Unit 2 – Savings, Spending and Budgeting

1. Unit 2 – Savings, Spending and Budgeting

2. CTE P.F #16) Explain how savings contribute to finance, and financial well being, building wealth, and working to reach financial goals. Compare and contrast savings options. Include time value of money and interest calculation. OBJECTIVES: • Explain how savings and investing contribute to wealth and goals. • Explain the time value of money. • Explore the cost of living. **SET UP NOTES AND WRITE YOUR EQ!

3. Where should all the $$ go?? • Smart money managers know exactly how much money they can count on coming in, and exactly how much money they need to spend on bills and day-to-day purchases. • This unit is designed to help you get smart about the money you earn and the money you spend.

4. Vocabulary NOTES • Checking Account – an account opened at a financial institution that can have multiple draws per month using a check or a debit card. • Savings Account – an account opened at a financial institution that earns a small amount of interest and has limited draws. • Principal – the original amount of money on deposit. • Time Value of Money – the longer savings are invested, the more money you will usually earn. • Future Value – is the amount your original deposit will be worth in the future based on your interest rate. • Spending Plan – a plan on how to spend your money for a set time frame, also known as a budget.

5. For-profit companies owned by shareholders • Managed by a paid board of directors • Offers services to everyone • Owned by shareholders • Profits only to shareholders • Insured by the FDIC • Not for profit, owned by members • Managed by members and volunteer board of directors who are elected. • Offers services to only a selected group of qualified people • Owned by members (customers) • Profits to all members • Insured by NCUA NOTES Banks Credit Unions Credit Unions and Banks

6. S PAY YOUR$ELF FIRST! etting aside money for “big ticket items” A voids borrowing, which costs you a lot! It’s a V NOTES ery wise thing to do, because E very time you pay yourself first, you are developing asaving habitthat leaves you with more money to spend later on for things that are really important to you!

7. When You Open a Savings Account • You deposit money in the account. • You can add or take out money at any time. • The savings institution is allowed to use your money to invest and earn a profit. • You are paid a small amount of interest for depositing your money. • Your money is insured against loss. NOTES

8. 1 3 4 5 10 8 7 9 2 6 11 Savings Deposit x 1 2 5 0 9 Today’s date goes here 3 7 5 2 5 Print Your Name Here Print Your Address Here 5 0 0 3 4 Sign Your Name Here 7 5 0 0 3 3 3 3 3 3 3 4 2 5 3 4 Click the numbers 5-E-1

9. NOTES Saving for Financial Goals Using a savings account to set aside funds for your financial goals… • Takes the money you are saving out of your wallet. • Keeps it in a secure place. • Lets you keep track of what you have saved. • Earns a small amount of interest in the process.

10. Quick Write! • How does saving money help lead to financial success in the long run? NOTES

13. Quick Write • What do they mean by the “time value of money” ?

14. Summary & Assignment • Answer your essential question for the day. • Using the Cost of Living estimation worksheet, the internet and your parents estimate these expenses for when you move out on your own  • Review Spending Log Requirements!

15. CTE P.F #16) Explain how savings contribute to financial well being, building wealth, and working to reach financial goals. Compare and contrast savings options. Include time value of money and interest calculation. OBJECTIVES: • Compare and contrast savings and options. • Calculate interest in both simple and compound situations. • Analyze the time value of money.

16. Types of Savings Accounts NOTES

17. Simple Interest • I = P(r)(t) • Interest = Principal x Rate x Time • Remember the rate must be a decimal and time is accounted for in years. So, 6 months = .5 years. TAKE NOTES!

18. Example 1 • What is the total interest on this account’s balance at the end of the investment period? • Principal = $1000.00 • Annual Interest Rate = %3.5 • Time Invested = 9 months • Simple Interest Account TAKE NOTES!

19. Example 2 • How much interest did this customer earn? What was their account balance at the end of the investment period? • Principal = $2500.00 • Annual Interest Rate = %6.5 • Time Invested = 15 months • Simple Interest Account TAKE NOTES!

20. TAKE NOTES! Compound Interest Number of Years Invested Number of Interest periods per year Interest Rate as a decimal Account Balance Principal (Amt. Invested)

21. Example 1 TAKE NOTES! • Sarah is planning to invest in a special savings program with her bank. If she begins a college plan for her daughter now she will earn 1.5% interest compounding quarterly on a one time investment of $5,000.00. If her daughter is 3 now, what would the account balance when she heads to college at 18?

22. Example 2 TAKE NOTES! • Johny started a credit card when he turned 18, and immediately maxed it out for a $500.00 stereo. He never made a payment. If he has been past due for 6 months, and has a rate of 18% compounded monthly; what is his approximate debt? (Assume no fees)

23. Quick Write • Which method (simple or compound) will earn you more money in the long run, and how does this impact the time value of money?

24. Summary & Assignment • Answer your essential question! • Lets do some math :) • Simple & Compound Interest

25. CTE PF #7) Create a monthly personal budget. Cite findings when calculating earnings and estimating house hold living expenses, taxes, savings, and emergency funds. OBJECTIVES: • Understand budgeting, net worth, assets and liabilities. • Create a monthly budget. • Research and estimate monthly income and expenses. **SET UP NOTES AND WRITE YOUR EQ!

26. The 411 on Creating a Budget • A budget is an important part of achieving the goals you set in your financial plan, because you can build the amount you need to save into your planned expenses.

27. NOTES Vocabulary • Fixed expenses cost the same amount every time. • Variable expenses fluctuate in amount, so you usually have more control over how much they’ll be. • Periodic or occasional expenses are ones you don’t pay every month, and can be either fixed or variable.

29. …Helps you determine where you are spending your money currently. …Helps you decide where to spend your money in the future. …You have an organized way to save for things that cost more. …Puts you in control of your financial future, beginning NOW. Reasons for a Spending Plan NOTES

30. ?

32. …Are less likely to know what they have. …Have no plan, often coming up short before their next paycheck or allowance. …Are almost certain to have no plan to save for more expensive spending goals. NOTES People Without a Budget…

33. Example 1: • Assume your monthly pay is $945.00 and you have budgeted 25% for rent. What is the maximum amount of rent you can pay?

34. Example 2: • Look at the expenses below, what is the total fixed expense amount? • Rent $450.00 • Electric $175.24 • Car Payment $325.00 • Grocery Bill $125.89

35. Steps to Writing a Budget • First – decide the time frame for tracking income and expense. Weekly or Monthly • Second – List all Income, no matter the source, and total. • Third – Make categories for each of your expenses. Don’t forget to P.Y.F.! • Fourth – Subtract your expense from your income. • Fifth – Make final adjustments. NOTES

36. Personal Plan for One Week

37. The Living Budget • Remember your expenses and income are not fixed forever… them may change. • Your goals will change as you age. • Your spending habits will change as you age. • It is important that you analyze and adjust your budget frequently. It should become a part of your bill routine.

38. Summary & Assignment • Use the budget worksheet to detail out your monthly budget. You must cite all sources you use. Create a list in MS Word of your sources as you go. Print and attach that list to the worksheet when you are done!