Personal Finance

Warm Up 1) What kind of information can be found in a paycheck? 2) What deductions do you think are made to your salary? Be specific. Deductions are subtractions made to your pay

What’s in a Paycheck?  What is Gross Pay? Total amount of money earned before any deductions.  What is Net Pay? Amount left after all deductions are taken out of the gross pay.  Is your paycheck the total of the number of hours worked times the rate of pay? NO!!! Mandatory and other deductions are taken out first.

Calculating a Paycheck Calculate both paychecks. Feel free to work with the person next to you. Please do not write on the tax tables, but definitely use them for help.

Warm Up 1) What is the difference between Gross Pay and Net Pay? 2) What are some deductions which are included in both your and your parents’ paychecks? 3) What are some deductions that may be present in your parents’ paychecks but not yours? Deductions are subtractions made to your pay

What’s in a Paycheck?  What is a Mantadory Deduction? Deductions which an employee has no control. Employer is required to take out…. (what are some examples?) FICA – Federal Insurance Contributions Act; provides $ for Social Security and Medicare  What are Other Deductions? Deductions which your employer offers and you accept. Aka Voluntary Deductions. Some examples …

Pay Check Video ClipVideo Clip

Retirement Accounts  401K- Allows a person to contribute to a savings plan for retirement, from his or her pre-tax earnings, reducing the amount of tax that must be paid.  Employer may match contributions up to a certain level.  403B- An equivalent plan for people who work for the government.

Retirement Accounts  IRA- Individual Retirement Account- Allows a person to contribute up to $5000 of earnings per year into a retirement account. You can invest in stocks, mutual funds, CDs, Bonds, precious metals, or even real estate.  Roth IRA- Same as IRA, but contributions are not tax deductable, but earnings grow tax free.

Checking Accounts  A checking account is a deposit account held at a bank or other financial institution, for the purpose of securely and quickly providing frequent access to funds on demand, through a variety of different channels.  Allows you to make payments by writing a check, using a debit card, direct transfers (online), or by using an ATM.

Checking Fees  Overdraft- When you “bounce” a check, meaning you do not have enough funds in your account to cover a check. ($39 and up)  ATM Fees- Can be charged when you get the cash at the machine and again by your bank. ($2 and up)

Savings Accounts  An account that allows people to put money aside and gain a small amount of interest.  Transactions can be limited per month and then additional fees may be added.  Statements are available online and through an ATM.

Balancing a Checkbook  In order to avoid bank fees, it is a good idea to keep a record of transactions.  This can be done on a checkbook register.  Complete the “keeping a running balance” activity and hand in for classwork grade.

Investment Types You should print the following six slides. We will discuss them briefly in class and it would be benefical if you already had them printed out.  Pay Yourself First!!  Certificates of Deposit  Bonds  Mutual Funds  Stock

Investment Types Pay Yourself First!!  Prioritize savings over spending!  Save as early as possible!  Rule of 72: If you divide the number 72 by the interest rate it will tell you the number of years to double your investment EX- money invested at rate of 7.2% interest would double in 10 years.

Tax Forms Write down this questions in your notes (leave some space between each one). Use the packet of forms to answer the following: ① What is the purpose of a W-4 form for taxpayers? ② What are the differences between a 1040EZ and a 1040 tax form? ③ What type of person should file a 1040EZ instead of a 1040? ④ What is a W-2 ⑤ What is the date that income taxes are due to the Federal government? ⑥ What is an audit?

Tax Form Answers ① What is the purpose of a W-4 form for taxpayers? So that your employer can withhold the correct federal income tax from your paycheck. ② What are the differences between a 1040EZ and a 1040 tax form? 1040EZ is simple, straightforward form, with limited adjustments or deductions allowed includes deductions used to adjust your gross income (student loan interest as EX) ③ What type of person should file a 1040EZ instead of a 1040? A person who does not have dependents and does not make any adjustments to income. ④ What is a W-2? A tax form provided by your employer stating how much money you earned and how much money you paid in taxes. ⑤ What is the date that income taxes are due to the Federal government? April 15 th ⑥ What is an audit? When the IRS verifies that a person has paid the correct amount of taxes.

Investment Types Certificates of Deposit Commonly called a CD- These are bank products where the bank pays a fixed amount of interest for a fixed amount of money during a fixed amount of time. Benefits- No risk, simple, no fees, offers higher interest than savings account. Trade-Offs- Restricted access to money and possible withdraw penalty.

Bonds  A bond is an “IOU,” certifying that you loaned money to a government or corporation, outlining the terms of repayment.  A buyer may purchase a bond at a discount or at face value. The bond pays a fixed interest rate for a fixed period of time. When the time is up, the bond has “matured” and the buyer may retrieve the bond for full face value. Investment Types

Stocks  Stocks represent ownership of a corporation. Stockholders own a share of the company and are entitled to a share of the profits as well as a vote in how the company is run.  Company profits may be divided among shareholders in the form of dividends.  Larger profits can be made through an increase in the value of the stock on the open market.  Advantages- If the market value goes up the gain can be considerable. Money is easily accessible.  Disadvantages- If market goes down, the loss can be considerable. Selecting and managing stocks requires study and the help of a brokerage firm. Investment Types

Mutual Funds  Mutual funds are professionally managed portfolios made up of stocks, bonds, and other investments.  Individuals buy shares, and the fund uses money to purchase stocks, bonds, and other investments.  Profits are returned to shareholders on a quarterly basis in the form of dividends. The value of the mutual fund will also go up and down based on the value of its holdings.  Advantages- Allows small investors to take advantage of professional account management and diversification. Investment Types

Stocks and Bonds (Tune: Row, Row, Row Your Boat) Bonds, Bonds, Bonds are things That pay an interest rate. Gradually, Gradually, Growing while you wait. Stocks, Stocks, Stocks are things That pay a dividend. Gradually, Gradually, Money you can spend. Stocks, Stocks, Stocks, they change, The price goes up or down. Gradually, Gradually, Money goes round and round.

Youtube Investment Types Bonds vs. Stocks Investment Types Based on the video clip, What are some advantages and disadvantages to stocks and bonds?