4.7 Budgeting for Variable Cost

Instructions

OBJECTIVES & STANDARDS
Math Objectives
Analyze real-life constraints using systems of inequalities
Identify and contextualize solutions to a system of inequalities
Common Core Math Standards
Link to all CCSS Math
CCSS.PRACTICE.MP4
CCSS.HSA.CED.A.3
Personal Finance Objectives
Analyze strategies for budgeting variable expenses
Describe common costs associated with car ownership
Summarize strategies for reducing everyday spending on significant variable costs, including transportation and food.
National Standards for Personal Financial Education
Spending
1b: Develop a budget to allocate current income to necessary and desired spending, including estimates for both fixed and variable expenses.
1c: Explain methods for adjusting a budget for unexpected expenses or emergencies.
5b: Brainstorm consumer research strategies and resources to use when making purchase decisions.
DISTRIBUTION & PLANNING
Distribute to students
Student Activity Packet
PLAY: Budget Frenzy Worksheet

ACTIVITY: PLAY: Budget Frenzy
You know how to budget for fixed expenses, like rent or insurance premiums. But what about those purchases and bills that just pop up? Follow your teacher’s instructions to play the game.

INFOGRAPHIC: Consumer Spending in the United States
Let’s start with a big-picture view of how the average American spends their money. What are the biggest fixed and variable expenses? Review the infographic and answer the questions.

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What are the three largest spending categories? What percentage of their income do Americans spend in each category?

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Which spending categories do you think mostly comprise fixed costs? Justify your response.

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Which category do you think would be the hardest to budget for on a monthly basis? Why?

ARTICLE: Make Sure Variable Expenses Don’t Derail Your Budget With These 4 Tips
As you observed in the infographic, variable expenses make up a large portion of our spending. But it can be tricky to budget for variable expenses since they change from month to month. Read this article to learn some strategies. Then, answer the questions.

4 Ways to Budget for Variable Expenses
Budgeting for variable expenses is an inexact science, but there are ways to make it easier.
1. Use the Average of Your Expenses
Prepare for fluctuating costs by calculating what you spend on  average in a given budget category and use that as a baseline in your  budget.
To find your average spend, add up everything you spent on say,  groceries, over the past year and divide by 12. You could also use the  average of three or four months, but it won’t be as comprehensive.
There will be months when you spend more and months when you spend  less. That’s why it’s important to set money aside to account for those  fluctuations. Money experts refer to this practice as setting up a  sinking fund.
During the months when you spend  less than average, you’ll divert the extra money into your sinking fund.  Then when a higher bill comes along — like my electric in the height of  summer in Florida — you can pull from those savings to make up the  difference.
2. Treat Variable Expenses Like Fixed Expenses
You have no control over whether gas prices will jump up or if your  babysitter will suddenly want a buck more per hour. But you can do your  best to stick to consistent spending limits for your variable expenses  whenever possible.
Use the cash envelope system to adhere to the spending limits you set for your variable expenses.  For example, you might stick $100 in an envelope for dining out. Once  you’ve used all the cash in the envelope, no more spending on  restaurants until it’s time to refill the envelope.
Pro Tip
Ask your utility companies if they  offer a plan where you pay a flat amount each month based on average  usage. Then you aren’t surprised with a major increase (or decrease)  from month to month.
3. Inflate Estimated Costs for Your Variable Expenses
Another way to deal with fluctuating monthly expenses is to give  yourself a spending cushion by budgeting for more than you think you’ll  spend. For example, if you regularly spend between $250 to $300 a month  on groceries, budget $325 or $350. That should be enough money to buy  food for the month without breaking your budget (and without having to  do any math).
This approach only works if you  have enough wiggle room in your budget. If you’re living paycheck to  paycheck or you have zero emergency savings, you’re better off sticking  to a budget that’s more strict.
If you inflate your projected costs, it’s likely you’ll have some  money left over at the end of the month. You could put that cash toward  savings, paying off debt or maybe just pocket it for something fun —  totally up to you.
4. Do Your Best to Plan in Advance
Of course, you don’t have a crystal ball to predict what your  variable expenses will be to the last cent. But you can try to  anticipate expenses in advance. Don’t let yourself be surprised by what  you could have planned for.
When you sit down to create your budget for the month, take a moment  to think about the things you’ll do during the next few weeks. Is there a  movie coming out that you’ve been dying to see? Add the cost of movie  tickets, popcorn and drinks to your entertainment budget. Is a friend’s  birthday coming up? Budget some money to go out and celebrate.
Get as detailed as you can so your budget will be as accurate as possible.
Don’t Let Variable Expenses Throw You Off Budget
The unpredictable factor of variable expenses may drive you crazy,  but there’s one good thing about those costs not being set in stone: You  can usually find ways to lower them.
Use coupons when shopping and check rebate sites after you’ve made  your purchases. Adjust the temperature on your thermostat and water  heater to reduce your utility costs. Make your own cleaning supplies. Organize a potluck dinner during the next holiday, instead of cooking (and buying) everything yourself. The saving possibilities are wide.
Nicole Dow is a senior writer at The Penny Hoarder. Buying generic  brands is one thing she does to lower the cost of her variable  expenses.

