMoney
- They coordinate and collaborate to strengthen financial capability and increase access to financial services for all Americans.
- Ally Wallet Wise
- Ally Wallet Wise can help you build healthy habits when it comes to your personal finances.
Financial Planning is a huge commitment to yourself and it's easy to fall into some common pitfalls such as:
- Spending more than one earns
- Putting the overage on a credit card
- Spending exactly what one earns
- Not saving or investing any of their paycheck
- Spending one’s money unwisely
- Not tracking every dollar that is spent which results in not knowing where your money is going
- Splurging on expensive items or gifts rather than saving up for them
Use an Excel or Sheets spreadsheet to create a budget. On line one put column headings to include (leave a two blank column in between each to make it more readable): Income, Expenses, Debts,Monthly Payments, Balance, Notes Under each column put the source and in the next column put the amount. (use your actual amounts, not the amounts in the example.) ie. Here is a list of common budgeting categories so you don't leave anything out.
| Column A | B | C | D | E | F | G |
|---|---|---|---|---|---|---|
| Income | =SUM(B2:B1000) | Expenses | =SUM(D3:D1000) | Debt | =SUM(F3:F1000) | Balance |
| Job@ThisPlace | $3000.00 | house | $1500 | loan | $175 | =SUM(B1)-SUM(D1+F1) |
| Other income | $$ | groceries | $250 | credit card | $30 | |
| phone | $80 | |||||
| electric | $35 | |||||
| clothes | $50 | |||||
| clipper card | $50 | |||||
| savings | $150 |
Try different scenarios changing expenses to include everything you would like to include (ie. Entertainment, Salon, Giving to Friends and Family). Change the savings to the maximum amount you think you can save. Find a scenario that looks like something you can stick to and save it to reference as the next few months pass. Remember you can always change it if you don't think it's working for you! Class does this thing themselves with specific additional items.
Set some savings goals and calculate how much you would have to save to get to that goal.
Form small groups, and have your budget spreadsheet for reference. As a group, answer the following questions:
- What is the difference between saving and investing? What is one tool you will use for saving, and another tool you will use for investing? Why did you choose these tools?
- What would you do if you had to pay $2000 for a sudden emergency?
- What would you do with an extra $100 per month?
- What is one thing you can improve about how you use credit cards? What is one thing you can do to raise your credit score?
- What do you still have questions about? What are you going to spend some time researching when you have time?