Managing Your Money Chapter 23

Your Income 21:1

Income from Work Hourly Wage- there is a minimum wage which is set by the federal government Salary – a set amount of money that is paid for all the work that goes with a job description Commission – in a sales job, commission is often a percentage of each sale made by a work Profit- some people are self employed and earn an income through their own business

Income from Work Gross income – the wage or salary you make before taxes are taken out Net income – the amount of money left after subtracting the deductions from your gross income Example: federal and state income tax, Social Security (FICA – Federal Insurance Contributions Acts), Insurance, Retirement Program

Savings Money placed in a saving account earns interest. Interest is a charge for the use of money Income earned on a saving account is call interest income Interest income on a savings account is based on: Total saving Length of saving Interest rate Type of Compounding used By adding to the principal it will help build your savings

Saving Compounding is when the interest previously earned is added to the total before new interest earnings are figured Interest may be compounded annually, semi-annually, quarterly or monthly

Investments Investments include stock, bonds, mutual funds, retirement accounts and real estate Trading – buying and selling stocks; only recommended for experts

Income During Emergencies Financial experts recommend having enough savings set aside to cover living expenses for three to six months in the event of an emergency. Establishing such an account and contributing to it regularly can help you avoid financial problems

Using a Budget 23:2

Budget A budget is a plan for the use of your income A budget will help you Control spending so you live within your income Guide decision making about purchases Set aside money for special purchases, future plans, and emergencies Reach financial goals

Establishing Goals for Your Income 1st step in a budget is your needs and wants Your needs and wants will determine your short and long term financial goals Short terms goals examples are buying a car or taking a vacation Long-term is college education or retirement

Estimating Income Based on your net income and include any other sources of income

Planning Expenses Fixed expenses are expenses that are constant each month. Fixed expenses include car payment, monthly insurance payment and mortgage or rent payment Variable expenses are expenses that change or vary from month to month. Example: phone bill, food, clothing cost

Planning for Saving Treat your savings as a fixed expense

Making a Budget Work for You Making Buying Decisions Being Realistic and Flexible Using a Computer for Budgeting – spreadsheets or accounting software

Banking Services 23:3

You should always choose a financial institution that is insured You should always choose a financial institution that is insured. The Federal Deposit Insurance Corporation (FDIC) insures most banks.

Checking Accounts A personal checking account is safe place to keep your money. It also offers a convenient way to pay bills and make purchases

Using Checks

Using Debit Cards and ATMs A debit card is used to immediately withdraw funds from your checking account to pay bills or make purchases

Managing Your Account You should always keep accurate records Overdraft occurs when you write a check, use your debit cared or withdraw cash form an ATM for more money than you have in your account Some financial institutions offer overdraft protection, which acts as an instant loan to cover overdraft to a certain limit. Usually, the bank will charge a fee for this service.

Online Banking You can monitor you account activity 24 hours a day. You can access your statement, check your account balance, review deposits and withdrawals, and transfer funds Electronic funds transfer (EFT) allows you to use a computer to move money between your accounts

Savings Accounts Convenience – Some savings accounts allow you to withdraw money when you want Interest rate – The higher the interest rate, the more interest income you will earn Liquidity – The ability to take our your money on short notice is liquidity

Types of Savings Plans Regular saving account Club account Certificate of deposit (CD) Money market deposit account

Using Credit Wisely 23:4

Main benefits of credit You can goods and services before paying for them In emergencies, credit lets people purchase needed goods or services Credit is convenient Using credit can be safer than carrying large amounts of cash

Disadvantages of using credit Using credit can encourage overspending Using credit cost money Credit reduces future income Misusing credit can cause serious financial problems

Tips for Using Credit Cards Wisely Pay your bill in full each month and avoid interest charges Pay you bills on time to build your credit rating Paying your loans off before they are due

Loans Loans are type of credit often used to finance cars, homes, education or a new business Loans are considered installment credit, which means the loan is paid back equal installments, usually as monthly payments Collateral is form of security on a loan

The Cost of Credit The Truth in Lending Act requires lenders to disclose the exact cost of using credit, including interest and other charges, such as annual fees. Lenders also are required to disclose the annual percentage rate (APR), which is the annual cost of credit. They must also disclose the total interest the consumer will pay Experts recommend keeping credit expenses under 20% of net income

Applying for Credit Your credit rating is a record of how well you paid your bills in the past To keep a good credit rating, you need to pay bills on time

Credit Cards