1. CAREER PREP PERSONAL FINANCE 1

2. Checking Accounts Check Order to bank to pay a certain $ to certain person Reasons Safer than cash Proof of payment Establish credit Keep track of income/expenses – budgeting 2

3. Signature card Personal identification Protects from forgery or robbery Compares signature on check to signature card Asks personal questions Date of birth address Deposits $ in account before checks written Deposit slip required Cash Checks “less” cash received 3

4. Checking Deposit Slip 4

5. Writing checks Ink used Print & write #’s clearly Do not change your signature Mistake made – VOID check & begin new 5

6. Check register Used to record Deposits Checks Withdrawals (ATM) Bank charges Reconciling Receive statement from bank showing: Deposits ATM withdrawals Internet transfers between accounts Mobile app transactions Checks presented for payment Other transactions 6

7. 8 steps to reconcile 1.Checkmark each item in check register matching statement 2.In register subtract fees 3.Total checks not cleared by bank 4.Total deposits not cleared by bank 5.Show balance on statement 6.+ deposits (step 4) to balance 7.- checks not cleared (step 3) from balance (step 6) 8.Register total should match reconciled amount (step 7) 7

8. ATM (automated teller machine) Available 24/7 Need ATM card (debit card) to access Most banks charge fee for using ATM other than own bank Some debit cards unable to be used like a credit card $ comes out of your account immediately Mobile apps Internet transactions on your cell phone Available 24/7 Pay bills, transfer $ between accounts, check balance 8

9. Savings Account Deposit $ earn $ known as interest Kept for short term or emergencies Specialized savings account Pay higher interest rates Restrictions Maintain high minimum balance When can withdrawal Examples: NOW accounts Xmas Club Cash mgmt. account 9

10. Insurance Property Keeps you from experiencing major losses of material things Car Furnishings house Life Covers lost wages & pay important expenses when unexpected death occurs 10

11. Health Pays 50% or more of medical, dental, vision expenses Car States require all drivers carry 6 types Bodily injury liability $ to pay claims against YOU & cost of your legal defense if car injures or kills someone Property damage liability $ to pay claims & defense costs if car damages property of others Medical payments insurance Pays medical expenses from accidental injuries Covers you, your family, & others in your car 11

12. Uninsured motorist protection $ for injuries caused by another w/out insurance or a hit-and-run driver Collision insurance $ for damage to your car from accident or overturning Comprehensive physical damage insurance $ for damages when your car is stolen or damaged by fire, flood, hail, or other perils. 3 things to consider when deciding which to pick Your financial responsibility Responsible for driving safe & injuries or damages you might cause $ of claim may exceed $ of coverage you have 12

13. Person making claim can seek $ from your personal assets car Drive older car = low value Compare low value to cost of collision coverage May not want to purchase collision coverage Finances Collision & comprehensive coverages have deductibles Deductibles = $ you pay, insurance pays remainder ($100, $250, $500) Eliminates cost of handling small claims & providing insurance cheaper ↑ deductible, ↓ cost of insurance 13

14. Life 2 types Term Usually purchased for something needing financial protection for certain period of time Example: mortgage Pays off mortgage in case of death Less expensive Disadvantage = coverage only for a specific time frame Compare to renting vs. buying home – you leave rented property you have no equity in the property Whole or universal Most prefer due to long-term advantages Some accumulate $ to be used to cover expenses during retirement, pay-off mortgage early, college, or save for emergency 14

15. Advantage = lifetime coverage & accumulate cash value More expensive during early years of policy 15

16. Stocks & Bonds Vocabulary Shares Ownership in a corporation divided into exchangeable units Corporations Business where numerous people own it Sole proprietorships 1 person owns Partnerships 2 or more people own 16

17. dividends Distribution of company’s earnings Stockholders Investors in a corporation Types of stock Common Ownership shares in a corporation Initially sold by company – later traded among investors Earn dividends Stocks go up so investment worth more $ No financial guarantees Over time usually better return than other investments 17

18. Risks Company not do well Stock prices may weaken Lose all $ invested Shareholders not responsible for company debt Preferred Ownership shares in a corporation Initially sold by company – later traded among investors Differences from common stock Lessens investor risk, may limit profits Dividend guaranteed & paid before common stock dividend Dividend not increased if profits increase or price of stock increases 18

19. Preferred Advantages: Dividends paid 1 st Greater chance of getting some $ back if business fails Stock splits Stock prices gets too ↑, investors don’t buy Reasons – reached peak or costs too much Company decides to split stock Lowering price Stimulating trading More shares available – total market value same 19

20. Example: Stock selling @ $100/share Company declares 2 for 1 split Meaning 1 share is now 2 shares – shares doubled Price drops to $50/share Owned 300 shares @ $100/share now has 600 shares @ $50/share total value still $30,000 Split 3 for 1 3 for 2 10 for 1 Any combination 20

21. Bonds Loans investors make to corporations & federal & local governments Investors acting as small banks lending $ Bonds vs. stocks Bonds pay interest on set date on regular basis Borrower promises to repay in full & on time Bonds less risky Fixed maturity date = date must be paid back Interest rate competitive 21

22. 3 types Corporate Uses $ for different things Modernization Expansion projects: new buildings & equipment Operating expenses Corporate takeovers & mergers US treasury Main way governments raise $ to fund capital improvements: roads, highways, airports Operating expenses when other $ (taxes) not enough Rearrange & pay off other debts municipal Issues by state, county, & city governments $ pays for public projects: schools, highways, stadiums, sewage systems, & bridges 22

