Lesson 1

Organizing Money: Personal Financial Planning

 

Lesson Overview:

Lesson 1 discusses: 1) goal setting; 2) net worth statements; and 3) budgets.

 

Learning Objectives:

The students will:

  • Create two financial goals, based on life goals and their personal purpose statement.
  • Estimate their net financial worth.
  • Evaluate their personal spending habits.
  • Set up a budget.

 

Content Standards Addressed:

Common Core State Standards

National Standards

 

Vocabulary:

  • Assets - what a person owns: cash, savings, property, etc.
  • Budget - a financial plan showing estimated income and expenses.
  • Goal - a predefined outcome (in life, finances, etc.).
  • Gross income - earnings before taxes and other deductions.
  • Liabilities - what a person owes: bills, IOUs, etc.
  • Net income - earnings after taxes and other deductions.
  • Net worth - an estimate of financial wealth: assets minus liabilities.
  • Tax - percentage of personal income, etc., claimed by the government.

 

Introductory Discussion:

  • Have you ever participated in a race?
  • Imagine you are responsible for organizing a race for young children. What steps will you take?

If the group didn't mention setting up a starting line, a finish line and a running course, ask:

  • How will participants know where to begin?
  • How will they know where to run?
  • How will they know when they've reached their goal?

Races need clearly-marked START and FINISH lines, and an established course, so participants know how to reach the goal.

Unlike sports races, life's races are noncompetitive and are more likely to be marathons than sprints. But in each race, participants must understand where to start, how to stay on track, and when they've reached their goal and finished the race.

 

Part 1: Where's The Finish Line? (Setting Goals)

Materials Needed:

Setting a goal establishes a "finish line" so a person knows which direction to go and stays on target. Life goals - people's lifetime hopes and dreams - reflect what they value. Some life goals can address the question, "What do I want to own in the future?" but the more satisfying life goals answer the questions, "Who do I want to be in the future?" and "What do I want to do in the future?"​

 

 

 

 

 

 

Life goals are different for each person and often relate to:​

  • College or similar higher education.
  • Careers.
  • Marriage.
  • Children.
  • Travel.
  • Creative accomplishments (writing books, creating artwork, etc.).
  • Sports achievements (winning an Olympic gold medal, etc.).
  • Impact on one's community, state, nation or the world.

Discuss:

  • What are some of your life goals?

 

Reproducible: Personal Purpose Statement and Financial Goals

A person's personal purpose statement is several sentences long and addresses the question, "What do I feel is my reason for living?" It includes life goals, what the person values, and his or her strengths and interests. A personal purpose statement can be very helpful in setting short- and longer-term financial goals.

Make copies of the reproducible. Use the following outline to facilitate the worksheet's completion. The bottom portion of the worksheet will be completed later. 

Creating a Personal Purpose Statement

1. Decide what matters most.

Your group may find useful:

- "What quotations really inspire you?"
- "Do they address some things you feel strongly about?"

  • On the back of the worksheet, the students can write some quotations they like. They may wish to use the sample quotations below as a starting place:

A horse is worth more than riches. - Spanish proverb

It is necessary only for the good man to do nothing for evil to triumph. - attributed to Edmund Burke

The best way to cheer yourself up is to try to cheer somebody else up. - Mark Twain

Give me liberty, or give me death! - Patrick Henry

2. Determine strengths and interests.

If desired, take some time to brainstorm a list with the group. Write them in the spaces provided on the worksheet. Some examples are listed below: 

Art​ ​Music
​Cooking/baking ​Theater
Photography​ ​Teaching
​Working with students ​Working with seniors
​Gardening Technical/computers​
​Hands-on work ​Design
​Hospitality ​Sewing, crafts
​Public speaking ​Writing
​Math ​Science
​Foreign languages ​Organizing/planning
 ​

 

 ​

3. Create a list of life goals, using the information from Steps 1 and 2, and write them in the spaces provided on the worksheet. Examples:

  • Open my own restaurant.
  • Find a cure for cancer.

4. Rank the life goals in order of importance, by indicating their rank (1, 2, etc.) on the worksheet.

5. Use the back of the worksheet to brainstorm answers to the question:

  • How can I use my strengths and interests to do something I consider valuable to myself and others?

6. Write a rough draft of a personal purpose statement, using the template on the worksheet.

Example:

Emily, age 13, is creating her personal purpose statement. After completing the What Do I Value? worksheet, she's discovered what she values most is: 1) music/art; 2) helping people; 3) creativity; and 4) learning.

She's decided her strengths and interests are: 1) music; 2) working with students; and 3) teaching. Her most important life goals are: 1) to become a music teacher; and 2) to help young students.

Emily's personal purpose statement might be:

My purpose in life is to help young students love music as much as I do by becoming a teacher. I will achieve this goal by learning as much as I can about music and developing my musical abilities.

