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Building Your Future • Book 1
4
Total Cost
The next step toward understanding how you spend money
is to think about the total cost of the items you buy and
acvies you parcipate in. For example:
• If you buy an expensive computer or smartphone,
purchasing insurance will increase your monthly bills but
could save you a lot of money in the long run.
• Certain sports require a long list of equipment. For a
daytrip to go snowboarding, for example, you’ll need to
factor in the cost of a lift ticket, equipment rentals,
gloves, goggles, food at the resort, and transportation to
the mountain, etc.
• For services such as haircuts, it’s customary to leave a tip
of a percentage of the cost. If the cut costs $25 and you
leave a 20% tip, your total is $30.
CHAPTER 1: Spending Wisely
Did You Know?
Research shows that teens spend about 20% of their
money on food, and another 20% on clothing.
3
Have you ever run out of money before receiving
your allowance or paycheck and wondered how it
happened? Do you know how much you spend per
month on coee oungs or vending machine snacks?
Have you ever tried to save up for a big purchase,
like a car? If you answered yes to any of these
quesons, then this chapter is for you.
Living within your means — spending no more than
you have available from your income — can be
challenging. Understanding the dierence between a
want and a need, carefully budgeng how money is
spent, and establishing and maintaining a good credit
rang are all essenal life skills. In this chapter, you’ll
take the rst step toward sound nancial health,
as you learn to set spending priories and create a
spreadsheet to plan income and expenses.
Needs vs. Wants
Every day, consumers make choices about how they
spend money. Everyone has certain needs that must
be met in order to survive — living essenals such as
food, water, and shelter; societal requirements like
clothing and reliable transportation; and financial
obligations such as taxes, loans, and insurance.
Wants are things that help you live more comfortably
— convenience items, entertainment, and leisure
acvies. For example, while you need clothing,
you don’t need to wear expensive designer jeans.
Food is a need, but dining out at a restaurant is
typically a want.
Understanding the dierence between needs and
wants — and planning spending accordingly — is
an essenal step in smart spending. Remember to
allocate money toward needs rst, and then you
can use what is le over to cover your wants.
3
hps://www.markengcharts.com/demographics-and-audiences-80708
.
CHAPTER 1: Spending Wisely
Building Your Future • Book 1
5
Taxes
Nearly everything we purchase is subject to some sort of
sales tax. When you buy a book for $13.99, your total cost
will be more than $13.99 — a percentage of the sale price is
added on in the form of a tax. The tax rate varies from place
to place, but it is not unusual to pay 5-10% in sales tax.
To calculate the amount of sales tax due on an item,
mulply the cost of the item by the tax rate. Then, add this
amount to the item’s cost. Using the book menoned above
as an example, this formula would work as follows:
$13.99 (cost of book) x 5% (sales tax rate) = $0.70 (amount
of sales tax due)
$13.99 (cost of book) + $0.70 (sales tax) = $14.69 (total
cost to
purchase
the book)
Certain products and services have higher tax rates.
These include tobacco products, alcohol, gasoline, hotels,
and somemes restaurants. This higher tax rate is oen
because of an excise tax charged for a parcular item.
Somemes an excise tax is added to the price of an item
when you check out at the register, and somemes it is
built into the price. For example, there is a federal excise
tax of 18.4 cents per gallon of gas, regardless of the price
of gas within the specic state. This tax is built into the
price of gas at the pump.
Long-term Value
Another element of smart spending is to get the most
value for your money. Buying things on sale, and comparing
costs between similar items can add up to a lot of savings.
Remember that value isn’t just the price you pay at the
register. It’s also important to consider the true cost of an
item over me. Here are a few things to think about:
• When comparing items that you use and repurchase
frequently, look at the unit cost to determine which is the
beer price. For example, a gallon of milk costs $3.69, while
a quart is only $1.99. But a gallon of milk is the equivalent
of 4 quarts! If you divide the price by the number of units
(in this case, quarts), you can get the unit cost:
If you drink milk consistently, buying it by the quart
instead of the gallon will cost you more than double!
• When purchasing items that you plan to keep for a long
time, buy the best quality you can afford. That doesn’t
mean you should spend 6 months' worth of paychecks on
a designer handbag. But a $200 purse that lasts 5 years
will cost less over
time than a $35 purse that falls apart in
6 months.
$3.69 ÷ 4 = $0.92 per quart
$1.99 ÷ 1 = $1.99 per quart
CHAPTER 1: Spending Wisely
Were there any items that you weren’t sure about? Choose
one of the items that you feel might be a “gray” area and
explain why you think it is more of a need or a want:
Acvity 1
NEEDS VS. WANTS
Needs and wants can vary from person to person: someone
who works remotely may need internet access at home,
but free WiFi at the library may be just enough for a reree.
Read through the following list and decide whether you
think each item is a need or a want for you.
