Managing Money

1. Managing Money Chapter 30

2. Budget • Derives from the French word bougette • A small leather pouch or wallet

3. Case for Management • You don’t have to have a great deal of money to practice good management. • Part-time job • Allowance • Substantial income

4. Learning to Save • Question is not whether to save but how much? • Trick to saving is: • Make it a habit • Become automatic

5. Another trick: • Not to spend • Have enough in savings to cover emergencies

6. 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.

7. $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?

8. Attitudes Towards Money • Personality and attitudes affect the way people manage money • Conservative = less spending, easier saving • Liberal = easy spending, harder to save

9. Money is used to fulfill certain emotional needs • Sense of security • Covers emergencies • Pays bills • Live comfortably

10. 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

11. Living on a Budget • Income = money you take in and have available to spend • Budget –plan for spending and saving your money

12. 1. Determine Income • Sources and amount of income • Period of time, weekly or monthly • Use actual take home pay

13. 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)

14. Write down your expenses for a week or two • Divide them into fixed and flexible

15. 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

16. Prioritize your spending • Realistic budget is one you can follow • Figure 30.1 for chart

17. 4. Stick to Your Plan • Budget sets limits for each category of spending • Check to see that you are staying within those limits

18. 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?

19. 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)

20. Banking • Automatic transactions • Direct deposit (for paychecks) • Loan payments • Bill payments

21. 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)

22. 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

23. 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

24. 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

25. Savings • Some have minimum balances • Fees charge if you fall below minimum • Pay low interest rates

26. 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

27. 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

28. 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

29. 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

30. 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

31. Opening an Account • 1. deposit money • 2. purchase checks • 3. purchase check registry • Shop carefully for institution • Some require fees, minimum balances, internet banking

32. 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

33. 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

34. What are the benefits of managing money? • Ensures you have money when you need it • Make your money work for you

35. Is it worthwhile to save small amounts of money? • Yes, teaches you how to save larger sums later

36. What is a flexible expense? • One that doesn’t occur regularly • Not always the same amount

37. How do good money managers prioritize expenses? • Cover fixed expenses (including savings) • Spend on flexible according to money left and preferences

38. Why do financial institutions pay interest? • Payment for using money to make loans and investments

39. 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

40. What is the difference between compound and simple interest. • Compound interest pays on the principal and previously earned interest

41. 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

42. 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

43. 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.

44. 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.

45. Websites • Financial calculators • https://www.consumerdebit.com/consumerinfo/us/en/aboutchecking/checkbookbasics/index.htm • http://www.bankrate.com

46. How to Be a Millionaire • http://www.huntington.com/calc/HNB4200.jsp