PERSONAL FINANCE TASK 3: CREATE A PERSONAL BUDGET. VE Departments Involved All Employees. Month for Activity/Time Frame Early October / Five Days

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1 PERSONAL FINANCE TASK 3: CREATE A PERSONAL BUDGET VE Departments Involved All Employees Month for Activity/Time Frame Early October / Five Days Note: o The activities in Personal Finance Task 3 have been grouped into easily managed sub-tasks (3.1, 3.2, 3.3, 3.4 and 3.5). Each task provides students with guidelines and information for determining the cost of a typical item found in a personal budget. o Each sub-task has a corresponding student task which is listed in the Student Monthly Task Guide found on the VEI website under Resources/Reference Files. o o Each employee must have access to a working computer. It is suggested that you, the teacher, take a few minutes to familiarize yourself with the calculator and with each student task and resource associated with Personal Finance (PF) Task 3. Outcomes Each employee will: Determine typical monthly living expenses associated with a personal budget Record proof of their personal finance activity. Record their monthly personal finance expenses into an MS Excel workbook (resource: My Personal Finance Budget). Activities/Strategies Preliminary Preparation: o Prior to the introduction of this task, the HR department must provide each employee with information regarding his/her hourly rate of pay or yearly salary. o If available, obtain copies of rental property publications which can usually be found online or in your local stores. o Each employee must provide evidence of the task for assessment. An MS Word document, My Personal Finance, has been provided in the Resources/Reference Files/Personal Finance section of the VEI website. Teachers can have students create a screen snapshot (Alt+PrintScreen) and paste the image into the Word document. If employees use a printed publication for their research, they can take a picture of it with their cellphone, it to him/herself, then paste it into their MS Word document. Ultimately, the teacher can decide the method of assessment that best suits his/her VE class. o Employees must enter their determined expenses into their Excel workbook, My Personal Finance Budget, which can be found on the VEI website under Resources/Reference Files/Personal Finance. Be sure to emphasize saving the file after making updates. - Explain that all employees are now entering into the adult world (virtually) of receiving a regular paycheck, living on their own, and being responsible for paying for all of their personal living expenses.

2 - Emphasize that personal finance is not only a key element of real life, it is also a key element of the virtual enterprise program; each student will be evaluated on how well they establish and maintain their personal finances. - Explain that creating a budget for managing personal finances is essential for determining a spending plan and avoiding surprises that can lead to financial distress, both in the real world and in the virtual world. A personal finance budget consists of: fixed living expenses - expenses that are not easily adjusted and do not change from time period to time period such as rent, insurance, and loan interest. Flexible (or variable) living expenses - essential living expenses that vary from month to month that can be adjusted by consumption or usage. optional flexible living expenses - non-essential living expenses that be easily adjusted by consumption/usage or eliminated completely. - Emphasize that it is important to have a balanced budget, a plan that shows the money coming in (income) is equal to the amount going out (expenses). DAY 1 Task 3.1: Determine Take-home Pay Time Frame: ½ day Begin planning their personal finance budget by estimating the amount of their net income (take-home pay). Point out that Net income is referred to as take-home pay because it is the amount of an individual s earnings (gross earnings) less taxes and deductions. (More detail concerning the elements of a paycheck is covered in PF Task 6.) Verify his/her hourly rate of pay or yearly salary with the HR Department. Point out that each employee receives an hourly rate of pay or a yearly salary commensurate with the job that he/she holds within the company. Access Personal Finance Task 3.1 through the VEI website, which will require them to do the Calculate his/her monthly net income using an online paycheck calculator ( Select the appropriate calculator: Salary vs. Hourly Select Pay Frequency of Monthly (for the purpose of this exercise) Federal and State filing status is Single with one withholding No additional withholdings unless already determined by employer (insurance, pension, etc.) Open the Excel workbook Personal Finance Budget and save the workbook as My Personal Finance Budget in his/her personal drive, or wherever they save their personal electronic files. Update the workbook with his/her name and calculated net income. Save the changes to his/her workbook. Examine the propagated estimates of his/her living expenses to determine the amount of money that he/she should earmark for various monthly living expenses. Note: Percentages for living expenses were derived from the Bureau of Labor Statistics Consumer Expenditures for 2012; reference age of 21.7 Excel workbook My Personal Finance Budget