Expense Need Want
Health insurance
The latest iPhone
A mobile phone
Spofy subscripon
Car payment
Tickets for a music fesval
A
pplica
tion f
ees f
or
post-sec
ondary
educa
tion
Gym membership
Haircut
Dry cleaning
New cleats for soccer
Childcare
Buying coee during work breaks
Donaon to a local charity
Need
Expense/
Month
Want
Expense/
Month
$ $
$ $
$ $
$ $
$ $
$ $
Smart nancial planning means making sure your needs
are taken care of rst and using what’s le over for your
wants. In the table below, make a list of your six most
important needs and wants and how much you spend on
them each month.
Gis and Charitable Giving
It may feel really good to donate to the local food pantry or
to send Aunt Rose a beauful birthday gi, but what part
does “giving” play in your budget? Is it an obligaon as a
member of society, or is it something that’s nice to include if
you have extra money? Write a short paragraph on whether
you think gis and donaons to charity are “needs” or
“wants” and why. Keep in mind that charitable giving may be
tax deducble.
Building Your Future • Book 1
6
CHAPTER 1: Spending Wisely
Click here to clear answers
Activity 2
PART 1: DETERMINING COSTS
Answer the following questions to practice stretching your dollar and setting realistic
spending expectations. Use the data below to determine the total cost of each item.
1. You
purchased
a new pair of shoes for
$34.99
and the sales
tax rate was 7.5%.
Item cost $
x Sales tax rate % = Amount of sales tax $
Item cost $
+ Amount of sales tax $ = Total c ost $
2. You purchased a bicycle for $199.99 and the sales tax rate was 6.75%.
Item cost $
x Sales tax rate % = Amount of sales tax $
Item cost $
+ Amount of sales tax $ = Total cost $
3. You purchased 14.75 gallons of gasoline at $2.29 per gallon. If the excise
tax (included in the price of a gallon of gas) was 18.4 cents per gallon, what
is the total amount of excise tax you paid?
Gallons of gas x Excise tax per gallon $ = Total tax $
What if you had paid $3.59 per gallon of gas? Ho
w would this aect the amount of
excise tax paid?
4. You would like to go to the beach from Saturday to Sunday and stay overnight at a hotel. You already have a bathing suit and
ip ops, but will need to purchase sunscreen for $7.99 and a towel for $12.99 (sales tax is 5%). The hotel room costs $89,
plus a 3% excise tax, and will be divided among 4 friends. You will also need to pay for 4 meals, including ps, for a total of $60, and
a beach pass for $3 each day. If your budget is $150, how much money will you have le over for extra acvies and
souvenirs?
Sunscreen $
Towel $
Total $
Sales tax $
Total Cost $
Hotel $
Hotel excise tax x %
Total $
Divided by friends ÷
Total Cost $ each
Meals & ps $ One-day beach pass $
Days on beach x
Total Cost $
Combined Total Cost $
Total budget $
Money available for wants $
Building Your Future • Book 1
7
CHAPTER 1: Spending Wisely
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0.00
1. You need a new bole of condioner.
Opon1: 2-pack of condioner for $40.00; each bole is 16 ounces. No shipping or sales tax.
Price per 2-pack : ($_______________ ÷ 2 boles) ÷ ____________ oz.= $________________ per oz.
Opon2:Individual bole of condioner; 16 ounces for $25.95.
Price per bole: $__________________ ÷ ____________ oz. = $_________________ per oz.
Option _______ is more economical.
Acvity 2
PART 2: COMPARING COSTS
For each queson below, use a calculator to determine which is the more economical opon.
2. Your favorite online clothing store is oering a membership that allows you unlimited
shipping throughout the year for a one-time flat rate of $29.99. Typically, you pay $3.99
shipping for each purchase you make. How many orders will you need to place in order
for the membership to be worthwhile?
Flat rate $_____________ ÷ Per-order rat
e $_____________ = Base number of orders _____________
It would be cheaper to __________________________________________________________________________ .
3. You are moving out on your own and need to buy furniture for your apartment. You found
a new couch that costs $1,500 plus 7.5% tax and $50 shipping, or a used couch that is 5
years old, for $700 cash without tax, and it needs about $200 worth of repairs and cleaning.
Assuming that a couch lasts 15 years, which is the more economical purchase?
NEW USED
Price $ Price $
Tax x % Cleaning, etc. $
Cost $ Total Cost $
Shipping $
Total Cost $
Years remaining ÷ Years remaining ÷
Cost per year $ Cost per year $
The _______________ couch is the more economical opon.
Building Your Future • Book1
8
CHAPTER1:SpendingWisely
0.00
Establishing a Plan
Making smart choices about ho
w you spend your money
is just a rst step. To really take charge of your money,
you need to carefully plan and track your spending with a
budget. By wring down your income and expenses over
a given period of me, you can make sure you don’t spend
more than you earn and focus on working toward goals,
like saving money for your educaon or going on vacaon.
To get s tarted with a budget, you’ll need to follow these steps:
1. Set a Time Period. We suggest focusing on one month,
as most major expenses like rent and car payments are
paid monthly.