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GRAPH: ​​Cars Still Dominate the American Commute
For most Americans, transportation is their highest variable expense. Review the data for how Americans get to work and consider the factors that influence our transportation choices.

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Write a title that summarizes the graph.

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Think about how people get around in your area. Do you think this national data matches your local transportation patterns? Why or why not?

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What factors do you think influence peoples’ transportation choices? Why?

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VIDEO: What are the True Costs of Car Ownership?
If, like the majority of Americans, you’re planning on driving to work, you’ll need to budget for a car. The costs of car ownership go beyond just car payments. Watch the video and answer the questions.

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Which category of a 50/30/20 budget do you think transportation expenses fall into? Why?

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What expenses do you need to plan for in your transportation budget before buying a car?

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What do you think is the advantage of factoring in periodic expenses, like new tires, into your monthly car budget, even if you don’t pay those expenses every month?

ARTICLE: How to Figure Out Your Monthly Food Budget
After transportation, food is the next biggest variable expense for most Americans. It can be hard to track food spending and to decide how much to budget for food. Read the article to learn some benchmarks and strategies for food budgeting. Then, answer the questions.

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How have trends in food spending changed since 1960?

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How much does the USDA estimate a thrifty family of two will spend on food each month?

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What strategies could you use to determine your monthly food budget?

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VIDEO: How to Save Money on Everyday Expenses
You know how to create a budget for your variable expenses, but what if you’re looking to reduce your spending? There are small ways to save money on variable expenses, including food, utilities, and entertainment. Watch this video to learn some tricks to reduce your spending. Then, answer the questions.

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Complete the table below with at least one strategy to save money in each category.
Groceries_______ 
Utilities_______ 
Transportation_______ 
Entertainment_______ 

The video mentions saving money by comparing unit price while shopping. Unit price is the cost of one unit of something, like one pencil, one ounce of chips, or one pound of butter. You can find unit price by dividing the total price by the number of units.

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MATH CONNECTION - REPRESENTING CONSTRAINTS WITH INEQUALITIES
Logan’s family is looking at their food budget and considering which combination of meal options would be the best for them. The table below includes their cost, time requirements, enjoyment, and convenience for each meal option. Note: home cooking requires some travel based on the distance to the grocery store.

Part I: Equations
Logan chooses two meal options as the basis for his family’s meal plan for the month (30 days). He writes the following inequalities to represent their constraints.
x + y ≥ 3(30)
4(3x) + 4(13y) ≤ 1404
0.8x + 2.8y ≤ 100
y ≥ 2

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Willie often realizes he’s overspent on food when his checking account balance runs low at the end of the month, but he doesn’t know how much he should be budgeting. All of the following are ways for Willie to determine his food budget, EXCEPT…
1. Review his past bank statements to find the average he spends on food each month
2. Look up the USDA estimated cost for different food plans to use as a benchmark
3. Track how often he eats at restaurants each month to avoid needing a food budget
4. Calculate 10% of his income to set aside for food spending each month

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Which of the following is a variable expense?
$18 TV streaming subscription
$23 dinner at a restaurant
$40 monthly gym membership
$850 rent payment

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All of the following are needs that should be included in the transportation budget for your car, EXCEPT...
Car payment
Average gas expenses
New paint job
Routine maintenance

4.7 Budgeting for Variable Cost

What are the three largest spending categories? What percentage of their income do Americans spend in each category?

Which spending categories do you think mostly comprise fixed costs? Justify your response.

Which category do you think would be the hardest to budget for on a monthly basis? Why?

4 Ways to Budget for Variable Expenses

1. Use the Average of Your Expenses

2. Treat Variable Expenses Like Fixed Expenses

3. Inflate Estimated Costs for Your Variable Expenses

4. Do Your Best to Plan in Advance

Don’t Let Variable Expenses Throw You Off Budget

Write a title that summarizes the graph.

Think about how people get around in your area. Do you think this national data matches your local transportation patterns? Why or why not?

What factors do you think influence peoples’ transportation choices? Why?

Which category of a 50/30/20 budget do you think transportation expenses fall into? Why?

What expenses do you need to plan for in your transportation budget before buying a car?

What do you think is the advantage of factoring in periodic expenses, like new tires, into your monthly car budget, even if you don’t pay those expenses every month?

