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Chapter 1 Introduction to Personal Finance

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1 Chapter 1 Introduction to Personal Finance

2 What is personal finance?
Financial issues that can affect an individual Knowledge is a key to making good financial decisions Varies from person to person, and situation to situation

3 The financial plan Record Keeping Retirement/Estate Planning
Personal Investing Protecting Assets and income Personal Financing Liquidity Management Budgeting and Taxes Budgeting- the process of forecasting future expenses Liquidity- readily available cash or the ability to turn something into cash house/artwork vs. checking account stocks Finance- 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 commissions Investing Inheritance/Gifts Credit Others? Hyperlink in pic What 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 value Borrowing for nonessentials was seen as immoral Borrowing was much more local Industrial Revolution changed the magnitude of production Reduced costs and increased inventory Borrowing for fun or frivolous items began 19th 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 increased Central banks are established due to the Great Depression First credit cards are introduced 1990’s and beyond Average household debt is between $10,000-$15,000 Average number of cards per user 3.7 WHY???? Hyperlink in pic Use 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 stub W-4 W-2 Medicare tax Social Security tax Federal Income tax State Income tax State 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 change Wage and tax statement Used to file your federal and state taxes Reports the amount of taxes withheld from your pay Must be sent to you no later than Jan. 31 of the following year W4- Birth of child, married, etc.


10 Gross vs. Net Income Gross- An individual’s total personal income before taking out deductions and taxes Net- gross income minus taxes and all deductions Common Deductions can add up to (20-40% of gross income) Medicare tax Social Security tax Federal Income tax State Income tax State disability tax Health care contributions Retirement

11 Setting Smart Goals 3 ranges of goals
Short term- within 1 year Intermediate- 1 to 5 years Long term- will take more than 5 years to accomplish Must be achievable, realistic, and specific Buy an Ipod, a car, down payment on house Have an overall 90% average, graduate with advanced regents diploma, graduate college Classwork or HW-- Make a list of important goals including short, intermediate, and long term Hyperlink 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 necessary Needs can fall under 2 categories Fixed 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 both Wants are purchased with discretionary income: Discretionary expenses offer best opportunities for adjusting spending Brainstorm some fixed and variable expenses Food vs. dinner at expensive restaurant

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