2. Esmate Your Income. Add up all of the money you
expect to receive, including net pay from a job,
allowance, birthday gis, etc.
3. Esmate Your Expenses. List what you expect to spend
on all of your needs and obligaons. Do you have a car
payment or phone bill? Do you buy your own clothing?
• Some expenses, like your car payment, are xed,
meaning they don’t change month to month. These
are simple to add in.
• Other expenses, like clothing, may change from
month to month. Try to go through old receipts or
bank statements to esmate your spending. Once
you’ve tracked your spending for a few months, you
can update these monthly expenses with a more
accurate gure.
4. Set Savings Goals. Once your needs are taken care of,
set a monthly savings goal to put aside for big-cket
items you’ll need down the road, or in case something
unexpected happens.
5. Fun Money. Calculate how much money you have le
and decide how you’d like to spend it — going out to eat,
purchasing video games or makeup, joining the gym, etc.
Now you have a plan for your monthly spending. Next,
you’ll need to track and record how much you actually
spend on each item during the month. Then, at the end of
the month, you should calculate the dierence between
what you planned to spend and what you really spent,
and use this informaon to adjust your expectaons and
spending habits from month to month.
Everyone’s budget will look dierent, depending on his
or her parcular needs and wants. For example, you may
have a car payment while your classmate is able to borrow
a parent’s vehicle and will only need to factor in the cost
of gas. Someone else might need to purchase a bus pass or
factor in the cost of Uber transportaon.
Complete Acvity 3 to see how budgeng works. Then
download the budgeng template at ymiclassroom.com/
byf/byf_book1_budget_template.xlsx to get started
creang your own budget.
Net or Gross Pay?
Let’s say you have a part-me job earning $8 an
hour and you will be working 20 hours per week.
Your gross pay is $160 — that is the amount of
money you’d make if you got to keep it all. But all
U.S. workers pay income taxes on their earnings.
This is money given to the federal, state, or
local government to pay for roads, police, and
other services. Some workers also contribute a
percentage of their pay toward rerement and
health insurance. Aer all these deducons and
taxes have been removed from the gross pay, what
you have le is called net pay, which is the amount
of money you will actually receive. Remember that
your budget should be based on your net pay.
Building Your Future • Book 1
9
CHAPTER 1: Spending Wisely
Acvity 3
ESTABLISHING A PLAN
Look at the sample budget below and ll in the missing
informaon in the yellow boxes. As you read through, think
about the many things you spend money on each week or
month. Then answer the quesons below.
1. What is the formula for calculang the ending monthly
balance?
2. What would it mean if the ending monthly balance
were a negave number? What could this person do to
x the problem?
3. Let’s say this person needs to cut $20 in spending from
their budget. Suggest two dierent ways to achieve this.
For each suggeson, you can change up to 3 line items,
as long as the net change is $20.
Suggeson 1:
a. Item:
Old Budgeted Amount: $
New Budgeted Amount: $
b. Item:
Old Budgeted Amount: $
New Budgeted Amount: $
c. Item:
Old Budgeted Amount: $
New Budgeted Amount: $
Suggeson 2:
a. Item:
Old Budgeted Amount: $
New Budgeted Amount: $
b. Item:
Old Budgeted Amount: $
New Budgeted Amount: $
c. Item:
Old Budgeted Amount: $
New Budgeted Amount: $
Category
Esmated
Monthly
Budget
Actual
Monthly
Budget
Dierence
INCOME
Gross Wages $270.00 $280.00 $10.00
Minus Taxes & Withholdings -$30.00 $ -$2.00
Allowance $25.00 $25.00 $0.00
Gis & Other Income $0.00 $35.00 $35.00
Interest from Savings Account $5.00 $4.00 -$1.00
INCOME SUBTOTAL $270.00 $312.00 $
EXPENSES
Basic Living Expenses
Phone Bill $30.00 $30.00 $0.00
Ulies $10.00 $9.00 $1.00
Groceries/Snacks $15.00 $12.00 $3.00
School
Books $55.00 $45.00 $10.00
Class Fees/Supplies $ $20.00 -$5.00
Transportaon
Gasoline $20.00 $25.00 -$5.00
Bus Pass $0.00 $0.00 $0.00
Savings
Savings Contribuon $10.00 $10.00 $0.00
Giving
Charity $5.00 $5.00 $0.00
Gis $10.00 $10.00 $0.00
Shopping
Wardrobe Needs $40.00 $35.00 $5.00
Other Shopping $10.00 $ $10.00
Entertainment
Dining Out $15.00 $15.00
Sports/Gym Membership $0.00
Music/Videos $5.00 $5.00
Hobbies $10.00 $10.00
EXPENSES SUBTOTAL $250.00 $201.00 $49.00
ENDING MONTHLY BALANCE $20.00 $111.00 $91.00
Building Your Future • Book 1
10
CHAPTER 1: Spending Wisely
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