How have trends in food spending changed since 1960?

How much does the USDA estimate a thrifty family of two will spend on food each month?

What strategies could you use to determine your monthly food budget?

Which of the following is a variable expense?$18 TV streaming subscription$23 dinner at a restaurant$40 monthly gym membership$850 rent payment

All of the following are needs that should be included in the transportation budget for your car, EXCEPT...Car paymentAverage gas expensesNew paint jobRoutine maintenance

What are the three largest spending categories? What percentage of their income do Americans spend in each category?

Which spending categories do you think mostly comprise fixed costs? Justify your response.

Which category do you think would be the hardest to budget for on a monthly basis? Why?

4 Ways to Budget for Variable Expenses

1. Use the Average of Your Expenses

2. Treat Variable Expenses Like Fixed Expenses

3. Inflate Estimated Costs for Your Variable Expenses

4. Do Your Best to Plan in Advance

Don’t Let Variable Expenses Throw You Off Budget

Briefly summarize the four approaches to budgeting for variable expenses.

Which strategy do you think would work best for you? Why?

Write a title that summarizes the graph.

Think about how people get around in your area. Do you think this national data matches your local transportation patterns? Why or why not?

What factors do you think influence peoples’ transportation choices? Why?

Hypothesize: What societal factors might encourage more people to bike or use public transportation?

Which category of a 50/30/20 budget do you think transportation expenses fall into? Why?

What expenses do you need to plan for in your transportation budget before buying a car?

What do you think is the advantage of factoring in periodic expenses, like new tires, into your monthly car budget, even if you don’t pay those expenses every month?

How have trends in food spending changed since 1960?

How much does the USDA estimate a thrifty family of two will spend on food each month?

What strategies could you use to determine your monthly food budget?

What factors influence how you or your family make decisions about food?

Based on unit price, which is a better deal on cereal:

You’re comparing prices for avocados: a large bag of 15 avocados for $22.50 or a small bag of 3 avocados for $5.25. Which is the better deal based on unit price?

Make an inference: why might you choose to buy something that has a higher unit price than the alternative?

Which two meal options did Logan choose? How do you know? Hint: focus on the coefficients in the second and third equations.

What do each of Logan’s inequalities mean in context? Complete the table to describe each constraint.

Part II: GraphLogan graphed two of the constraints from Part I.Which two inequalities did Logan graph?

Would your solution from Question 26 fit the family’s other constraints? Test it algebraically and show your work.

Part III: ReflectionIf you were building a personal food budget, which meal options would you choose? Why?

Which of the following is a variable expense?$18 TV streaming subscription$23 dinner at a restaurant$40 monthly gym membership$850 rent payment

All of the following are needs that should be included in the transportation budget for your car, EXCEPT...Car paymentAverage gas expensesNew paint jobRoutine maintenance

Briefly summarize the four approaches to budgeting for variable expenses.

Which strategy do you think would work best for you? Why?

Hypothesize: What societal factors might encourage more people to bike or use public transportation?

What factors influence how you or your family make decisions about food?

Based on unit price, which is a better deal on cereal:

You’re comparing prices for avocados: a large bag of 15 avocados for $22.50 or a small bag of 3 avocados for $5.25. Which is the better deal based on unit price?

Make an inference: why might you choose to buy something that has a higher unit price than the alternative?

Which two meal options did Logan choose? How do you know? Hint: focus on the coefficients in the second and third equations.

What do each of Logan’s inequalities mean in context? Complete the table to describe each constraint.

Part II: GraphLogan graphed two of the constraints from Part I.Which two inequalities did Logan graph?

Would your solution from Question 26 fit the family’s other constraints? Test it algebraically and show your work.

Part III: ReflectionIf you were building a personal food budget, which meal options would you choose? Why?

Which of the following is a variable expense?
$18 TV streaming subscription
$23 dinner at a restaurant
$40 monthly gym membership
$850 rent payment

All of the following are needs that should be included in the transportation budget for your car, EXCEPT...
Car payment
Average gas expenses
New paint job
Routine maintenance

Part II: Graph
Logan graphed two of the constraints from Part I.

Which two inequalities did Logan graph?

Part III: Reflection
If you were building a personal food budget, which meal options would you choose? Why?

Which of the following is a variable expense?
$18 TV streaming subscription
$23 dinner at a restaurant
$40 monthly gym membership
$850 rent payment

All of the following are needs that should be included in the transportation budget for your car, EXCEPT...
Car payment
Average gas expenses
New paint job
Routine maintenance

Part II: Graph
Logan graphed two of the constraints from Part I.

Which two inequalities did Logan graph?

Part III: Reflection
If you were building a personal food budget, which meal options would you choose? Why?