Unformatted Attachment Preview
What she is spending today
What we want her to spend - her budget
Budget Surplus (Deficit)
We want this to be positive, which represents a budget surplus (income is HIGHER than spending)
If negative, Alana is spending beyond what she earns, and has a budget deficit
How Do I Budget?
Sharon thought back to her conversation with Alana last month. All of Sharon’s friends knew who to turn to if they had
money questions. Sharon attributed her financial savvy to the summer jobs she had held over the past four years. These
jobs had helped her save a few thousand dollars for college to minimize her student loans. Her friend, Alana,
approached her during the summer between their junior and senior years in high school, worried that she had no money
saved for college. Despite having part-time jobs for the last three school years, her checking account had a whopping
balance of $56.47. Alana asked Sharon what she could do to manage her money more effectively. After Sharon
answered with a one word answer, Alana asked “How do I budget?”
Sharon asked Alana to describe her goals and current spending habits. Alana responded in the following way:
“I totally freaked out after visiting a few colleges this summer and talking with my parents. College costs a lot of money
and my parents tell me now that they expect me to pay for my living expenses on campus (which I estimate will be $3,000
per year). That’s so unfair. I have no idea how I can save that much in a year. I mean, I’ve had a part-time job for the past
three school years and only have about $50 in my account now. I don’t know where all that money went. I also know that
I need to focus on my studies and not sure that I can work while I am at college. Something needs to change, but I don’t
know where to start.”
1. What do you think Alana’s goals should be? (2 marks)
Alana’s goals should be to save money, pay attention to her expenses and what her money will look like in the future.
She should make a schedule and stick to it and rely on her own information and be accurate. Also to get a good parttime job and to start budgeting.
2. Where is she spending her money today? (2 marks)
She is spending her money today on coffee, clothes, shoes, fuel and food.
3. What are a few ways that Alana can get a better understanding of her spending patterns? (2 marks)
Some ways that Alana can do to get better at spending patterns, is making a schedule. If she makes a reliable pattern
of spending she will use it and she could switch overtime, but if the ways do not work she can come back to the way
she knows is best and most effective. The only way she is going to stick to a pattern is becoming adapted to it and
making it a habit.
Sharon developed a basic plan for Alana to track every dollar she spent over the course of a month. Alana collected all
her receipts in a shoebox and reviewed them with Sharon at the end of the month:
● Coffee: 10 lattes @ $4 each
● Movies: 3 movies @ $12 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 @ $35.00 each
● Cell phone: Parents expect her to pay $50/month toward family plan
● Shoes: 1 pair @ $60
To help make sense of all of this information, Sharon asked Alana to organize the information by using the budget
template provided below. In the category column, she would list all of her various expenses. She would then make a
judgment call about whether each expense was a Want or a Need. In the Monthly Cost column, she would total up the
cost for each of the expenses. In the last column, she would calculate how much that item was as a percentage of her
total costs. This would help her determine where she was spending most of her money in the past month.
Complete this chart with the information provided above:
Cell phone bill
Alana’s reaction after completing this process was 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, I’m spending much less per month than I’m earning, but, as we’ve already
established, I’ve only got $56 saved up from 3 years of working. How did this happen? I need to speak to my boss”.
4. Use the Google Sheet to show Alana what her current budget is and create a proposed budget so that she can
achieve her savings goals (10 marks). Be sure to:
calculate her budget surplus OR deficit (current and proposed)
build in savings for college
5. Explain to Alana why she might not want to speak to her boss just yet. (2 marks)
Alana should not speak to her boss yet because the budget template may be missing additional items that Alana
spends here money on. Additionally, the amount of hours worked over the three years of saving, and pay rates, may
have been different at different points in time. This can be why she has not saved as much as expected. The concept
here is that Alana needs to review past expenses for accuracy, past payment history for changes, and past hours
worked, prior to blasting her boss of approach him/her on the issue.
Once Sharon lends some clarity on Alana’s pay, she feels slightly better, but she’s still really worried about her initial
“This is going to be extremely difficult for me to cut anything. I mean, I’m 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 about another 20 hours per
month, or about five hours per week. This is really going to crimp my social life, and I only have one senior year of
high school. My grades kind of slipped last year too, so I wonder if that extra time on the job is going to hurt me
there. I am so confused! Every month I know I should be saving...but I can be so impulsive about my money
Sharon thought 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. Instead, she seemed
to be at a dead-end, less focused on solutions and more on her inability to change. Sharon thought her best approach
would be to outline a few options for Alana so she could choose a solution that would work best for her. Sharon had
worked with enough friends before to know that these conversations could be difficult ones, but she looked forward to
solving Alana’s money problems.
6. What 3 options would you outline for Alana to help her achieve her goals? Be specific with your
recommendations, highlighting specific costs or income sources (3 marks).
Alana has to work out a certain monthly budget for herself and stick to it. She could use the envelope method to do
this. You have to work enough to earn at least $ 600 in a month to cover your expenses (rent, food, transportation,
etc.), which total $ 524.
1. Alana needs to know more about her expenses, only then will she be able to save a certain amount each
month. The statement of cash flows will help him in this.
2. The benefits of working harder would be that Alana could increase her income through her work. Also, doing
more work would invest more time in your career, which could lead to a promotion.
3. You can always work extra hours at work now so that you can get extra money but exercise time management
as well which is very important.
However, if Alana doesn't want to spend more time at work to earn more money, she should adjust her budget. This
would allow you to save more money without investing more time. Maybe you should check the amount of money
spent on coffee and make your own.