1. Managing Personal Finances

2. Objective 1: Explore personal finance management.
Investigate personal finances and goal making.
Distinguish the pros and cons of borrowing money.
Determine sources of credit.

3. Investigate Personal Finances and Goal Making

4. What is Budgeting? A. Reasons for personal financial management.
Financial management provides information like daily financial standing and for setting priorities and needs.
Provides information for planning credit needs.
Assists in tax planning and reporting.

5. What is Budgeting?
B. Managing your finances provides numerous advantages.
Accurate financial standing is available, versus an estimate.
Personal net worth is easier to calculate.

6. What is Budgeting?
C. There are some disadvantages to personal financial management.
Initial set-up takes time.
Regular updating is required.

7. COMPLETE LAB SHEET 1

8. What is Budgeting?
D. A budget is a formal written or unwritten plan that projects the use of assets for a future time.
To prepare a budget one needs to consider sources of income and items purchased.
A budget categorizes the uses of cash as to whether they are a necessity or a luxury.

9. COMPLETE LAB SHEET 2

10. How are Financial Goals Developed?
There are six steps in the financial planning process:
Gather personal and financial data.
Establish financial goals and objectives.
Analyze financial information to identify alternatives to achieve goals and objectives.
Develop a financial plan.
Implement the plan.
Review the plan on a regular basis.

11. How are Financial Goals Developed?
C. A goal is a broad, general statement specifying what the individual wants to accomplish.
Consider short-term, medium-term and long-term goals.

12. ACTIVITY: Take out a piece of paper and identify possible short-term, medium-term, and long-term goals. Prepare a written financial plan that identifies short-term, medium-term, and long-term goals.

13. How is a Checking Account Use and How is it Balanced?
A checking account is useful to anyone.
A. A checking account is an account in which a user makes deposits and may write checks to be paid from the account.

14. How is a Checking Account Use and How is it Balanced?
B. A checking account provides numerous advantages. These are:
Reduces need to carry large quantities of cash.
May be able to accrue interest while money is in the account.
Safe way to pay by mail.
Most all businesses accept checks.

15. How is a Checking Account Use and How is it Balanced?
C. A checking account has several disadvantages.
A checking account may require monthly fees.
Time is required to balance the checkbook monthly.
There may be minimum balance requirements.

16. How is a Checking Account Use and How is it Balanced?
C. A checking account has several disadvantages.
Stolen or lost checks can result in loss of money from the account.
Large charges are levied against overdrafts, when a check is written in an amount greater than the account balance.

17. How is a Checking Account Use and How is it Balanced?
D. There are various styles of checkbooks.
A duplicate form copies the check. The duplicate remains in the checkbook.
A stub with written check information remains in the end/top stub checkbook.
Safety paper checks have a watermark that makes photocopying obvious.
A desk set checkbook is a large binder with three checks per page.

18. How is a Checking Account Use and How is it Balanced?
E. There are certain guidelines that should be followed when writing checks.
Write checks only in permanent ink.
Always include the purpose of the check.
Avoid leaving space next to the dollar sign.
Void any check with a mistake.

19. How is a Checking Account Use and How is it Balanced?
F. A checking account holder should balance the account on a monthly basis. This helps to reconcile the account holder's records with the monthly statement provided by the financial institution. Important steps in balancing a checkbook include:

20. How is a Checking Account Use and How is it Balanced?
Marking deposits and checks that have cleared the bank.
Add to the current balance those checks that are written but not cleared.
Subtract any deposits made but not cleared.
Subtract any service charges and add any interest.
Compare the ending balances in the checkbook against the monthly statement.

21. COMPLETE LAB SHEET 3

22. What Types of Investments are Available?
A. An insured savings account is one type of investment.
They are available through banks, saving and loans associations, and other financial institutions.
They are insured by a government agency.
They are considered safe & convenient.
They are also known as passbook savings accounts.

23. What Types of Investments are Available?
B. United States savings bonds offer another alternative for savings.
Savings bonds are available through many financial institutions.
They can be purchased through payroll deductions.
They involve investing in the federal government by buying bonds with a set maturity date at a price below the face value.

24. What Types of Investments are Available?
C. Certificates of deposit (CD) offer another safe form of investment.
CDs are savings certificates worth a specific amount of money, for a specific amount of time, with a set interest rate.
A CD usually pays a higher interest rate than passbook savings accounts.
They are fairly convenient.

25. What Types of Investments are Available?
D. The U.S. Treasury Department issues treasury issues.
They include bills, notes and bonds.
They can be purchased in denominations of $1,000 to $1 million.
They mature from 30 days to more than five years.

26. What Types of Investments are Available?
E. Bonds are another form of investment.
Bonds are certificates of debt.
They are issued by corporations or government agencies. Bonds promise payments of interest on specific dates.
Original investment is also paid back at maturity.

27. What Types of Investments are Available?
F. Mutual funds present another option for investment.
Individual investors pool their money.
Professional money managers manage the pool.

28. What Types of Investments are Available?
G. Stocks represent another investment alternative.
Stocks represent a share of ownership in a company.
The value of the stock can increase or decrease based on performance of the company.

29. Distinguish Pros and Cons of Borrowing Money

30. What Does a Lender Look for in a Borrower?
A lender is an institution or individual who loans money.
A. A borrower must be of good character.
Character refers to the reputation of the borrower.
Often times lenders will ask for character references.

31. What Does a Lender Look for in a Borrower?
B. Financial position of the borrower is important.
Financial position refers to overall economic position.
Lenders will ask for a listing of assets, debts, etc. to determine financial standing.

