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Financial Planning

Financial Planning. Unit 1: Banking & Credit RECAP. What’s the BIG DEAL about MONEY?. It allows us to move beyond the barter (good for good) system. Characteristics of Money: Durability Portability Divisibility Uniformity Limited Supply Acceptability. What’s the BIG DEAL about MONEY?.

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Financial Planning

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  1. Financial Planning Unit 1: Banking & Credit RECAP

  2. What’s the BIG DEAL about MONEY? It allows us to move beyond the barter (good for good) system Characteristics of Money: • Durability • Portability • Divisibility • Uniformity • Limited Supply • Acceptability

  3. What’s the BIG DEAL about MONEY? WATCH VIDEO

  4. What’s the BIG DEAL about MONEY? US first created lawful money (backed by silver and gold). We currently use a fiat money system – LEGAL TENDER (backed by the confidence in its value)

  5. without CASH? How can you buy stuff

  6. The Emergence of a Cashless Society: All the ways we DON’T use CASH: • Gift Cards • Debit Cards • Checks • Money orders • Credit Cards • Electronic Transfers

  7. How do YOU Make Money? • You will spend approximately 86,000 hours of your life working (about 10,000 days) • Your CAREER Choice should be based on values and beliefs, not necessarily money (A LABOR OF LOVE)

  8. How do YOU Make Money? • Take the following into account as well: • Education Requirements • Job Trends • Job Outlooks

  9. US Income at a Glance…

  10. US Income at a Glance… The median income in New York State for a person with less than 1 year’s experience is: $47,000 *www.payscale.com

  11. 30,500 305,000 3.05 million 30.5 million 274.5 million

  12. Finding the Job for YOU • Research • Internships and Job Shadowing • Part-time jobs early in life • Most successful people worked part-time as teenagers

  13. Other SOURCES OF INCOME • Investments • Self-Employment • Rental Income • Windfall Income

  14. What Factors Influence Income? • Capacity to earn, knowledge, skills, level of education • Job Opportunities • Employment benefits (monetary and non-monetary) • Inflation and Deflation • Taxation

  15. HOW MUCH WILL YOU MAKE?

  16. The goal of tax planning is to arrange your financial affairs so as to minimize your taxes and keep the most of your money. TAXES! TAXES! TAXES!

  17. GROSS INCOME All income before taxes and deductions What your employer pays you to work TAXES! TAXES! TAXES!

  18. TAXES! TAXES! TAXES! MANDATORY Deductions: NON-MANDATORY: Automatic savings (Contributions to retirement plans that are taken out of gross pay) Health Insurance Premiums Life Insurance Premiums Union dues Charitable Contributions, and more… • Federal, State (maybe local) TAXES • Social Security (FICA) • Medicare (FICM)

  19. ADJUSTED GROSS INCOME Gross income minus allowable deductions TAXABLE INCOME Income amount used to calculate taxes owed (may include income other than paycheck) TAXES! TAXES! TAXES!

  20. TAKE-HOME PAY What you get to take home (sometimes called NET Pay) TAXES! TAXES! TAXES!

  21. How to pay LESS in Taxes: • Increase your tax DEDUCTIONS(standardized vs. itemized) • Take advantage of TAX CREDITS • Increase your withholdings

  22. 1. Increase your TAX DEDUCTIONS • There are standard deductions for singles ($6,100), married couples ($12,200) & heads of households ($8,950) • Itemized deductions include: • Expenses for healthcare • Mortgage interest • Gifts to charity • Job-related expenses • State/local/property taxes

  23. 2. Take advantage of TAX CREDITS Tax credits reduce your tax. Straight up - $ for $ reduction • There are tax credits for: • Earned Income Tax (for low income families) • Child Tax • Education • Retirement Savings Contribution • 1st Time Homebuyer • Dependent Care • Energy Efficient Home

  24. 3. Increase your WITHHOLDINGS Increase the amount of money taken out of each paycheck throughout the year – you’ll get a bigger refund at the end. CLAIM 0 – More money is taken out of each paycheck and you are more likely to get a refund CLAIM 1 – Less money will be taken out of each paycheck, but you may end up owing money at tax time

  25. THANKS UNCLE SAM!Tax Practice More Tax PracticeMy (possible) Future Plans

  26. The Financial Planning PROCESS • 5. Monitor & Modify the Plan • 1. Set SMART Goals • 4. Implement the Plan • 2. Analyze Information • 3. Create a Plan

