1 What do you want and how are you going to get it? Personal Finance 1. Income 2. Budget 3. Investing 4. Profit 6. Spending 7. Savings 8. Assets 9. Expenses Income vs. Expenses 5. Credit 10.Liabilities SS8E5 The student will explain personal money management choices in terms of income, spending, credit, saving, and investing.
2 Income How much money you make in a given period of time, normally a year.
3 Income: Gross vs. take home Gross is total income: everything you earned. Take home(aka net income) is the Gross minus taxes, benefits such as insurance, Social Security, retirement, etc...
4 Disposable Income The income that a person has left over after paying taxes and bills.
5 Budget A plan for how a person, business, organization, or government will spend its income over a set period of time.
6 Investing expend money with the expectation of achieving a profit or material result by putting it into financial schemes, shares, or property, or by using it to develop a commercial venture
7 Risk The possibility that an investment will lose money instead of paying a profit The greater or higher the risk, the higher the possible profit, but there is a greater chance of a loss
8 Profit a financial gain, esp. the difference between the amount earned and the amount spent in buying, operating, or producing something
9 Profit Motive The intent to achieve monetary gain in a transaction or material endeavor. People who invest time or money normally do so in expectation of some sort of profit
10 Credit the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future the money lent or made available under such an arrangement Loans, Credit Cards, Rent to own, lease, buy now pay later, etc...
11 Importance of Credit Most Americans will rely on credit at some point in their lives. It helps us to make purchases small and large, and build a reputation for being a responsible borrower. Consumer credit is an engine of growth for the economy. About three-quarters of all automobile purchases are made on credit terms, either financed or leased, and about 95 percent of home purchases involve a mortgage, another form of credit.
12 Good Credit A qualification of an individual's credit history that indicates that the borrower is a safe credit risk. A high credit score is an indicator of good credit, while a low credit score indicates bad credit. An individual's credit history is dependent on a number of factors, including the amount borrowed, the amount of available credit remaining and the timeliness of payments. Having good credit makes it easier to obtain loans, such as mortgages, and allows the borrower to obtain a more favorable interest rate.
13 Bad Credit A qualification of an individual's credit history that indicates that a borrower carries a higher credit risk. A low credit score indicates bad credit, while a high credit score is an indicator of good credit. Creditors who have lent money to an individual with bad credit face a higher risk of that individual missing payments or defaulting. Think Credit Score Having bad credit makes it more difficult or costly to obtain loans, such as mortgages, from financial institutions.
14 Things that could cause bad credit: making payments late missing payments defaulting on a loan filing bankruptcy maxed out credit cards foreclosure having an account sent to collections etc... high credit card balances
15 The Dangers of Credit Over spending!!!!! Defaulting on loans, payments, etc...can harm financial institutions, manufacturers, and retailers. Defaults can lead to higher interest rates on loans and difficulty getting loans/credit Defaults can lead to lower investment returns for shareholders and savings accounts Worse case: Defaults could lead to business and/or bank failures. YOUR ACTIONS IMPACT OTHERS!
16 Spending Paying out income (money) for goods or services
17 Savings Income that is not spent on goods or services. Savings invested in bank savings accounts normally receive interest.
18 Interest money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt
19 Assets Anything that is owned which has exchange value: it could be sold to make money.
20 Expenses the money spent on something ( expenses) the costs incurred in the performance of one's job or a specific task anything on which one is required to spend money
21 Liabilities a thing for which someone is responsible, esp. a debt or financial obligation
22 Income vs. Expenses Your goal is to spend less each month than you made that month. Income > Expenses= Budgets need to account for savings! Save or invest for known future expenses such as retirement, vacations, car maintenance, and/or future educational needs. Plan for the unexpected!!!
23 1. What is the average income for American men? 2. What is the average income for American women? 3. What job makes the most and which makes the least? 4. Has the average American income improved over the last 40 years?
