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How does your household expense budget compare with the Seattle-Tacoma average?

SSAC2005.HG179.SB1.1

The starting point for all savings, investing and spending decisions.

You will be able to answer this question at the end of this unit.

Creating a Household Budget

Prepared for SSAC bySara Baldwin – South Seattle Community College

© The Washington Center for Improving the Quality of Undergraduate Education. All rights reserved. 2005

Supporting Quantitative ConceptsNumber sense: AverageNumber sense: PercentagesNumber sense: Converting weekly rates to monthly and annual ratesVisualizing data: Pie charts

Core Quantitative IssueRecording and using data

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Slides 3-5 introduce the idea of what a budget is and how the various expenditures are categorized.

Slide 6 contains the spreadsheet and instructions on how to record your expenses.

Slides 7 and 8 ask you to consider an average budget and to compare it with your own. You will discuss your ideas in a small group and report out to the class.

After four weeks of recording your expenditures, you will begin the next part of this module: plotting and analyzing your data. Slides 9-13 introduce and compare pie charts and percentages. You will be asked to think about and share with your small group what the differences indicate about lifestyles and values.

On Slide 14 you will be asked to reflect on and write about what you have learned.

Preview

Keeping a budget is not difficult. First, make a chart to record all your expenses. Break the expenses into categories for fixed expenses like housing and transportation costs; variable expenses such as utilities that are different from month to month; and discretionary expenses, such as gifts and entertainment. You may be surprised at what you find.

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Keeping a budget will allow you to understand, take more control of and talk about your…

• Income -- how much you earn in a typical week, month, and year.

• Spending habits -- what you have been doing with the money.

• Goals -- how much you think you should devote to saving, spending, or giving away.

What’s a budget?

A budget is a detailed record of your total income and everything you spend your money on.

Budgeting is the process of deciding how much to spend, what to spend it on, and how to keep your spending within the limits you have set for yourself.

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On average, what do you estimate people in the Seattle-

Tacoma area spend each month on these items?

Budget Categories

Over the next week, write down all your expenses for the week. Keep a little notepad with you, so you know where all the money goes. Little incidentals like a pack of gum

or deodorant can be put into the miscellaneous category.

When you start to track your budget, you will need to write down how much you spend each month on essentials like housing (rent or mortgage, property insurance), food, utilities (electricity, telephone, cable, internet) and transportation (car payments, insurance, maintenance or bus). In addition, you may have other expenses such as some of the following:

•Clothes (apparel) and services•childcare•cash contributions (money you give to others)•entertainment•healthcare•personal insurance and pensions, cable TV, Internet•education•personal care products and services•cigarettes and/or alcohol•reading•miscellaneous or other

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After you have written down all your expenses for the week, you will need to enter them into the spreadsheet in the next slide. In order to do that, you need to figure out how to re-categorize some of the items you have spent money on because the spreadsheet has fewer categories. The categories in the spreadsheet are:

•Housing•Food•Utilities•Transportation•Healthcare•Personal care and services•Personal insurance and pensions•Education and school supplies•Reading•Apparel and services•Entertainment•Cash contributions•Tobacco/alcohol •OTHER (You will have to use the ‘OTHER” category for all your spending that doesn’t fit into the above categories.)

What category would you put childcare expenses in?

Recording your expenses in a spreadsheet

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Your Budget Spreadsheet

Cell to enter data into

Cell with a formula in it

Recreate this spreadsheet, and enter your budget amounts for each category each week for

one month. Be sure to save it after each week.

If you would like help designing formulas for this

spreadsheet, click here.

When calculating monthly totals, make sure you get an average for the four weeks, then multiply that by 4.35 to obtain the monthly value (not 4 -- there are just over 4 1/3 weeks per month; if there were exactly 4 wks/mo, we would have

only 28 days per month and 336 days per year). Your formula will look something like this: =AVERAGE(C3:F3)*4.35

B C D E F G H I1 Week 1 Week 2 Week 3 Week 4 Monthly Annual Percentage2 Housing3 Food4 Utilities5 Transport6 Healthcare

7Personal Care and Services

8Personal Insurance

and Pensions

9Education and school

supplies10 Reading11 Entertainment

12Cash

Contributions

13Tobacco &/or

alcohol

14Apparel and

Services

15Miscellaneous goods and

services16 TOTAL

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A B C D1 Week 1 Monthly Annual2 Housing 0 03 Food 0 04 Utilities 0 05 Transport 0 06 Healthcare 0 0

7Personal Care and Services 0 0

8Personal Insurance

and Pensions 0 0

9Education and school

supplies 0 010 Reading 0 011 Entertainment 0 0

12Cash

Contributions 0 0

13Tobacco &/or

alcohol 0 0

14Apparel and

Services 0 0

15Miscellaneous goods and

services 0 016 TOTAL 0 0 0

On average, what do you estimate people in the Seattle-Tacoma area spend each week/month on each of these items?

What does average mean? Will the average be different for different groups of people?

Type in the weekly estimates

Recreate this spreadsheet and enter the weekly

estimates for each of the categories below. Use the formulas like you did in the

previous slide for the “Monthly” and “Annual”

columns.

Estimate the Expenses of Average Seattleites

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Jose is an ESL student at a community college. He has entered his weekly expenses into an Excel spreadsheet to help him track his budget. He

spends approximately $340 a week in the following categories:

How do your first week’s expenses compare with Jose’s?

Jose’s Budget

B C D E F1 Week 1 Week 2 Week 3 Week 42 Housing 1753 Food 604 Transport 505 Healthcare 20

6Personal Insurance

and Pensions 0

7Apparel and

Services 58 Entertainment 5

9Cash

Contributions 2010 Other 511 TOTAL 340 0 0 0

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You should have added your budget data into an Excel spreadsheet for Week One, as seen in Slide 6. You need to continue to track your expenditures for each of the next three weeks. You will be adding the numbers every week.