  27. BUDGETING

  28. Financial Planning RECAP CREDIT BASICS

  29. Credit • Money you borrow to pay for things, with a promise to pay it back later

  30. Advantages of Credit Disadvantages of Credit • Allows for large purchases • Use it well & it builds a good credit score • Useful in emergencies (CC) • More convenient than carrying cash • Fees and interest can make credit expensive • Chance of identity theft increases • Hard to resist the “impulse buy” • Poor use may affect your ability to get: • Employment • Housing • Insurance

  31. The Role of the FED • WATCH VIDEO • Set Monetary Policy • Regulate Financial Institutions • Act as a BANK for Banks and Cus • Set the PRIME INTEREST RATE Affects the rate they charge US

  32. SOURCES of CREDIT • Financial Institutions • Banks/Credit Unions/Savings and Loan Associations • Credit Card Companies • Retailers • **Predatory Lenders” (aka) Loan Sharks”

  33. LOAN SHARKS AND PREDATORY LENDING • Payday Lending • Borrower gives lender a postdated check, lender gives $$, borrower pays back $$ with fee • Rent-to-Own Services • More expensive than a consumer installment loan • Refund Anticipatory Services • Get refund money upfront (but it is minus a fee)

  34. Catch Phrases of Abusive Lenders “125 percent of your home/car’s value” “Incredibly low monthly payment” “No upfront fees” “Even if you have a bad credit history…” “It’s free and you have nothing to lose” “Act now, this is a limited-time offer”

  35. Four Major Types of CREDIT • Secured Loans • Unsecured Loans • Credit Cards • Consumer Installment Loans • Lines of Credit

  36. SECURED LOANS UNSECURED LOANS Is NOT backed by collateral Usually has a higher interest rate because it is riskier for the bank/cu Examples: Personal Loan, some Student Loans Is backed by collateral • Usually has a lower interest rate • Bank/CU can take collateral if you don’t pay • Examples: Auto Loan, Mortgage

  37. Credit Cards • Allow you buy now and pay later • Only get charged interest if you DO NOT pay your bill off in full when it comes

  38. the united states of credit

  39. how did it all begin? • 1949, New Yorker Frank McNamara finished dinner and realized he left his cash at home • Came up with an idea about a card that could be used in place of cash at restaurants • Diners Club was born

  40. how did it all begin? • 1958, American Express issued its first charge card, used primarily for travel and entertainment • Eight years later, BankAmericard became first to let you carry a balance Don’t leave Home without it!

  41. Today*… • Nearly 54 million US households carry some form of credit card • On average, they carry a balance of $10,115 $792 Billion total national credit card debt as of February 2011 *Brooke Nevils, Womansday article

  42. CONSUMER Installment Loans • Money you borrow to pay for specific items (like a car, computer, furniture) • Pay a little each month (with interest) • Examples: Home Depot, Pottery Barn

  43. LINES OF CREDIT • Can borrow up to a certain amount (from a bank, CU or a business), but only pay interest on what you actually take out and use. • Example: Home Equity Line of Credit (HELOC)

  44. Which type of loan would be best for the following situations? • To finance a college education • To make small purchases in a retail store • To make home improvements • To consolidate debts

  45. ANSWERS: • To finance a college education • Student loan (sec/unsec) • HELOC • Installment Loan (payment plan from college) • To make small purchases in a retail store • Credit Cards • To make home improvements • Installment or HELOC • To consolidate debts • Unsecured (personal loan), HELOC

  46. THE COST OF CREDIT • FEES • INTEREST • RISK OF USING CREDIT

  47. FEES • Annual maintenance fees • Service charges • Late fees

  48. INTEREST Financial institutions charge money at a certain rate to let you use their money: • ANNUAL PERCENTAGE RATE (APR): • The cost of credit on a yearly basis, expressed as a percentage

  49. INTEREST • Fixed • Interest rate stays the same during the term of the loan • Variable • Interest rate may change during the loan’s term

  50. SIMPLE Interest Calculation • PRINCIPLE XRATE XTIME = INTEREST • Principle = amt borrowed • Rate = APR (decimal) • Time = in years (months are X/12) • Interest = amt of interest you owe

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