MC Hammer – The Good Life

Presentation on theme: "MC Hammer – The Good Life"— Presentation transcript:

1 MC Hammer – The Good Life
Due to the success of the “Please Hammer Don’t Hurt ‘Em” album, MC Hammer made about $32 million in total income. After the purchase of his $12 million home, MC Hammer was left with approximately $20 million, which was supposedly squandered on other things such as: You may want to ask the students if they are familiar with MC Hammer (surprisingly many students are) and let them know he was a famous rap/pop artist from the 90’s. He is also famous for the poor management of his personal finances. Students can be challenged to go online to examine cases of other major entertainment personalities who earn six figure incomes and yet wind up in financial straits and bankruptcy litigation.

2 MC Hammer – The Good Life
FLEET OF 17 AUTOMOBILES 2 HELICOPTERS INVESTMENTS IN THOROUGHBRED RACEHORSES EXTRAVAGANT PARTIES HUGE ENTOURAGE OF 20 PEOPLE (MOST OF WHOM WERE ON HIS PAYROLL) These are the various expenses that MC Hammer spent his $20 million on. Ask students to discuss which of these expenses Hammer might easily have eliminated from his budget. Challenge them to explain why and how he could have eliminated certain expenses.

3 The Good Life Without a Budget
If MC Hammer did not make any more money, how long would it take until he would go completely broke? At a spending rate of $200,000 per month his money will last how many months ($9,600,000 divided by $200,000)? MC Hammer would run out of money in approximately 4 years Total Wealth $32 mil $12 mil House Total amount of money spent by MC Hammer amounted to $22.4 million $ 2 mil Cars $ 2.4 mil Helicopters $ 4 mil Parties $ 2 mil Racehorses **This slide is animated to advance each line upon the click of the mouse** Review what MC Hammer spent on each item and how much he has left over NOT including payment for his entourage. Then ask the students how long they think it will take until he is completely broke? $9.6 mil (not counting his entourage expenses) Remaining Net Worth 48 months 4

4 Other Notable Names Who Lost Millions
Vince Young: Made $40 million throughout an NFL career that lasted 6 years. As of 2014 he has a net worth of -$1.5 million Chris Tucker: Made over $55 million with the success of the “Rush Hour” franchise, making him the highest paid actor in Hollywood in He now has a net worth of $11.5 million Students should be challenged to consider and to express what life lessons can be taken from these case studies. Focus the students on explaining and talking about why gross earnings are not as important for a stress free daily life as net worth. 5

5 The Biggest Financial Pitfalls for Pro Athletes
Why Do They Lose Millions? The Biggest Financial Pitfalls for Pro Athletes “They see their salaries as infinite, like it doesn’t end, like they can’t spend all of it. But, if you get $5 million a year, by the time you get done paying your agent and taxes, you have $2 million left to spend. That goes very quickly.” MLB players **The categories under the two charts are: Filed for Bankruptcy and Did not File According to Sports Illustrated, 78 percent of NFL players and 60 percent of NBA players file for bankruptcy within five years of retirement. *While these statistics only apply to athletes, this may also explain how other people with wealth lose their money. Challenge students to consider why these statistics may apply to their current and family lives even if their current incomes do not approach these 6 figure levels, 60% of NBA players file for bankruptcy within 5 YEARS of retirement 78% of NFL players file for bankruptcy within 5 YEARS of retirement MLB players file for bankruptcy 4 TIMES more than the national average

6 Avoiding Bankruptcy You can avoid bankruptcy by: Saving your money
Setting a budget Investing your money Reviewing your expenses to understand how much you can afford to spend without running out of money **This slide is animated to advance each line upon the click of the mouse** Ask the students what they think ________could have done differently before advancing. Have students discuss why each of these principles is important in terms of making viable life decisions about income and planning for the future.

