© Thomson/South-WesternSlideCHAPTER 241 BUDGETING, SAVING, AND INVESTING MONEY 24.1Budgeting Money 24.2Saving Money 24.3Investing Money Chapter 24

© Thomson/South-WesternSlideCHAPTER 242 BUDGETING MONEY Identify your own personal income and spending patterns Name and describe the four steps involved in developing and using a budget Objectives Lesson 24.1

© Thomson/South-WesternSlideCHAPTER 243 INCOME AND SPENDING PATTERNS Income is money coming in. An expenditure is money that is spent. Lesson 24.1

© Thomson/South-WesternSlideCHAPTER 244 RECORD OF INCOME AND EXPENDITURES Lesson 24.1

© Thomson/South-WesternSlideCHAPTER 245 DEVELOPING AND USING A BUDGET A budget is a plan for managing income and expenditures. Four steps in developing a budget Establishing goals Estimating income and expenditures Setting up the budget Following and revising the budget Lesson 24.1

© Thomson/South-WesternSlideCHAPTER 246 ESTABLISHING GOALS Identify what you need and want All family members should participate Be realistic Be specific Include short-range, medium-range, and long-range goals Make a list Lesson 24.1

© Thomson/South-WesternSlideCHAPTER 247 GOALS WORKSHEET Lesson 24.1

© Thomson/South-WesternSlideCHAPTER 248 ESTIMATING INCOME AND EXPENDITURES Choose a budget period Keep track for at least four weeks Figure out average income per budget period Figure out average expenditures per budget period Lesson 24.1

© Thomson/South-WesternSlideCHAPTER 249 SETTING UP THE BUDGET Savings is cash set aside in a bank account to be used for financial emergencies and goals Regular expenditures, sometimes called fixed expenditures, are those essential monthly payments that are usually the same amount each month. Variable expenditures are day-to-day living expenses. Lesson 24.1

© Thomson/South-WesternSlideCHAPTER 2410 EXAMPLES OF REGULAR EXPENDITURES Rent or mortgage payment Utilities Insurance Auto payment Credit or loan payments Lesson 24.1

© Thomson/South-WesternSlideCHAPTER 2411 EXAMPLES OF VARIABLE EXPENDITURES Food and beverage Clothing Transportation Household Medical care Entertainment Gifts and contributions Taxes Lesson 24.1

© Thomson/South-WesternSlideCHAPTER 2412 HOUSEHOLD BUDGET FORM Lesson 24.1

© Thomson/South-WesternSlideCHAPTER 2413 FOLLOWING AND REVISING THE BUDGET Following a budget involves Allocation, or distribution, of income to the various items on the budget Keeping accurate records of expenditures A line item is a single entry, or budgeted item. Lesson 24.1

© Thomson/South-WesternSlideCHAPTER 2414 SAVING MONEY Discuss the importance of setting aside a portion of income for savings Name and describe the two basic types of savings accounts Compute interest rate returns on savings Objectives Lesson 24.2

© Thomson/South-WesternSlideCHAPTER 2415 WHY SAVE? Saving will ensure that you have funds available to meet a financial emergency. Saving will allow you to achieve financial goals. Lesson 24.2

© Thomson/South-WesternSlideCHAPTER 2416 TYPES OF SAVINGS ACCOUNTS Regular savings accounts Also called passbook accounts Offer safety, convenience and liquidity Liquidity refers to an asset that can be easily converted into cash. Time deposits A certificate of deposit (CD) is money that is deposited into an interest-bearing account for a predetermined length of time and rate of return. Lesson 24.2

© Thomson/South-WesternSlideCHAPTER 2417 SAVINGS DEPOSIT FORM Lesson 24.1

© Thomson/South-WesternSlideCHAPTER 2418 SAVINGS WITHDRAWAL FORM Lesson 24.1

© Thomson/South-WesternSlideCHAPTER 2419 FIGURING INTEREST RATES Annual interest rate Frequency of interest compounding Compounding is a process in which an institution adds interest to an account, the balance rises, and the account continues to earn more interest based on the higher balance. Interest pay periods Annual percentage yield Lesson 24.2

© Thomson/South-WesternSlideCHAPTER 2420 INTEREST RATES Lesson 24.1

© Thomson/South-WesternSlideCHAPTER 2421 COMPOUNDING INTEREST Lesson 24.1 More frequent interest compounding results in higher Annual Percentage Yield (APY). More frequent interest compounding results in higher returns.

© Thomson/South-WesternSlideCHAPTER 2422 SAVINGS GROWTH Lesson 24.1 Based on 5.25 percent interest, compounded daily

© Thomson/South-WesternSlideCHAPTER 2423 EFFECT OF INTEREST RATES ON SAVINGS GROWTH Lesson 24.1 Based on a $50 a month deposit, compounded daily

© Thomson/South-WesternSlideCHAPTER 2424 INVESTING MONEY Discuss advantages and disadvantages of investing Explain the following types of investments: stocks, bonds, and money market funds Objectives Lesson 24.3

© Thomson/South-WesternSlideCHAPTER 2425 WHY INVEST? Investing is the process of using money not required for personal and family needs to increase overall financial worth. Investing is different from saving. There is potential for making a lot of money. There are risks of losing money. Lesson 24.3

© Thomson/South-WesternSlideCHAPTER 2426 TYPES OF INVESTMENTS Stocks Mutual funds Bonds Money market funds Lesson 24.3

© Thomson/South-WesternSlideCHAPTER 2427 STOCKS Shares of ownership in a company are called stock. Brokers are individuals or companies that specialize in selling stocks and other financial investments. A commission is a fee paid to a broker for purchasing stock for you. Dividends are profits that a company divides among its shareholders. Capital gain refers to an increase in the value of stock or another asset. Lesson 24.3

© Thomson/South-WesternSlideCHAPTER 2428 MUTUAL FUNDS A mutual fund is an investment company that pools the money of thousands of investors and buys a collection of investments that may include stocks, bonds, and other financial assets. Advantages of mutual funds Diversification Professional management Lesson 24.3

© Thomson/South-WesternSlideCHAPTER 2429 BONDS A bond represents a loan to a company or government agency. Types of bonds Corporate bonds Government bonds Municipal bonds Lesson 24.3

© Thomson/South-WesternSlideCHAPTER 2430 MONEY MARKET FUNDS A money market fund is a type of mutual fund that invests in short-term, high-liquidity investments. Lesson 24.3

© Thomson/South-WesternSlideCHAPTER 2431 INVESTMENT PLANNING Decide on goals and stick to them Do not get greedy Stay away from hot tips Educate yourself about investing Lesson 24.3