Personal Finance

1. Personal Finance Unit #9 Economics

2. Income: Knowing what you earn Types of income: • Earned • Stock/mutual funds • Interest from savings • Gifts • Selling or renting property

3. Earned Income • The pay that people receive for their work. • Come in several forms • Salary • Wage • Commission • Bonus

4. Salary—the employee receives a fixed payment at regular intervals Advantages—guaranteed pay whether business thrives or is slow. Disadvantages—no extra pay for extra hours worked Wage—employee is paid by the hour Advantages—paid for all time worked Disadvantages—may face loss of income if business is slow and hours are cut back

5. Commission—employee receives a percentage of the sales price of a good or service as payment for making the sale. Advantages—hard work is rewarded with increased pay. Disadvantages—income is not guaranteed; if business is slow, income could fall sharply Bonus—employee is given additional money for excellent work performance Advantages—good work is rewarded with additional income Disadvantages--none

6. Piecemeal—employee is paid for each unit of a product he or she makes Advantages—faster workers can make more money Disadvantages—income can vary widely depending on work speed and availability of work

7. Fringe benefits and other income • Fringe benefits—indirect payments for their work (medical, dental, sick leave, paid vacation) • Interest on savings (savings account) • Stock dividends • Money from the sale or rental of property • Monetary gifts • Inheritance

8. Disposable Income • Salary + other income – taxes = disposable income

9. Making Financial Choices Goals and Values • Consumer spending • Particular goal (education, house, vacation) • Giving to charity • Saving • Debt

10. Making a Budget • Fixed expenses—expenses that have to be paid regularly, usually every month (ex. Rent, car payment) • Variable expenses—expenses that change from month to month (ex. Food, clothes, entertainment, etc)

11. Making Savings Decisions To decide which method would be best for you, consider: • Liquidity—the ability to turn savings back into cash • Income—overall income you will earn from the money you save • Safety—risk factor of savings • Net worth—measure of wealth. Current value of assets minus liabilities (debts you owe)

12. Saving Plan Choices • Passbook savings—Pays a fixed rate; money can be withdrawn at any time • Interest-bearing checking—called NOW (Negotiable Order of Withdrawal) accounts; the owner can write checks on the account, which also earns interest • Time-deposit—Funds deposited for a set period of time; usually a penalty for early withdrawal; interest rate dependent upon time limit on deposit • Savings bond—Sold by the government; common for bonds to be sold for half their full value, reaching their full value after a period of time • Stock–Shares in corporations; owners of stock sometimes earn income from dividends; they make profit when they sell their stock for a higher price than they paid for it • Mutual fund—Pooled funds of investors, managed by professional; funds usually invested in stocks and bonds • Real Estate—purchase of land and/or buildings; income earned from rent; profit made when real estate is sold for a higher price than was paid for it • Insurance—investment can be made in an insurance policy such as life insurance; after a set number of years, some policies can be surrendered for cash value, plus interest

13. Safety • Trade-off between Safety and Income • Safe—bank accounts, savings accounts, government bonds BUT= low interest • Risky—stock, real-estate BUT = possibility of big profit