3 Word document Personal Finance Supporting Documents (paycheck calculator). Each employee will submit completed personal finance budget with his/her calculated net income. DAY 1 & DAY 2 Task 3.2: Determine Living Arrangements Time Frame: 1.5 Days They are now beginning the process of setting up their personal virtual household. They are required to establish a virtual household that emulates the real world as closely as possible They must first establish a new place of residence. Point out that it is common practice to be charged a security deposit (covers damages by the tenant) and first and last month s rent when renting a residence Note: For this exercise, it is recommended that students NOT be required to pay a security deposit or last month s rent (their virtual dollars will later be used to stimulate the virtual marketplace) - Access Personal Finance Task 3.2 through the VEI website, which will require them to do the Find an apartment or house to rent by searching the Internet or a rental property publication to determine their new living arrangements Point out the following - They DO NOT qualify for Section 8 housing The apartment/ house must be in a neighborhood in which they would most likely live in real life The apartment/house must be located reasonably near their work location (of their virtual business) in order to minimize their monthly transportation expense and time They are allowed roommates BUT each roommate must have his/her own bedroom. Rent is divided equally between roommates. Excel workbook My Personal Finance Budget Word document Personal Finance Supporting Documents Each employee will enter their share of the monthly rent into their Excel workbook My Personal Finance Budget My Budget Worksheet. Provide proof of their new living arrangements and record the name of each member of their household in the Word document, Personal Finance Supporting Documents

4 DAY 3 Task 3.3: Determine Renter s Insurance Premium Time Frame: ½ Day Now that they have a place to live, they will need to purchase renter s insurance. Renter s insurance (also covered under Homeowner s Insurance) provides coverage for a renter s personal belongings in the event that they suffer losses due to fire, theft, or other event and liability protection against accidents that occur on their rented property. Direct employees to Access Personal Finance Task 3.3 through the VEI website, which will require them to do the Purchase a personal renter s insurance policy. (Do not add another household member to their personal policy.) Note parameters for renter s insurance policy: virtual residence address and zip code birth date with a year that makes current age 18 years old Coverage amounts: Personal property: $25,000 Personal liability: $100,000 Medical: $3,000 Deductible: $250 Get a free online quote for renter s insurance premium by accessing or another insurance provider. Excel workbook My Personal Finance Budget Word document Personal Finance Supporting Documents Each employee will enter the monthly premium expense of the renter s insurance into their Excel workbook My Personal Finance Budget. Provide evidence of the quote and coverage amounts in the Word document, Personal Finance Supporting Documents DAY 4 & DAY 5 Student PF Task 3.4: Determine Utility Expenses Time Frame: 1.5 Days The next step in setting up their living arrangements and personal finance is to determine their monthly utility expenses. Those items that are considered household utilities. (Utilities are services provided by outside companies that allow one to live in comfort such as electricity, natural gas, water, phone, Internet,

5 and Cable TV. Some utility expenses vary in cost from month to month depending upon consumption. Access Personal Finance Task 3.4 through the VEI website, which will require them to do the Research monthly cost of electricity, natural gas, water, Cable TV, Internet, and cell phone service. Provide proof of research. Enter the expenses into their Excel workbook My Personal Finance Budget. o Electricity is required to operate lighting, heating & air conditioning, electrical equipment and appliances such as a television, computer, oven, microwave, refrigerator, garbage disposal, hair dryer, etc. Monthly electricity expense is calculated by accessing the Electricity & Gas worksheet from their MS Excel workbook My Personal Finance Budget o Natural gas is required to operate the heating system, stove, oven, and fireplace Monthly natural gas expense is calculated by accessing the Electricity & Gas worksheet from their MS Excel workbook My Personal Finance Budget o Water is required to operate the plumbing (toilet, shower, bathroom and kitchen faucets, etc.) $10 per 1 st bedroom plus $5 per each additional bedroom. o Cable TV is required to provide access to television channels Access the website of a local Cable TV service provider Determine which service to purchase o Internet is required to provide access to the Internet o Phone is required for communication purposes. A cellphone is mandatory; a landline is optional. The cellphone and service must be similar to what they currently own or what they would realistically purchase in real life. They must purchase their own personal cellphone service. They can opt to purchase virtual cellphone service for their current cellphone, or they can opt to upgrade their current phone and purchase a new phone. Note: There will most likely be a virtual business that offers cellphones and cellphone services. When VEs are up and running, it is recommended the teacher require the students to purchase a cellphone and corresponding service from a VE. This will help to stimulate the virtual marketplace. Excel workbook My Personal Finance Budget Word document Personal Finance Supporting Documents Each employee will enter expenses outlined in this task into their Excel workbook My Personal Finance Budget.