Writing a personal purpose statement can be challenging. The students in your group may not be satisfied with what they've written. Reassure them their personal purpose statements are just rough drafts that they can review and update regularly as they gain new experiences and learn more about themselves.

In her personal purpose statement, Emily stated an important life goal: to become a music teacher. To achieve this goal, Emily will need to attend college sometime in the future. College is a long-term goal. Emily realizes, however, she can do some things now to prepare for that time. Weekly piano lessons and summer piano camp will help her learn new techniques and further develop her musical talent. Attending camp will also give her opportunities to meet teachers who could be helpful later when she applies for college.

Achieving life goals and fulfilling one's personal purpose statement may well depend on the money that's available, so setting financial goals at an early age is important. As author Alan Lakein says, "Failing to plan is planning to fail." Experts say many people never achieve one or more of their life goals because they haven't planned well financially.

Emily's most important short-term financial goals, based on her life goals and personal purpose statement, might be paying for piano lessons and summer camp. Emily and her family have agreed to split these costs, and she will need to set aside some of her babysitting money each week to pay for her share.​

Discuss:

  • If piano lessons are $15 a week, how much will Emily pay? ($7.50)
  • About how much will she need to save each day? (About $1 a day.)
  • If piano camp costs $1,000, how much will Emily pay? ($500)
  • There are 52 weeks in one year. About how much will Emily need to save each week to save $500 in one year's time? (About $10 a week.)

Financial planning helps make sure people reach their "finish lines." By planning ahead, Emily will develop her talent and hopefully achieve her life goal of inspiring young students through music.

Have the students review the top section of their worksheets. Then ask:

  • What financial goals can you set now to ensure you achieve your life goal(s) and fulfill your personal purpose statement? Spaces are provided at the bottom of the worksheet to list two financial goals. (For example, if someone plans to own a restaurant, he or she might set a financial goal of taking community education cooking classes.)

 

Part 2: Where's the Starting Line? (What Am I Worth?)

Materials Needed:

Once a financial finish line has been established by setting one or more financial goals, the next step is to locate the "starting line." Just as taking a temperature can help determine the state of someone's health, calculating net worth helps estimate someone's current financial health.

Net worth is found by:

1. Totaling the value of assets - everything a person owns (cash, bank accounts, savings bonds, present value of personal possessions, etc.)

2. Subtracting liabilities - everything a person owes (bills, loans, IOUs, fines and other debts) from total assets.

 

Reproducible: Net Worth Statement

Make copies of the reproducible. Since much of the required information is likely at home, you may wish to assign the worksheet as homework. Or the students can "guesstimate" the figures.

Special note: There will likely be obvious differences in students' net worth statements. Please be sensitive and use discretion in discussing. You may even opt to complete the net worth statement as a whole-group activity for an imaginary individual.

 

 
The present value (or market value) of personal possessions (unless they're true collectibles or antiques) is usually far less than the original retail prices. Goodwill Industries International Inc. has granted permission to Modern Woodmen of America to include its Valuation Guide in the Financial Literacy Program. If desired, make some copies for the students to use as reference. The Valuation Guide can also be found here
 
Special note from Goodwill Industries International Inc.: The Donation Valuation Guide is intended to be a general guide and has not been approved by the IRS or any other entity.
 
Another method of measuring the worth of personal possessions is to compare them with similar items sold in newspaper classified ads or on auction websites like eBay and classified ad sites like Craigslist. If possible, have copies of the newspaper classified section available for reference.
 
When the students have calculated their net worth, discuss:
  • What does having a positive net worth mean? (That a person has more money than he or she is spending.)
  • What does having a negative net worth mean? (Someone is spending more money than he or she has.)
  • If someone has a negative net worth, what steps could he or she take to correct the situation? (Answers will vary, but may include: 1) cutting back on spending; 2) paying off bills and IOUs; 3) eliminating luxuries like a cell phone and the Internet; and 4) selling possessions that aren't needed.)

A simplified net worth worksheet for adults is available on Modern Woodmen's website, here.

Part 3: Where's the Course? (Staying On Track)

Materials Needed:

In Part 2, the students learned to calculate net worth. Individuals with negative net financial worth are spending more money than they have. They may not reach their financial goals or attain their life goals. In this section, the students will learn how to stay on track financially so they can reach their goals.

Discuss:

  • Have you ever hiked a trail?
  • How does a hiker know how to follow a trail? (Answers will vary, but could include: 1) watching for arrows, numbers, informative signs and other types of trail markers; and 2) following a trail map.)

Hikers who unintentionally wander off a hiking trail and get lost might later comment they never noticed they weren't on the right track until they didn't arrive at their destination point. So it is with reaching financial goals. Money is frequently spent so effortlessly that it's easy for people to find themselves miles from their financial goals, wondering how they got so off course. Financial planning is like a trail map. If the plan is followed carefully and referred to often, wandering off track is not as likely.

