BUDGETING, SAVING, AND INVESTING MONEY

Chapter 24 BUDGETING, SAVING,AND INVESTING MONEY 24.1Budgeting Money 24.2 Saving Money 24.3 Investing Money CHAPTER 24

Lesson 24.1 BUDGETING MONEY Objectives Identify your own personal income and spending patterns Name and describe the four steps involved in developing and using a budget CHAPTER 24

Lesson 24.1 INCOME AND SPENDING PATTERNS • Income is money coming in. • An expenditure is money that is spent. CHAPTER 24

RECORD OF INCOME AND EXPENDITURES Lesson 24.1 CHAPTER 24

Lesson 24.1 DEVELOPING AND USING A BUDGET • A budget is a plan for managing income and expenditures. • Four steps in developing a budget • Establishing goals • Estimating income and expenditures • Setting up the budget • Following and revising the budget CHAPTER 24

Lesson 24.1 ESTABLISHING GOALS • Identify what you need and want • All family members should participate • Be realistic • Be specific • Include short-range, medium-range, and long-range goals • Make a list CHAPTER 24

GOALS WORKSHEET Lesson 24.1 CHAPTER 24

Lesson 24.1 ESTIMATING INCOME AND EXPENDITURES • Choose a budget period • Keep track for at least four weeks • Figure out average income per budget period • Figure out average expenditures per budget period CHAPTER 24

Lesson 24.1 SETTING UP THE BUDGET • Savings is cash set aside in a bank account to be used for financial emergencies and goals • Regular expenditures, sometimes called fixed expenditures, are those essential monthly payments that are usually the same amount each month. • Variable expenditures are day-to-day living expenses. CHAPTER 24

Lesson 24.1 EXAMPLES OF REGULAR EXPENDITURES • Rent or mortgage payment • Utilities • Insurance • Auto payment • Credit or loan payments CHAPTER 24

Food and beverage Clothing Transportation Household Medical care Entertainment Gifts and contributions Taxes Lesson 24.1 EXAMPLES OF VARIABLE EXPENDITURES CHAPTER 24

HOUSEHOLD BUDGET FORM Lesson 24.1 CHAPTER 24

Lesson 24.1 FOLLOWING AND REVISING THE BUDGET • Following a budget involves • Allocation, or distribution, of income to the various items on the budget • Keeping accurate records of expenditures • A line item is a single entry, or budgeted item. CHAPTER 24

Lesson 24.2 SAVING MONEY Objectives Discuss the importance of setting aside a portion of income for savings Name and describe the two basic types of savings accounts Compute interest rate returns on savings CHAPTER 24

Lesson 24.2 WHY SAVE? • Saving will ensure that you have funds available to meet a financial emergency. • Saving will allow you to achieve financial goals. CHAPTER 24

Lesson 24.2 TYPES OF SAVINGS ACCOUNTS • Regular savings accounts • Also called passbook accounts • Offer safety, convenience and liquidity • Liquidity refers to an asset that can be easily converted into cash. • Time deposits • A certificate of deposit (CD) is money that is deposited into an interest-bearing account for a predetermined length of time and rate of return. CHAPTER 24

SAVINGS DEPOSIT FORM Lesson 24.1 CHAPTER 24

SAVINGS WITHDRAWAL FORM Lesson 24.1 CHAPTER 24

Lesson 24.2 FIGURING INTEREST RATES • Annual interest rate • Frequency of interest compounding • Compounding is a process in which an institution adds interest to an account, the balance rises, and the account continues to earn more interest based on the higher balance. • Interest pay periods • Annual percentage yield CHAPTER 24

INTEREST RATES Lesson 24.1 CHAPTER 24

COMPOUNDING INTEREST More frequent interest compounding results in higher returns. More frequent interest compounding results in higher Annual Percentage Yield (APY). Lesson 24.1 CHAPTER 24

SAVINGS GROWTH Lesson 24.1 Based on 5.25 percent interest, compounded daily CHAPTER 24

EFFECT OF INTEREST RATESON SAVINGS GROWTH Lesson 24.1 Based on a $50 a month deposit, compounded daily CHAPTER 24

Lesson 24.3 INVESTING MONEY Objectives Discuss advantages and disadvantages of investing Explain the following types of investments: stocks, bonds, and money market funds CHAPTER 24

Lesson 24.3 WHY INVEST? • Investing is the process of using money not required for personal and family needs to increase overall financial worth. • Investing is different from saving. • There is potential for making a lot of money. • There are risks of losing money. CHAPTER 24

Lesson 24.3 TYPES OF INVESTMENTS • Stocks • Mutual funds • Bonds • Money market funds CHAPTER 24

Lesson 24.3 STOCKS • Shares of ownership in a company are called stock. • Brokers are individuals or companies that specialize in selling stocks and other financial investments. • A commission is a fee paid to a broker for purchasing stock for you. • Dividends are profits that a company divides among its shareholders. • Capital gain refers to an increase in the value of stock or another asset. CHAPTER 24

Lesson 24.3 MUTUAL FUNDS • A mutual fund is an investment company that pools the money of thousands of investors and buys a collection of investments that may include stocks, bonds, and other financial assets. • Advantages of mutual funds • Diversification • Professional management CHAPTER 24

Lesson 24.3 BONDS • A bond represents a loan to a company or government agency. • Types of bonds • Corporate bonds • Government bonds • Municipal bonds CHAPTER 24

Lesson 24.3 MONEY MARKET FUNDS • A money market fund is a type of mutual fund that invests in short-term, high-liquidity investments. CHAPTER 24

Lesson 24.3 INVESTMENT PLANNING • Decide on goals and stick to them • Do not get greedy • Stay away from hot tips • Educate yourself about investing CHAPTER 24

BUDGETING, SAVING, AND INVESTING MONEY