6 Provide proof of research for each expense in the Word document, Personal Finance Supporting Documents DAY 6 & DAY 7 Student PF Task 3.5: Determine Monthly Transportation Expenses Time Frame: 2 Days They must determine their monthly transportation expenses. Some monthly transportation costs such as auto loans and insurance are fixed; gasoline expense varies because consumption rate and price will change. Direct students to: Access Personal Finance Task 3.5 through the VEI website, which will require them to do the Research information on transportation expenses, which include public and private (car) transportation. Note: If an employee is going to use a car for transportation, review parameters below for purchasing, financing, insurance and fuel consumption. Provide evidence of transportation expenses (including proof of vehicle purchased, insurance rates, fuel costs, etc.) Enter expenses into their Excel workbook, My Personal Finance Budget. Public transportation includes bus and train costs. Private transportation includes a car and expenses related to owning a car. Avoid purchase of sports cars, trucks, (vehicles with a high theft rate) because they will be expensive to insure. Vehicles should be purchased from a local dealer or individual. Research local vehicles for purchase. Limit search to vehicles within the area. (Vehicles purchased from another state may not pass your state s emission regulations.) Finance the vehicle. Loan parameters: No down payment; no trade-in 5-year loan 9% interest rate (the cost for borrowing money) Compound interest, not simple interest Discuss the difference between simple interest and compound interest Simple interest - interest earned on the original principal only Compound interest - interest earned not only on the original principal but also on all interest earned to date; computed periodically. Fuel consumption Use the government s rating for fuel consumption for the vehicle (instructions and link provided in Excel workbook, My Personal Finance Budget, Gasoline worksheet).

7 Auto insurance Research information about automobile insurance, which can be found on the VEI website under Resources/Reference Files/Risk Management/Learn About Insurance/click on Personal Insurance/Automobile Insurance. Have students determine payment on their own personal policy; explain that they cannot be covered under their parents policy. Direct employees to use the following responses if the information is solicited: They are financing their vehicle; they do not own the vehicle, therefore, they must select comprehensive coverage rather than just liability coverage Use the address of their virtual residence. Do not provide a social security number. Use if one is required. Their current insurance status is Insured if they are currently on someone else s policy Vehicle s main purpose is to/from work Annual miles driven = 10,000 Their age is 18 (input their birth year to reflect current age of 18) They are a business professional Indicate actual traffic tickets received Vehicle is parked in an apartment parking lot unless they are renting a house Bodily Injury Coverage: $100,000/person Uninsured/Underinsured Motorist: $100,000/person Deductibles: Comprehensive $500; Collision $500 - Financial calculator for auto loans: - Learn About Insurance, found on VEI website under Resources/Reference Files/Risk Management/click on Personal Insurance/Automobile Insurance - Excel workbook My Personal Finance Budget - Word document Personal Finance Supporting Documents Each employee will enter expenses outlined in this task into their Excel workbook My Personal Finance Budget. Provide evidence of transportation expenses (including proof of vehicle purchased, insurance rates, fuel costs, etc.) in the Word document, Personal Finance Supporting Documents

8 DAY 8 Student PF Task 3.6: Determine Monthly Flexible and Optional Living Expenses Time Frame: 1 Day They need to budget for essential flexible living expenses, which are expenses that can be adjusted by altering the level of spending on the item. They also need to budget for optional living expenses, which are non-essential living expenses that can be eliminated completely or easily adjusted by altering your spending habits. Access Personal Finance Task 3.6 through the VEI website, which will require them to do the Determine monthly flexible and optional living expenses by referring to the propagated estimates calculated in their My Budget worksheet. Note: Calculations were based on the US Bureau of Labor Statistics national average monthly expenditures for a young adult Food % of their monthly income. Household Supplies - 0.9% of their monthly income. Personal Care Products/Services - 1.1% of their monthly income. Savings - 7.4% of their monthly income. Entertainment - 4.5% of their monthly income. Clothing - 4.8% of their monthly income Miscellaneous - 8.4% of their monthly income Research charitable organizations and obtain information about them. Select a charitable organization to support. Determine monthly charitable donation. Each employee should support his/her charity of choice by giving 5% to 10% of their monthly income (this exceeds the national average but for the purpose of promoting social responsibility, it is advised to require students to be more generous with their giving back to society). - Excel workbook My Personal Finance Budget - Word document Personal Finance Supporting Documents Each employee will enter expenses outlined in this task into their Excel workbook My Personal Finance Budget. Provide evidence of selected charity to support in the Word document, Personal Finance Supporting Documents

9 DAY 9 Student PF Task 3.7: Finalizing the Personal Finance Budget Time Frame: ½ Day They must finalize their personal finance budget. They will be using their budget and personal finance records to complete their weekly and monthly personal finance assignments Access Personal Finance Task 3.7 through the VEI website, which will require them to do the following Review My Budget worksheet. Point out that the difference between net income and expenses must equal $0.00. If the amount does not equal $0.00, adjustments MUST be made to optional living expenses. Finalize all entries using information from the previous Personal Finance tasks. - Excel workbook My Personal Finance Budget - Word document Personal Finance Supporting Documents Completed My Personal Finance Budget Completed Personal Finance Supporting Documents