2 What is personal finance? Financial issues that can affect an individualKnowledge is a key to making good financial decisionsVaries from person to person, and situation to situation
3 The financial plan Record Keeping Retirement/Estate Planning Personal InvestingProtecting Assets and incomePersonal FinancingLiquidity ManagementBudgeting and TaxesBudgeting- the process of forecasting future expensesLiquidity- readily available cash or the ability to turn something into cash house/artwork vs. checking account stocksFinance- taking a loan to purchase an item (college, car, home)Article-P textbook
4 Ways to acquire assets! Why do people work? Work- salary or commissionsInvestingInheritance/GiftsCreditOthers?Hyperlink in picWhat is an asset?Video pauses- Socialist theories? Federal Reserve. Open source software.Discussion/HW Which factor influences you the most- autonomy (being your own boss), mastery, profit, purpose
5 American Credit Industry Began in the 19th century but borrowing was reserved for:Needs or things that increased productivity or valueBorrowing for nonessentials was seen as immoralBorrowing was much more localIndustrial Revolution changed the magnitude of productionReduced costs and increased inventoryBorrowing for fun or frivolous items began19th century- 90% of the population live in rural areas; banks only dealt with the well to do, local shopkeepers or merchants dealt with the masses, Information traveled to slowly and travel was too dangerous for non-local dealings. Social pressure held the system together.1890’s 40% of population lived in urban areas; pawn shops and loan sharks popped up; charged higher interest rates. Loans were backed but items left at the ship or health/safety.
6 American Credit Industry cont. 1940’s-1960’s: disposable income and spare time increasedCentral banks are established due to the Great DepressionFirst credit cards are introduced1990’s and beyondAverage household debt is between $10,000-$15,000Average number of cards per user 3.7WHY????Hyperlink in picUse of credit cards- not have to carry cash (lose it vs. cash), international uses, don’t need money now, benefits, proof of purchase (insurance), ease of record keeping (budgeting), etc.
7 Type of earning statements Pay stubW-4W-2Medicare taxSocial Security taxFederal Income taxState Income taxState disability tax(Health care contributions, retirement)
8 The W’s Used to withhold the correct federal income tax from your pay Complete a new one when your personal or financial situations changeWage and tax statementUsed to file your federal and state taxesReports the amount of taxes withheld from your payMust be sent to you no later than Jan. 31 of the following yearW4- Birth of child, married, etc.
10 Gross vs. Net IncomeGross- An individual’s total personal income before taking out deductions and taxesNet- gross income minus taxes and all deductionsCommon Deductions can add up to (20-40% of gross income)Medicare taxSocial Security taxFederal Income taxState Income taxState disability taxHealth care contributionsRetirement
11 Setting Smart Goals 3 ranges of goals Short term- within 1 yearIntermediate- 1 to 5 yearsLong term- will take more than 5 years to accomplishMust be achievable, realistic, and specificBuy an Ipod, a car, down payment on houseHave an overall 90% average, graduate with advanced regents diploma, graduate collegeClasswork or HW-- Make a list of important goals including short, intermediate, and long termHyperlink in Goals poster
12 Needs vs. Wants Need- something you have to have or can’t do without Want- something you would like to have, not absolutely necessaryNeeds can fall under 2 categoriesFixed expenses- a set amount that must be paid each budget period (monthly, quarterly)Variable expenses- a cost that changes in amount or time it must be paid, or bothWants are purchased with discretionary income:Discretionary expenses offer best opportunities for adjusting spendingBrainstorm some fixed and variable expensesFood vs. dinner at expensive restaurant