NGPF Case Study Budgeting

Case Study Summary Description: In this Case Study, you will learn the basics of budgeting, from setting priorities, creating a savings goal, tracking spending and learning about tradeoffs required to achieve financial goals. You will take on the role of a friend providing financial advice to a friend and learn to develop various options and strategies to achieve a budgeting goal.

Jump$tart Standards Spending & Saving 1a: Use a plan to manage spending and achieve financial goals 1d: Investigate changes in personal spending behavior that contribute to wealth building

How Do I Budget?

All of Sharons friends know who to turn to if they have money questions. Sharon attributes her financial savvy to the summer jobs she has held over the past four years. These jobs helped her save a few thousand dollars for college to minimize her student loans. Her friend, Alana, approaches her the summer before their Senior year of high school, confessing she has a whopping $56.47 saved for college even after working part-time jobs for the past three years! Alana asks Sharon what she could do to manage her money more effectively. Sharons answer is one word - budget.

Sharon asks Alana to describe her goals and current spending habits. Alana responds in the following way:

College costs a lot more than I thought, and my parents expect me to pay for my living expenses on campus. Those are going to be around $3,000 per year! I am used to working a part-time job and going to school, but I'm not sure I can handle both anymore. Budgeting seems like a great idea, but where do I start?

Answer This:

1. Alana only has $56.47 saved for college. Brainstorm possible reasons why she has only managed to save this amount. Provide 3 reasons.

2. What do you think Alanas goals should be?

3. What are a few ways that Alana can get a better understanding of her spending patterns?

Sharon develops a basic plan for Alana to track every dollar she spends over the course of a month. Alana collects all her receipts in a shoebox and reviews them with Sharon at the end of the month:

• Coffee: 10 lattes @ $4 each

• Movies: 3 movies @ 10 each

• Food: 4 meals with friends @ $12 each; 20 snacks/energy drinks @$3 each

• Clothes: 3 trips to the mall with friends @ $30 per trip

• Car insurance: Parents make her pay $70/month toward policy in exchange for driving family car

• Gas for car: 2 fill-ups @ $35 each

• Cell phone: Parents expect her to pay $36/month toward family plan

• Shoes: 1 pair @ $60

To help make sense of all of this information, Sharon asks Alana to organize the information by using the budget template provided below. In the category column, she will list all of her various expenses. She will then make a judgment call about whether each expense is a Want or a Need. In the Monthly Cost column, she will total up the cost for each of the expenses. In the last column, she will calculate how much that item is as a percentage of her total costs. This should help her determine where she spent most of her money in the past month.

4. Complete this chart with the information provided above:

Category	Want/Need	Monthly Cost	%age of Total Costs
Coffee
Movies
Food
Clothes
Car Insurance
Gas
Cell phone bill
Shoes
TOTAL COSTS

Alanas reaction after completing this process is the following:

Wait a second, Sharon! I think my boss is ripping me off! I work 15 hours a week, on average, at $11/hour. According to my receipts above, Im spending much less per month than Im earning, but, as weve already established, Ive only got $56 saved up from 3 years of working. What gives? How do I file a complaint? How do I get my money back? Wait until I report this boss of mine! Im putting this on social media!

Sharon can tell that Alana is angry, but shes pretty sure her boss isnt stealing money from her.

Answer This:

5. Do some quick math to compare how much Alana should be making per month and to compare it to how much shes spending to determine why Alanas concerned.

6. Explain to Alana why she might not want to blast her boss on social media just yet.

Once Sharon lends some clarity on Alanas pay, she feels slightly better, but shes still really worried about her initial problem:

This is going to be extremely difficult for me to cut anything. I mean, Im working hard, and think I deserve to enjoy the money that I earn. To save that $3,000 for college, I basically need to work an extra 25 hours per month. Its my senior year of high school! I need to focus on my grades and apply to college. I am so confused!

Sharon thinks back to where their conversation started last month and how lost Alana seemed. She hoped that having Alana prioritize her goals and review her spending would help her gain some necessary perspective, but Sharon realizes Alana is at a dead-end, so her next idea is to outline a few options for Alana so she can choose a solution that will work best for her.

Answer This:

7. What 2-3 options would you outline for Alana to help her achieve her goals? Be ready to discuss with her the pros/cons of working more versus finding other ways to adjust her budget. Be specific with your recommendations, highlighting specific costs or income sources.