7 Those Who Learned from Others’ Mistakes
Ryan Broyles formerly played for the Detroit Tigers, drafted in He is most notably known for his frugal lifestyle and abiding by the 50/30/20 rule. Broyles had a NFL contract in 2015 worth more than $3.6 million with $1.4 million going straight in his pocket. He keeps to a frugal $5k a month budget, meaning only $60k after-tax income a year with a wife and one child. “I want to invest and I want the investments to provide so I’m financially free.” –Ryan Broyles Ryan Broyles abides by the 50/30/20 rulewhich we will learn later on in this class. He understands that his career has limitations and when friends ask why he why he doesn’t have flashy things, like a Porsche. He responds by telling them he’ll have such things one day, and he won’t even have to be working when he buys them. “I want to invest and I want the investments to provide so I’m financially free,” –Ryan Broyles Zooey Deschanel spends less than 25% of her income a month on expenses. Source for her income: Have students compare and contrast these two celebrities with the other personalities cited before . Ask them to share the extent to which they agree or disagree with Broyles and Deschanel’s philosophy. Zooey Deschanel is an actress on New Girl. She reportedly makes $100k a month with $1,578,000 in the bank, $1,645,000 in stocks and $693,300 in property. Her total net worth is $3,916,300. She only spends $22,500 a month on all expenses a month.

8 Video- Budgeting 101

9 Introduction to a Budget
What is a budget? Has anyone ever seen a budget? What does it look like? Has anyone ever built or kept a budget? Why? How is a budget related to our priorities, our wants and our needs? Wants Needs Dinner out Groceries Brand name sneakers Monthly rent Spring break trip Paying the electric bill **This slide is animated to advance wants and needs examples upon the click of the mouse** Divide students into pairs and engage them in listing their own family wants and needs. They can of course also go home and develop a specific list with their family members and this can be lused at a Financial literacy engagement expo for family and community with students in lead. Ask the students the questions on the slide, then ask them to tell you some examples of wants and some examples of needs. The table will appear empty after clicking through the bullet points, followed by the green question at the bottom and the word bank. Encourage the students to discuss where they think each example falls, as either a want or a need. Clicking through, the examples will disappear from the word bank at the bottom and reappear in the column they belong in this order: Groceries, Dinner out, Monthly Rent, Brand name sneakers, Spring break trip, paying the electric bill, books for class, iPad iPad Books for class Where do these examples fall? Groceries Monthly rent Spring break trip Books for class Dinner out Brand name sneakers Paying the electric bill iPad

10 Building a Budget The first step in building a budget is remembering that money can move in two ways: Into your wallet INCOME Out of your wallet EXPENSES **This slide is animated to advance illustrations upon the click of the mouse** Income and expenses are further explained in the following slides Explain that there are MANY ways to spend money while there are far fewer ways to make money.

11 Income What is considered “Income”? Salary Allowance Gifts
Earnings on investments Gross Pay: Your total salary before taxes or deductions Net Pay: The amount of money you actually bring home after taxes and standard deductions “What is considered Income?” Explain, Income is considered money you acquire or earn. Examples include: salary, allowance, cash gifts, and earnings on investments. Encourage students to share their current income sources and potential income sources as they get older. Ask the students if they have heard of “gross and net pay” before moving on to their definitions. Gross Pay is the amount of money you make before your taxes and deductions are taken. Net pay is also know as “take home pay” Explain what is the primary source of income for people aged (salary, wages, tips)

12 Periodic or Discretionary Expenses
There are three types of expenses: Fixed Expenses: Same amount each month Variable Expenses: Amount may change from month to month Periodic Expenses: Do not occur on a monthly or regular basis Fixed Expenses Variable Expenses Periodic or Discretionary Expenses Rent Utilities Vacation Telephone Entertainment Repairs Cable Clothes Medical Bills Savings Dining Out Tuition **This slide is animated to advance chart upon the click of the mouse** Challenge students to identify discretionary expenses in their own lives. Ask students to provide examples of income before reveling the examples on the slide. Then, define Expenses and ask for examples of each before reveling the table on the slide Fixed Expense: Cost the same amount each month. This will include rent or mortgage payments, cell phone bills that have a defined payment plan, savings, and installment loan payments Variable Expense: Fluctuate in amount—they usually reflect your usage. This will include food, utilities, entertainment, clothing purchases, and sometime transportation expenses Periodic Expense: Not paid every month and can be either fixed or variable. This will include auto and home repairs, vacations, medical bills, and school expenses. *It is important to note that each expense category can also be further classified as “necessary” and “discretionary” so that each category reflects the wants v needs of your budget. Touch upon the importance of communicating one’s budget plans and discussing financial issues