One tried-and-true tool in financial planning is a budget. A budget estimates earnings and expenses and guides spending. The first step in creating an effective budget is to keep a personal spending diary for a length of time. The diary will reveal how much and where money is spent. If completed thoroughly and honestly, it can expose spending habits that could sabotage financial goals.

 

Reproducible: Personal Spending Diary

Make copies of the reproducible. Since the worksheet will be completed over the course of a week's time, you may want to have extra copies on hand in case the sheet is misplaced. Students may find it's handier to keep record of their expenses in a small notebook that can be stuffed into a pocket, backpack or purse. They can then transfer the information to the sheet later.

The students may wonder what levels are customary in the saving and charitable giving categories. Approximately 25-50 percent of their income should be saved. (For more information about saving money, consult Level 2, Lesson 3.) Although charitable giving is a personal matter, one rule of thumb is donating a portion of each dollar earned.

After a week, discuss the completed diaries:

  • In which categories did you spend the most money? The least?
  • Did you spend money in categories not listed on the worksheet? What categories?
  • Which day of the week did you spend the most money? The least?
  • Did you spend more or less money than you thought you would?
  • What else did you learn about your spending habits?

Note: Ask the students to keep their personal spending diary worksheets for use in the next exercise.

The spending diaries have revealed in which categories the students spend money and their spending levels in each. They will now build a budget using this information.

Reproducible: Monthly Budget

Make copies of the reproducible. Use the following outline to facilitate the worksheet's completion.

Income

Income is money that is received or earned. This money might come from an allowance, a job like babysitting or mowing loans, and/or a part-time job.

1. If the students receive or earn money regularly, they will write the amount they receive beside each category under Week 1, Week 2, etc.

If their job income isn't consistent from week to week, they can estimate how much money they're likely to make in a month's time and write it in the Monthly Total space in each category.

Students with part-time jobs will need to enter their net income in the spaces. Take this opportunity to discuss the differences between gross and net income:

  • Gross income is income before taxes and other deductions are subtracted.
  • Net income is income after taxes and other deductions are subtracted.
  • Tax is a percentage of money that a county, state or community claims from income (income tax, retirement tax), the sale of a good or service (sales tax), ownership of property (property tax), etc. National, state and local governments use this money to provide police and fire protection, collect garbage, maintain roads, and other purposes.

2. The students will add the monthly totals in all Income categories and enter the figures in the Income totals space. ​

 

Expenses

1. Using their​ spending diaries as a guide, the students will complete the Expenses category titles according to how they spend their money. For example, if they don't have a pet, but they do pay bus fare each day, they could substitute Bus fare for the Pets category. You may want to have additional copies of the budget worksheet on hand in case they don't have enough room for all their categories.

2. The students will review their weekly expenses in each category of their spending diaries. They will decide if the amount they spent was: 1) too high and needs to be reduced; 2) acceptable; or 3) too low, not reflecting their typical spending. (For example, the School Needs category would show a low figure if the diary was completed during a school break.)

3. They will add the weekly totals in each Expense category to obtain a monthly total.

4. They will add the monthly totals in all Expense categories, entering the total in the Expense Totals space.

They will then compare Income totals and Expense totals:

  • If Income exceeds Expenses, they might consider adding more to the Saving and Charitable giving categories. (They also may have forgotten one or more categories of expenses.)
  • If Expenses exceeds Income, they will review expenses in each Expense category and determine in which areas to trim their budget. For example, trimming in the Food category might mean cutting down on after-school purchases of candy, soda pop and snack food.

Discuss:

  • How might someone trim expenses in the Gifts category? (Make gifts instead of buying them.) In the Clothing category? (Wait for sales or shop at secondhand stores.)

Like personal purpose statements, budgets are works in progress. New budgets have to be reviewed monthly and adjusted as needed.

For generations, budgets have been created with just a pen and paper, but technology has added other options. Spreadsheet software (like Microsoft Excel) is handy for budgeting. (Modern Woodmen offers a budgeting worksheet on its website, here.) Other websites offer free online budgeting as well.

Another popular type of budgeting system uses envelopes. To start, the individual must have already created a budget. The next steps are:

1. Label envelopes with expense categories - one per envelope.

2. At the beginning of each month (or week- whatever works best), fill the envelopes according to the budgeted amount of money.

3. Carry the appropriate envelope(s) when shopping. (For example, take the Clothing envelope when you head to the mall.)

4. When all the money is gone from an envelope, the spending must end in that category.

5. At the end of the month (or week), the leftover money in each envelope can be applied toward savings, charitable giving, an outstanding debt, etc.

6. Before filling the envelopes the following month (or week), review and adjust the budgeted amounts if necessary.