32. What Does a Lender Look for in a Borrower?
C. A borrower must prove the capacity to repay the loan.
A monthly budget is often viewed.
The lender wants to know that there is enough income to cover all of the monthly financial obligations.

33. What Does a Lender Look for in a Borrower?
D. Security of the loan is another consideration.
The lending institution must know that if the loan goes unpaid they will be able to recover their money.
Collateral is property that will be taken if repayment is not made.
Real estate and vehicles usually act as collateral for home mortgages and car loans.
A loan for a vacation may require collateral.

34. What are Good Characteristics of a Lender?
A borrower must feel comfortable with and trust the lender.
A. A lender should be of good character.
A question to consider is: .Does this lender have a good reputation in the community?

35. What are Good Characteristics of a Lender?
B. Lending policies should be examined.
Some loans may be sold in the secondary market.
Is mortgage insurance required?
Are business hours of the institution convenient?

36. What are Good Characteristics of a Lender?
C. Permanence of the lending institution should be considered.
How long has the institution been in business?
D. Cost of the loan is another consideration.
Institutions vary on the interest they charge.
Carrying charges vary by institution.

37. How Can I Establish Good Credit?
III. Lending institutions want proof of the ability and willingness to pay.
A. Steps can be taken to obtain a good credit rating.
Open a checking account to demonstrate the ability to manage money.
Open a savings account to show a good record and provide collateral.

38. How Can I Establish Good Credit?
III. Lending institutions want proof of the ability and willingness to pay.
A. Steps can be taken to obtain a good credit rating.
Buy an item on a lay-away plan to show the willingness to pay.
Apply to a department store or gasoline company for a credit card. Make small purchases and pay for them when the bills come.

39. How Can I Establish Good Credit?
B. When difficulties are encountered in paying bills in a timely manner, it is best to contact the lender to discuss alternative plans for repayment.

40. What Costs are Involved with Credit?
IV. Credit is not often given without cost.
A. The annual percentage rate (APR) is the interest charge on the loan per year.

41. What Costs are Involved with Credit?
B. Simple interest is a method of calculating interest charges on the outstanding balance for the number of days the money is used.

42. What Costs are Involved with Credit?
Example:
-- If you borrowed $1,000 for one year at 7% interest, you would expect monthly payments of $89.17
($1,000 x 1.07 ÷ 12).
-- If you paid the loan off after the first payment you would pay $916.67
[$1,000 - ($1,000 ÷ 12)]

43. What Costs are Involved with Credit?
C. With add-on interest, the borrower pays interest on the full amount of the loan for the entire loan period. Interest is charged on the face amount of the loan at the time it is made, then the principal and interest are added together and divided equally by the number of payments to be made.

44. What Costs are Involved with Credit?
Example:
If you borrowed $1,000 for two years at 7% interest, you could expect to pay a total of $140 in interest
($1,000 X .07 X 2).

45. What Costs are Involved with Credit?
D. Using percent per month, interest is calculated month by month on the unpaid balance.
Example:
The charge might be 2 ½ % per month up to $300, 2 % up to $500, 1 ½ % up to $1,000, and 1% over $1,000.

46. What Costs are Involved with Credit?
E. The Interest in advance method means the interest is calculated then subtracted from the principal before the borrower actually receives it.
Example:
If a borrower took a one-year loan for $1,000 at 7% interest, she would receive only $930 at the start of the loan.

47. Determine Sources of Credit

48. How can institutional credit be use?
I. Institutional credit is obtained from organizations in the business of loaning money.
A. Short-term credit is usually paid back within one year.
Usually used to purchase small items.

49. How can institutional credit be use?
B. Intermediate-term credit is usually paid back in one to five years.
May be used to purchase a car.
C. Real estate financing usually ranges from five to thirty years.
Used to purchase land or houses.

50. How can institutional credit be use?
D. Collateral are the assets that are pledged to secure a loan. In the event that the loan goes unpaid, The collateral may be sold to pay the loan.
E. If collateral is not available a cosigner, a person who shares responsibility for the loan if the borrower is unable to pay, may be used.

51. What is a charge account?
II. A charge account is extended by retailers to those who purchase products from them.
A. This makes purchasing the product more convenient for the consumer.
B. An example is having a charge account at the local gas station.
C. Usually interest is waived for a period of time.
D. This type of credit may carry extremely high interest for unpaid balances.

52. How are Credit Cards Used?
III. A credit card is a plastic card with owner information that is used to conduct a credit transaction.
A. Many department stores and financial institutions offer credit cards.
B. Most credit cards use a revolving credit account; the cardholder can pay the full amount or a minimum monthly payment.

53. How are Credit Cards Used?
III. A credit card is a plastic card with owner information that is used to conduct a credit transaction.
C. If minimum payment is made, finance charges begin on the unpaid balance.
D. The cardholder can continue using the account until the credit limit is reached.

54. How are Credit Cards Used?
III. A credit card is a plastic card with owner information that is used to conduct a credit transaction.
E. Finance charges are usually charged on the average daily balance, the balance carried forward plus any new purchases.

55. What are Installment Plans?
IV. Installment plans are a way of purchasing goods. The buyer makes regular payments while taking immediate possession of the good.
A. The buyer does not own the product until it is paid for in full.
B. Usually a down payment is required.
C. Interest is usually figured into the payments.
D. Some retailers offer “90 same as cash” incentives where no interest is due if the total cost is paid within 90 days.