13 50/30/20 Rule IBM Confidential
Explain to the students that chart is to provide a general idea of how the average American allocates his/her personal income. Challenge students to explain why one piece of the income pie chart might be larger. It is important to note that the housing may take up to 50% of after tax income for Manhattan residents. This could be fixed by removing a percentage from the WANTS category. Savings/ debt repayment should always be factored into your monthly income. Some expenses can be put into two categories. Example: phone service is a must have. However, features such as call waiting or unlimited long distance are wants. IBM Confidential

14 Income: An Example Net Monthly Earnings =
You have just been hired with a starting salary of $50,000 and here is a breakdown of your expenses. Create a monthly budget using the rules you heave learned! Gross Annual Salary ………………………………………………………$50,000 Gross Bi-monthly Earnings ……………………………………………… $2,083 “Bi-monthly” means you get paid on the 15th and 30th of every month = a total of 24 paychecks per year Salary Withholdings: Social Security………………………………………………………… $130 Medicare……………………………………………………………… $30 Federal Income Tax………………………………………………… $248 NYS Income Tax……………………………………………………… $101 NY Disability…………………………………………………………… $2 NYC Income Tax……………………………………………………… $60 Total Withholdings…………………………………………………… $571 Net Bi-monthly Earnings…………………………………………………… $1,512 *When explaining salary withholding. Emphasize that only income tax, social security, and Medicare contributions are included in withholdings. Also explain that sales tax and property tax are NOT included. Ask students why in getting hired it is important to carefully consider the extent to which net monthly earnings after withholdings are more important than are gross earnings. Have a student read the “example” and ask for thoughts about how to structure the monthly budget When calculating a monthly budget, you will first need to know how often you are getting paid. It is important to know if you are getting paid bi-monthly (twice a month) vs. bi-weekly (every two weeks) since this will affect the total number of paychecks per year The tax withholdings are determined by the information you provide to the IRS on the W4 form. The First two lines of your withholdings is called “FICA” and includes Social Security and Medicare Tax. Your Federal Income Tax % is based on how much you make (tax bracket you fall into). The state income and disability, as well as city income tax will vary depending on which city and state you work in. New York City has one of the highest income tax rates in the whole country. Other deductions not represented in this example may include, medical and dental insurance, retirement (401k), and union dues. Have the students add up the various witholdings to calculate the total withholdings (ANSWER= $571) and then subtract this number from the Gross bimonthly earnings to get the Net Bimonthly earnings (ANSWER= $1,512) Finally, multiplying this number by 2 gives the student the number that will be used in the ‘income’ section of you budget (ANSWER= $3,024) Net Monthly Earnings = $1,512 X 2 = $3,024 earned per month

15 Monthly Budget – Handout or blank paper
Category Description Amount $$ INCOME Total Income EXPENSES Fixed Expenses Total Fixed Variable Expenses Total Variable Periodic Expenses Total Periodic Total Expenses Total Income - Expenses Challenge students to explain why unexpected expenses have to be taken into consideration. Have them suggest what such expenses might be.

16 Talk About It! Do they have a budget for their monthly expenses?
Ask your parents, family members/relatives and older friends: Do they have a budget for their monthly expenses? Do they use the 50/30/20 rule to save their money?

17 Opportunity Cost...Things to Remember!
People choose All choices involve costs People’s choices have consequences that lie in the future Opportunity cost refers to what you have to give up to buy what you want in terms of other goods or services. When economists use the word “cost,” we usually mean opportunity cost. The word “cost” is commonly used in daily speech or in the news. For example, “cost” may refer to many possible ways of evaluating the costs of buying something or using a service. Friends or newscasters often say “It cost me $550 to buy the iPhone I wanted.” Challenge students to consider what it might cost their parent or family member to take off a day to attend a school performance or an award ceremony. In terms of their own lives, what are the actual costs in skipping an ACT or SAT prep session. The basic principals of Economics tell us that: People always have a choice All choices come with a cost (something must be given up) the opportunity cost is the best option that was given up Life is not a lottery. Sound decision making today—not luck—will affect your future.

18 Any questions? The End Module 2