F. Financial Literacy · Financial Decisions: Interest, Borrowing, Appreciation, Depreciation and Budgets

Modifying Budgets When Circumstances Change

F1.4 F1.1 A1About 70 minutes

Learning goals

I can identify how a change in circumstances (prices, income, goals, emergencies) affects a budget.
I can modify a budget shown as a table, a circle graph, a bar graph or a spreadsheet so it is balanced again.
I can recalculate percents and circle-graph angles after a change.
I can write a clear rationale for each modification, using both math and context.

Words to know

change in circumstances
Anything that changes income, expenses or goals: a raise, fewer work hours, a rent increase, a new goal, an emergency or a move.

rationale
A clear reason that explains and justifies a decision.

emergency fund
Savings kept for unexpected costs or a loss of income, often enough for a few months of expenses.

discretionary spending
Spending on wants that you can choose to reduce, such as entertainment or eating out.

rent increase guideline
In Ontario, the province sets a yearly maximum percent increase for many rental units (for example, 2.5% for 2025 and 2.1% for 2026). Some units are not covered.

Hook: nothing stays the same

Jordan's budget from last lesson balanced perfectly at $3 000 a month. Then, in the same season:

the landlord announced a rent increase,
food prices went up,
and later, the company cut Jordan's hours.

A budget is not a one-time document. When circumstances change, you modify it, and you should be able to explain why you made each change. That is expectation F1.4.

A process for modifying a budget

Identify the change and calculate its effect in dollars (per month).
Protect needs and commitments first: housing, food, transportation to work, required debt payments.
Choose where to adjust: cut wants first, look for cheaper options for needs, adjust savings temporarily, or increase income.
Rebalance so spending + saving = income.
Update the display (table, percents, circle graph angles or spreadsheet).
Write a rationale: what changed, what you adjusted, and why.

Worked example

Example 1: Rising prices

Jordan's rent ($1 050) rises 2.5%, and food ($450) rises 5%. Income stays at $3 000. Modify the budget and give a rationale.

New rent: 1050 × 1.025 = $1 076.25 (up $26.25).
New food: 450 × 1.05 = $472.50 (up $22.50).
Total increase: 26.25 + 22.50 = $48.75 per month.
Adjust: reduce personal and fun from $360 to 360 − 48.75 = $311.25.
Check: the budget still totals $3 000. New percents: rent ≈ 35.9%, food 15.75%, personal ≈ 10.4%.

Rationale: Rent and food are needs, so they must go up. Personal and fun is a want, and $48.75 less still leaves over $300 for it. Savings stay at 10% so Jordan keeps building an emergency fund.

Worked example

Example 2: A cut in income

Jordan's hours are cut, so take-home pay falls 15%. Find the new income and modify the budget.

New income: 3000 × 0.85 = $2 550, which is $450 less per month.
Keep the same: rent $1 050, phone $90, debt $210, transportation $300 (needed to get to work).
Cut personal and fun by $160 (to $200), clothing and other by $100 (to $140) and food by $40 (to $410, by cooking more and buying store brands).
Reduce savings by $150 (to $150) for now.
Check: 160 + 100 + 40 + 150 = $450, and 1050 + 90 + 410 + 210 + 300 + 140 + 150 + 200 = $2 550. ✓

Rationale: Needs and the debt payment are protected (missing debt payments can lead to fees and hurt a credit score). Wants are cut the most. Savings are lowered but not stopped, and Jordan will raise them again when hours return.

Before and after the pay cut. Rent, phone, debt and transportation bars stay the same height. Personal, clothing, savings and food shrink.

Category	After ($)	Percent of $2 550	Angle
Rent & utilities	1 050	41.2%	148.2°
Phone & internet	90	3.5%	12.7°
Food	410	16.1%	57.9°
Debt payment	210	8.2%	29.6°
Transportation	300	11.8%	42.4°
Clothing & other	140	5.5%	19.8°
Savings	150	5.9%	21.2°
Personal & fun	200	7.8%	28.2°

The modified budget in another display. Rent did not change in dollars, but its share of income rose from 35% to about 41.2% because income fell. (Percents and angles are rounded.)

Worked example

Example 3: Modify a budget shown as a circle graph

Riya is a college student who earns $800 a month. Her budget is shown as percents: transit 15%, phone 10%, food 25%, savings 20%, fun 20%, books 10%. She gets a raise to $1 000 a month. She keeps every dollar amount the same and puts the extra $200 into savings. Show the new circle graph percents.