24 What do you WANT? What is your dream for your future? Where do you want to be in 10 years? What kind of job do you want? What kind of car do you want to drive? What kind of home do you want? Where do you want to live? What kind of vacations do you want to take? What kind of technology, hobbies, etc... Start setting goals NOW! Know where you want to go and what you have to do to get there! Think about the amount of education or post secondary training you may need. Create a plan and follow it!
25 What do you want to be when you grow up? Discover how much you might be earning: Consider how much education you will need to do this job. Check on education costs and assume you will need a student loan. Best case, the loan will need to be paid off in 10 years at about 3% interest.!
26 Home Work Talk to your parents and get help estimating the following monthly expenses Utilities: water, power, cable or satellite, phone (cell and land line), gas or propane, internet Food: Groceries and eating out! Car: gas, maintenance, insurance, taxes, and loan or lease payments Housing: rent or mortgage, insurance, taxes, maintenance Other: medical insurance, educational expenses, sports fees, saving for vacations, entertainment, etc...
27 Home Work Application Get into groups of 4 Use your list of expenses and create an average for the group. Break it down into segments: Utilities, Cars, Food, Housing, Other. Answer the following questions: 1.On average, how much a money does your group spend each month? 2.Which segment consumes the most of your group s income? 3.If you had to cut your expenses, what could you cut with out damaging your credit?
28 What do you WANT? What is your dream for your future? Where do you want to be in 10 years? What kind of job do you want? What kind of car do you want to drive? What kind of home do you want? Where do you want to live? What kind of vacations do you want to take? What kind of technology, hobbies, etc... Start setting goals NOW! Know where you want to go and what you have to do to get there! Think about the amount of education or post secondary training you may need. Create a plan and follow it!
29 1. You beat the house. 2. The more that is required the better the chance of a big pay out. 3. You are more likely to die from what than to win the lottery? 4. Americans spend dollars on the lottery each year.
30 1. On what do Americans spend the largest percentage of their income? 2. How much do Americans spend on tattoos and piercings each year? 3. How much of their income do Americans spend for the necessities? How does this compare with 1950? 4. How much do Americans spend each year on cell phone service?
31 1. What percentage of your income should you save or invest each year? 2. What habit could help you become a millionaire?
32 1. What are the millionaire's three spending tips? 2. What could be another word for tip #1? 3. According to the millionaire, what is the enemy? Why is it the enemy?
33 Remember: little things can add up to big things.
34 Eating out vs. brown bagging it Big Mac Value meal: $5.00 Sandwich, chips, and coke from home: $2.00 Starbucks vs. brew at home Starbucks tall: $1.75 Brewed at home: $.15
35 1. The road to wealth is not about what you make, it is about how much you. 2. How much does Warren Buffett make per hour? 3. What yearly income buys happiness?
36 Financial Calculators Decide if you will rent or own your home. Do you want an apartment, condo, or house? If you want to rent, use the internet to discover rent costs. If you want to own, use a real estate website to chose a house and then use the mortgage calculator to figure out your monthly payment. Remember the cost of owning a house goes beyond the purchase price you must have insurance, pay taxes, and for regular maintenance. Ask your parents about these extra costs.
37 Financial Calculators Do you want a new or used car? Use the internet to find a car and use the auto loan calculator to figure out your payment. Remember the cost of owning a car goes beyond the purchase price you must have insurance, pay tag fees, pay for gas, and regular maintenance. Ask your parents about these extra costs.
38 Apply it This is individual work and it will be a test grade! 1. Use your yearly salary from salary.careerbuilder.com 2. Use the taxact.com website to find your tax bracket. 3. Subtract your taxes from your gross income to get your net income. 4. Divide your net income by 12 to get your monthly income. 5. Use you monthly income to create a monthly budget. Use the average monthly costs you have from your homework and the home and transportation costs you created for yourself. Your budget must end up in the black (money left over) bit.ly/qgtrwx
39 Reality Check