Lesson Plan Part II: Estimating Bills
This post continues the lesson plan introduced in Part I.
Part II: Bills, Bills, Bills
After students figure out their rough net pay from Part I of the budgeting assignment, now starts the “not-so-fun” part — figuring out their monthly bills. This part of the assignment prompts heavy sighs and dramatic comments about students realizing how expensive it is “just to live.” (But don’t fear, the fun spending is next!)
I divide this section into two parts — the payments all MUST make and the ones that may not apply to their individual situation.
Before students get started on the actual “budget” part of their bills, we discuss housing. Since housing is the largest expense for most people, it’s important for students to realize their options. We cover some of the basics about housing — lease agreements, security deposits, pet policies, benefits and drawbacks of having roommates — and I have them find 3 possible options in a city where they want to live as an adult.
I recommend students look for options at different price points and with different numbers of roommates while they compile a list of pros and cons of their top three choices. For reference, the average one-bedroom in our city is $815/month and the average two-bedroom is $900. (I encourage students to try to keep housing costs below 30% of monthly net pay, but students are free to make their own decisions about housing while weighing their opportunity costs.)
After students select their rent options, it’s on to the bills! Students should always complete this part in pencil 🙂
Bills Part I — The Necessities
I have several things students all must factor into their monthly necessary bills:
- Taxes (they already calculated their yearly federal taxes in Part I of the budgeting lesson plan)
- Retirement Contributions (they already calculated their yearly federal taxes in Part I of the budgeting lesson plan)
- Rent (Students choose one of the places from their research)
- Utilities (To keep this simple, I have all students use $192 for the unit’s utilities bills since it is my city’s average — if they have roommates they can use division for their portion of the utilities bills)
- Renter’s Insurance (Students use the national average of $12. I always emphasize the importance of having renter’s insurance with students.)
- Health Insurance (Although the students’ future jobs may offer health insurance, I want them to see this item explicitly in their budget. Students use $196, the price of catastrophic insurance price for healthy 20-somethings my city)
- Groceries (Students use $230, the USDA’s “thrifty” plan estimate)
- Philanthropy (Students pick a charity they would support and any value $1 or above. My state includes philanthropy on the economic standards for budgeting, but I think it’s great to emphasize giving to a cause they care about in any amount they can afford)
Bills Part II — Payments
This part of the bills includes payments that most students will have.
- Emergency Savings (I recommend at least 10% of net pay for all students — all students must have something going toward their emergency savings account)
- Student Loan Payments (Students who go to college/graduate school will calculate the average payment for tuition using online calculators)
- Car Payments (Once again students will use online calculators)
- Car Insurance (Students can use the average monthly US payment of $77)
- Gas/Car Maintenance(Students can use averages of $120 and $50 respectively)
- Other Transportation Costs (Bus/Subway passes, bike maintenance, ride sharing, etc.)
For bills, students will need to perform some calculations that are unique to their desired situation. I try to keep the math simple and utilize online calculators for things like student loan and car payments. Not all students will have these payments, but I want them to realize how much student loans and cars will really cost them as “adults” — especially if they are not used to paying bills on their own.
I feel strongly about students having a concrete idea of how much it will cost to live their desired life. Personally, I had absolutely no concept of the cost of bills after high school, especially when it came to student loans (and I’m still feeling that cost today).
I want students to be able to customize this assignment as much as possible, but I make sure students do this in pencil. Many students will erase their numbers when they realize exactly how much is leftover for the “fun” spending in the next part. Some realize they should downsize their apartment or continue to drive their current car into adulthood in order to reduce their bills. Realizing these opportunity costs is important at this age so they can prepare for being a financially independent adult.
Although bill calculations are not fun or exciting, hopefully students can look forward to an apartment or car they love. Or maybe it’s the prospect of having money set aside in savings and investment accounts. I want students to come away with knowledge and hopefully they will be excited for some aspect of their living situation.
The next part of the assignment — the “fun” part of discretionary spending — allows for students to spend money on the things that bring them joy. Before students proceed to the fun stuff, they should add their spending on the necessities and figure out how much is leftover from their gross pay. I have them use this chart to help keep track:
Now on to Part III!