Find the old dollar amounts: transit 0.15 × 800 = $120, phone $80, food $200, savings $160, fun $160, books $80.
New savings: 160 + 200 = $360.
New percents of $1 000: transit 12%, phone 8%, food 20%, savings 36%, fun 16%, books 8%.
Check: 12 + 8 + 20 + 36 + 16 + 8 = 100%. ✓

Savings grow from 20% to 36%. Every other category keeps the same dollars, but its percent goes down because income went up. Rationale: Riya is saving for next year's tuition.

Riya's circle graph before and after her raise. The dollar amounts for transit, phone, food, fun and books did not change, but their sectors shrink because the whole circle now stands for more money.

Writing a strong rationale

A good rationale answers three questions:

What changed? ("My take-home pay dropped by $450 a month.")
What did I change? ("I cut fun by $160 and savings by $150...")
Why? ("Rent and debt payments are commitments; fun is a want; I kept some savings so I can handle a surprise cost.")

Use numbers and context, just like in Lesson 2.

Hands-on activity

Budget curveballs

You need: a budget (Jordan's, Riya's or one you made last lesson), index cards or scraps of paper, a calculator or spreadsheet, and a family member to play.

Your family member writes 4 "curveball" cards, for example: "Bus fare rises $10 a month", "You get a 5% raise", "Your phone breaks: $250 repair this month", "You want to save $600 for a trip in 6 months".
Draw one card. Modify the budget so it balances.
Update one display: the percents, the circle graph angles or a bar graph.
Read your rationale aloud. Your family member must agree it is reasonable, or ask you to improve it.
Repeat with the other cards.

Model answer: "Save $600 in 6 months" means $100 a month. I moved $60 from personal and fun and $40 from clothing into a 'trip' line. Rationale: both are wants, and the trip matters more to me right now.

Just for fun

A budget is like a snowman: it looks perfect on day one, but as soon as the weather changes, you have to do some rebuilding.

Your turn

Jordan's $1 050 rent rises 2.5%. Find the new rent and the monthly increase.

Food rises 5% from $450. What is the new food budget?

Jordan's take-home pay of $3 000 falls 15%. What is the new income, and how much must the budget shrink?

In Example 2, why did Jordan not cut the debt payment?

After Riya's raise, what is the circle-graph angle for savings (36%)?

Jordan switches to a cheaper phone plan: $65 instead of $90. Suggest where the $25 should go and give a rationale.

Write a one-sentence rationale for reducing personal and fun spending instead of food when prices rise.

More practice: warm-up

A $2 000 monthly income rises 10%. What is the new income?

A $90 bill rises 3%. What is the new bill?

When money is tight, should you usually cut needs or wants first?

Income falls by $200 a month. By how much must spending and saving fall to stay balanced?

What is a rationale?

More practice: on your own

Jordan (back at $3 000) gets a 4% raise, and transportation rises from $300 to $320. Find the new income and the extra money after transportation. Suggest a modification.

Jordan's laptop needs a $600 repair this month. Jordan has $900 in an emergency fund. How should the budget change this month and over the next 6 months?

Show Riya's original budget ($800) as circle-graph angles.

Food ($450), transportation ($300) and phone ($90) all rise 3%. How much more per month does Jordan need?

Jordan's heating costs add $60 a month in January, February and March. How could the budget handle this without a surprise?

Challenge

Jordan wants to move into a one-bedroom apartment alone: rent and utilities would be $1 500 (up $450) on the same $3 000 income. Is this a good idea? Use math and context.

After the 15% pay cut ($2 550), Jordan wants to keep saving 10% of the new income. How much is that, and find a balanced set of cuts that works.

Rent stays at $1 050 after the pay cut, but its circle-graph angle grows from 126° to about 148.2°. Explain why, with a calculation.

Check your understanding

Quiz

Rent of $1 200 rises 2.5%. What is the new rent?

Take-home pay falls from $3 000 to $2 550. What should a balanced budget do?

Which is usually the best first place to cut when income drops?

Riya's income rises from $800 to $1 000 and food stays at $200. What happens to food's percent?

What makes a strong rationale for a budget change?

A $1 050 expense on a $2 550 income has what circle-graph angle (to the nearest degree)?

For parents and teachers

Big idea: F1.4 asks students to modify budgets displayed in various ways to reflect specific changes in circumstances, and to provide a rationale. Students practise with price increases, income changes, new goals and emergencies, and update tables, percents, circle graphs and bar graphs. Rationales also draw on F1.1 (using the context of a situation).

Common difficulties:

Forgetting to rebalance. After any change, check that the total equals income.
Recalculating percents with the old income.
Rationales without reasons ("I cut fun"). Ask "Why that category and not another?"

How to help: Play the "budget curveballs" activity together. You can also share, in general terms, a time your family adjusted spending (for example, when prices rose). The Ontario rent guideline and other figures are examples and change yearly.