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Managing Money. Chapter 30. Budget Derives from the French word bougette A small leather pouch or wallet. Case for Management. You don’t have to have a great deal of money to practice good management. Part-time job Allowance Substantial income. Learning to Save.
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Managing Money Chapter 30
Budget • Derives from the French word bougette • A small leather pouch or wallet
Case for Management • You don’t have to have a great deal of money to practice good management. • Part-time job • Allowance • Substantial income
Learning to Save • Question is not whether to save but how much? • Trick to saving is: • Make it a habit • Become automatic
Another trick: • Not to spend • Have enough in savings to cover emergencies
Piggy Bank • Goes back to the Middle Ages. A type of clay call pygg was used for tableware, as well as for containers to hold spare change. Given its name, the eventual shaping of this container seemed only natural.
$200 in a saving account that offers 5% interest compounded monthly would grow to $210 in one year; • $329 in 10 years • $696 in 25 years • Is that a worthwhile return on your money?
Attitudes Towards Money • Personality and attitudes affect the way people manage money • Conservative = less spending, easier saving • Liberal = easy spending, harder to save
Money is used to fulfill certain emotional needs • Sense of security • Covers emergencies • Pays bills • Live comfortably
Needs and Wants • Needs = things you have to have • Gas, food, electricity • Wants = things you’d like to have • CD’s, DVD’s, play station
Living on a Budget • Income = money you take in and have available to spend • Budget –plan for spending and saving your money
1. Determine Income • Sources and amount of income • Period of time, weekly or monthly • Use actual take home pay
2. Record Expenses • Expenses = are the items that you spend your money on • Fixed = regular expenses you are committed to pay (car insurance, apartment rent, etc) • Flexible = don’t occur regularly and are not always the same amount (clothes, supplies, movies, eating out)
Write down your expenses for a week or two • Divide them into fixed and flexible
3. Create a Plan • Know short-term and long-term goals • Short term (buying a picture frame or gift) • Long term ( buying a car, bicycle, guitar) • Fixed expenses are paid first
Prioritize your spending • Realistic budget is one you can follow • Figure 30.1 for chart
4. Stick to Your Plan • Budget sets limits for each category of spending • Check to see that you are staying within those limits
Real Life Application • Shane wants to buy a car. His current expenses – school supplies, lunches, clothes, entertainment, and a loan from his father for a CD player – take up most of his earning from a part-time job. Shane has decided to ask for more hours at work. • Is Shane’s decision a wise one? • Do you think he will be able to save the extra income? • What are his other options?
Consumer Skills • Banks must sell to potential customers on more than its services. Look at bank advertisements and other financial institutions. • What words or images are used to promote the institution? • Look closely at the lobby when you are in the bank. • Describe the setting. • (secure, conservative, trustworthy)
Banking • Automatic transactions • Direct deposit (for paychecks) • Loan payments • Bill payments
Bank Accounts • Saving and checking account may offer interest on your money • 1 – keeps money safe • 2 – able to withdraw when needed • 3 – earn extra money (interest)
Savings Account • Interest – payment in exchange for the right to use your money • Savings account – is an account that holds the money you deposit and pays you interest on it • Bank uses your money to make loans, investments
Principal – amount of money you have in the account • Interest rate – percentage of principal that the institution is paying as interest • How long the money is place in for • How often the interest is paid
Simple Interest that is paid only on the principal $200 = $6(interest) = $206 Compound Money you earn on your deposit plus previous interest More frequently interest is compounded, more money your account has Interest
Savings • Some have minimum balances • Fees charge if you fall below minimum • Pay low interest rates
Savings bonds Issued and guaranteed by government Very safe investment Cashed in after 6 months but won’t earn as much as bonds held longer Stocks Buy a share of a stock Partner in the company Value may go up and down Investing is risky Earn a profit called a dividend Not guaranteed Make Your Money Grow
Mutual Funds Type of investment company Purchase shares in a mutual fund and let professional invest your money Risk depends on what type of investment Good to diversify Certificate of deposit Form of deposit that is issued by a financial institution Depositors must agree to leave a certain amount of money in bank for a set time Low risk Pay a penalty for early withdrawal
Checking Accounts • An account that hold your money and allows you to pay for things by writing a check rather than using cash. • Keeps track of income and expenses
Checks • Banks that do not return cancelled checks with bank statement • Some do return them • Use duplicating checks • Some are posted on the internet in your account
Endorsed Checks • May be used like cash –by anyone • Restrictive endorsement helps limit the risk of misuse. • Writing “for deposit only” offers protection • “overdraft” writing a check for more money than you have in your account
Opening an Account • 1. deposit money • 2. purchase checks • 3. purchase check registry • Shop carefully for institution • Some require fees, minimum balances, internet banking
Bank accounts are insured by the Federal Deposit Insurance Corporation (FDIC) • Began in 1933 in the wake of the Great Depression and numerous bank failures • Federal government insures customers’ deposits in member banks up to $100,000
FDIC • Includes all accounts (under a single name) • Savings • Checking • CD’s (certificate of deposits) • How might you protect funds over $100,000? • Joint accounts, keep accounts in several banks
What are the benefits of managing money? • Ensures you have money when you need it • Make your money work for you
Is it worthwhile to save small amounts of money? • Yes, teaches you how to save larger sums later
What is a flexible expense? • One that doesn’t occur regularly • Not always the same amount
How do good money managers prioritize expenses? • Cover fixed expenses (including savings) • Spend on flexible according to money left and preferences
Why do financial institutions pay interest? • Payment for using money to make loans and investments
What factors determine the interst money in a savings account earns? • Principal, interest rate, how long money is in account, how often interest is paid
What is the difference between compound and simple interest. • Compound interest pays on the principal and previously earned interest
Questions to Ponder • How often do you need to write checks? • Money order- used like check sold for a small fee at the post office • What will it cost? • Service charges and or fees • Will writing checks prove less convenient than paying cash for purchases? • Most business’s accept personal checks some do not
Activity • Students are to start with $500.00 and write 10 checks for whatever they choose • Enter the needed information in register • Trade checks and registers and review for accuracy and correct usage
Activity • Make a list of 15 items that cost money. Include both necessities and luxuries. Then identify each as a need or a want. • Exchange lists with another student. Identify the needs and wants. • Compare your decisions on both lists with those of the other students.
Journaling • Students can write an assessment of their current financial situation, including their attitude toward money; some of their money management techniques, including use of bank accounts and whether their current practices will help them in the future.
Websites • Financial calculators • https://www.consumerdebit.com/consumerinfo/us/en/aboutchecking/checkbookbasics/index.htm • http://www.bankrate.com
How to Be a Millionaire • http://www.huntington.com/calc/HNB4200.jsp