23. Major Purchases Car Defines who you are Sporty person: 2-seat convertible Powerful person: muscle car w/loud exhaust Party person: van w/ideal stereo Rugged person: 4-wheel truck or jeep Salespeople make commission – want you emotionally attached Consumers s/not be impulsive – patient instead 23

24. Steps to consider before a major purchase (such as: furniture, computers, appliances, cars) What is ↑ $ you will pay? Brand name preference? Specific style looking for? Specific size? Features/options must have? Features/options nice, if included? Features/options unsure about requiring more info? Delivery required? Installation required? 24

25. Support help w/operation of item purchased? Warranty/extended service plan? Where can repairs be made? Brand hold resale value? Can financing be gotten? Can I afford? Will product still fit my needs in next few years? After decision made stick to it. If need to re-think do at home not in store; no 2 nd guessing 25

26. Home Largest purchase Rely on expertise of realtors & attorneys on paperwork Unable to pay cash in full – obtain mortgage Price range Talk to minimum of 3 lenders & compare: Interest rate & annual percentage rate (APR) APR helps compare mortgage lenders’ offerings Points charged Each point = 1% of loan $ Covers some of lender’s costs Offer lower interest rate if paying more points 26

27. Total cost of loan fees & closing costs know who pays for what Some items negotiable – others not Closing costs: Appraisal fees Attorney fees Realtor fees Termite inspection House inspection Pro-rated taxes Home owners insurance Checklist for loan application Checking, savings, CD’s, money market, & IRA accounts Names & addresses Account #’s balances 27

28. Checking, savings, CD’s, money market, & IRA accounts Names & addresses Account #’s Balances Loans (car, home, student, other) Names & addresses Account #’s Balances & purpose Credit cards Card name & issuing institution issuing card Account #’s Balances & average monthly payment Employment Names & addresses of employers in past 5 years Dates of employment 28

29. Self-employment Last 5 years’ personal tax returns Last 5 years’ corporate or partnership tax returns YTD profit & loss statements Real estate owned Value of property Lease agreement w/terms Names & addresses of lenders Monthly payments, balances, account #’s Personal assets Year, model & value of cars, bots, RVs, etc. Cash value of life insurance Value of stocks & bonds Value of jewelry, antiques, etc. 29

30. Purchase contract on home purchasing Listing on home purchasing Contract on home being sold – if applicable Recent pay stubs Last 2 years’ W-2s for related jobs Divorce decree/separation agreement – if applicable Appraisal fee & credit report fee 30

31. Taxes Old adage: “In this life there are only 2 things that are certain: death & taxes.” Society not function w/out taxes Pays for: Defense Highways Schools & teachers Unemployment benefits Medical care Environmental protection & others 31

32. Tax definition by IRS Enforced contribution in accordance w/legislative authority in the exercise of taxing power, and imposed & collected for purpose of rasing $ used for public or government purposes Taxes are not payments for special privileges granted or service rendered 4 characteristics separating taxes from other payments to government Payment required by law Payments required w/legislative power to tax 32

33. Purpose of payment to provide $ used for public or government purposes Special benefits, services, or privileges not received for paying taxes Payment not fine or penalty imposed under powers of government Benefits of paying taxes Military security Legal system Relatively stable political, economic, & social environment 33

34. Types of taxes income Federal government collects from individuals, corporations, estates & trusts States tax incomes of same groups Few local governments impose income taxes on those who live & work within their boundaries Taxable income = total income – deductions allowed Each government unit own set of rules for what included in income & deductions Federal income tax decided annually US does pay-as-you-go (pay estimate of tax while earning income) 34

35. Federal income tax decided annually US does pay-as-you-go (pay estimate of tax while earning income) Employers MUST withhold from wages of employees & pay to government Taxpayers file tax returns – prepaid $ credited to tax bill = either refund of overpaid taxes or additional tax due Self-employed taxpayers pay qtrly estimated tax payments – applied to tax bill = either refund of overpaid taxes or additional tax due Income tax forms Employers MUST give employees copies of: W-2 – issued to regular employee on payroll 1099-misc – issued to anyone w/miscellaneous income from a business – not on regular payroll 35

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38. State income tax Employers hold from employee’s salary – same as federal Taxpayer must file state income tax return – same as federal Employment taxes Employees pay social security taxes – matched by employer Self-employed pay both halves –known as self- employment tax Employers pay unemployment compensation taxes to federal & state Social security tax Designed to provide retirement benefits to those who contributed Now includes other programs: medical insurance, disability benefits, & survivors benefits 38

39. Not a funded system Current payments pay current benefits – greater than current receivers put in system No guarantee when we retire benefits available to us unemployment taxes Funds unemployment benefits Does not have to be paid for employees earning less than $1,500/qtr Not paid on specific agricultural workers Sales tax Flat %age of selling price on a product/service Business selling goods/service collects tax for government Each government unit imposing sales tax determines what is taxable 39

40. Medical services usually not taxable Not-for-profit organizations usually not taxable property tax Tax on value of property owned by taxpayer Real property – land & structures permanently attached to the land Immobile Difficult to conceal from tax assessors, local governments Personal property – all other types of property Most property taxes not on fair market value – based on assessed value Typically 50 – 75% of estimated market value of property Taxes on personal property not as common as real property 40