After four weeks, you can calculate an average weekly budget and convert it to a monthly budget. Then you can estimate how much it would be for an entire year. The Excel spreadsheet will calculate the yearly amount as well as the percentage of your expenses which are allotted to each category.

Now, look at the next slide of a PIE CHART showing the average expenditures of people living in the Seattle area.

You will create a similar pie chart which will illustrate graphically, with percentages, how you spend your money in the categories used in the chart on the next slide. You are starting Part 2 of this module: plotting and analyzing your data.

PROBLEM: How does your household expense budget compare with the Seattle-Tacoma averages?

Problem

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What do you think is more useful, knowing that people spent $250 on entertainment or that they spent 5.9% of their

monthly budget on entertainment?

This chart from the U.S. Department of Labor shows the distribution of average

expenditures for people living in the Puget Sound

area in 2001-2002.

The plotted values are percents. Percent means out of 100. For example,

instead of saying "8 out of every 100 professional basketball players are

female," we can say, “8% of professional basketball

players are female.“ Using percentages allows us to

make comparisons.

Pie Charts

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Create a similar pie chart for Jose’s budget that you examined in Slide 8 . For help on how to do this, click here.

Pie Chart with Percentages

Notice that in a pie chart

using percentages, you do not learn how

much money was spent;

instead, you see what

percent of the total was spent on particular

items.

Now that you’ve created a pie chart for Jose’s budget, create one for your

own budget using the expenses you’ve recorded.

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Notice that Jose’s chart has been placed on the right. How would you compare Jose’s spending with the Seattle area average?

Comparing with the average Seattle-Tacoma standard

Transport15%

Food18%

Housing52%

Personal Insurance and Pensions

0%

Entertainment1%

Cash Contributions6% O ther

1%

Apparel and Services1%

Healthcare6%

What surprises you when you compare the two charts? What questions do you have about Jose’s lifestyle based on his spending?

Chart of Jose’s Expenses

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Discuss the following questions with your small group. After that, choose two of the questions and write your individual answers to them.

1. What were your biggest three expenses? Were these different from the Seattle average? Why/why not?

2. Did you make many cash contributions? Who/what did you give money to? Was your average more or less than the Seattle average?

3. Are clothes/apparel important to you and your family? How often do you buy new clothes? Did you spend more or less than the average Seattleite?

4. What percentage of your budget did you spend on personal insurance and pensions? Was that different from the Seattle average? Please speculate on why yours might be different from the average.

5. How important is entertainment to you? Was there a difference in the percentage you spent on entertainment? Did you spend more or less than the Seattle average? Why?

6. How do you pay for healthcare? Does your job provide it? Is it cheap or expensive? How does it compare with healthcare in the country you came from? Did you spend a greater percentage of your budget on healthcare than the Seattle average?

7. Reflect on what you’ve learned from doing this budget module. Has it helped you get a better idea of how you spend your money? Have you changed any of your spending habits in response to doing this unit?

8. How does your household expense budget compare with the average Seattle-Tacoma standard?”

End of Module Assignments

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Working with Excel formulas

• To create an addition formula, type “=SUM” followed by parentheses containing the range of cells indicating the values you wish to add. For instance, if the values you’re adding are in cells C1, C2, C3, and C4, your formula will be “=SUM(C1:C4)”. The colon tells Excel that you will be adding C1, C4, and all cells in between in the range. If you are adding values in non-adjacent cells, simply type the desired cell references in the parentheses, with each address separated by a comma.

• To create a multiplication formula, type an equal sign followed by the cell references and/or values to be multiplied, separated by an asterisk. For example, if you’re multiplying the value in Cell G3 by 12, you will type “=G3*12”.

• To create a percentage formula, type in the cell reference to be divided, a division (fraction) sign, and then the number by which you will divide it (in this case, your annual income). For example, if you are dividing Cell H1 by an annual income of $35,000, your formula will be “=H1/35000”.

Cell formulas in Excel are denoted by an equal sign followed by the chosen operation.

You can copy equations down a column simply by selecting the cell, clicking on the box that appears at the bottom right,

and dragging your selection down. Excel automatically reformats your equation to

fit the new cells (but it never hurts to double-check the equations, just to be

sure!).

Return to Slide 6

B C D E F G H I1 Week 1 Week 2 Week 3 Week 4 Monthly Annual Percentage2 Housing3 Food4 Utilities5 Transport6 Healthcare

7Personal Care and Services

8Personal Insurance

and Pensions

9Education and school

supplies10 Reading11 Entertainment

12Cash

Contributions

13Tobacco &/or

alcohol

14Apparel and

Services

15Miscellaneous goods and

services16 TOTAL

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Instructions for Creating a Pie Chart

• Open your completed spreadsheet.

• Click on your spreadsheet.• Click on the chart wizard in the

middle of the tool bar.• Under chart type, choose ‘pie,’

then choose the bottom right pie chart option.

• On the next screen, click ‘Next.’• On the next screen, type in

Annual Budget on top of Week One.

• And ‘Next.’• Click ‘As new sheet,’ and ‘Finish.’• Last, right-click on the chart you

have made.• Choose Format Data Series.• Choose Data Levels.• Click ‘Category Name’ and

‘Percentages’• Be sure to save your chart.

Return to Slide 11

Transport15%

Food18%

Housing52%

Personal Insurance and Pensions

0%

Entertainment1%

Cash Contributions6% O ther

1%

Apparel and Services1%

Healthcare6%

Chart of Jose’s Expenses