1. Personal Finance

2. Making Wise Decisions
Just like everything else in economics, personal finance involves making decisions
Budget: a budget is simply a plan for how you are going to spend your money

3. Budgeting A good budget is one that accounts for every dollar earned
Have a budget for however often you get paid
Always put bills and necessities ahead of things like clothes and entertainment
Pay yourself first!!!
Number 1 Rule- Do not spend more than you make

4. Budget Example INCOME $500 Taxes -50 $450 Savings -75 $375 Utilities
-45
$330
Rent
$280
Car
-100
$180
Food and Entertainment
-150
$30
Clothes
-30 $0

5. Investing What is the difference in investing and saving?
Which one is appropriate for your money over the long term?
How does investing work?

6. With investing, just like gambling, the greater the risk, the greater potential for a return!!!
Certain investments carry greater risk than others
What are you more likely to win, a scratch off Jumbo Bucks ticket or a Powerball ticket? But, which one pays more if you do win?
Risk vs. Return

7. Different Types of investments
Savings account– a type of bank account where your money is available whenever you want it, money is guaranteed safe by the government, pays low interest
Money Market account– another type of bank account where you are only allowed to withdrawal money so many times per month, pays slightly higher interest

8. Types of investments
Certificates of Deposits (CD’s)– a type of bank account where your money is locked away for a set amount of time
If money is accessed earlier, there are steep penalties
Pays a little higher interest because access to money is limited

9. Bonds A bond is basically a loan
Bonds can be issued by governments or companies
A bond is a contract that is legally enforced, fairly low risk
Which would be safer, government bonds or corporate bonds?
Which would pay a higher interest rate?

10. Mutual Funds
Mutual Funds- mutual funds are a type of account where your money is put with other people’s money and spread out in many different stocks
This allows even the average person to own stock in many different companies, a way to spread out the risk

11. Stocks
Stocks– individual pieces of corporations, sometimes called shares
When you buy stock you become a part owner of that company, when it does well, your stock goes up
When the company does bad, your stock’s value goes down

12. Other investments
Real Estate- buying property in hopes that it will increase in value
Precious items- gold, silver, jewelry, etc
Collectibles- antiques, guns, baseball cards, etc.

13. Simple vs. compound interest
The rate of interest is gained on the principle amount only
The amount of interest is left in the account, so after the next cycle, interest is earned on top of interest

14. Simple vs. Compound Interest
Most investments have Compound Interest
Compound interest allows you to build up much more money over a long period of time
If you plan correctly, most of the money you retire on will be from interest you’ve earned, not from the amount of principle you’ve saved

15. Simple vs. Compound Interest

16. How to start investing
Most people invest through their retirement account
Retirement accounts come in several different forms: IRA’s, 401k’s, etc.

17. Retirement Accounts
A 401k is a type of retirement account that many people have through their work
The money is taken out of your paycheck before taxes, so you don’t have to pay taxes on the money until you withdrawal it
Businesses will match the money you put in up to a certain amount

18. Retirement Accounts
IRA– an IRA stands for Individual Retirement Account
An IRA is not offered through your job, you have to go to an investment bank and start one on your own
A special kind of IRA, called a Roth IRA, is started using after tax dollars, however, this means your money can grow tax free!!!

19. Insurance List what kinds of insurance you can think of
Life, health, car, property, disability
All insurance works the same
Payments, or premiums are made to an insurance company
If there is an emergency, the company will pay for the cost, except for the deductible

20. Five C’s of Credit
Lenders will look at several things when you go to borrow money
These are known as the 5 C’s of Credit

21. Character and capacity
1. Character– your reputation and previous record
Lenders will be less likely to loan you money if you have a record of not paying back debt
2. Capacity– what is your capacity to pay back the loan
Do you have a steady job? How much does that job pay?

22. Capital and collateral
3. Capital– How much net worth does the borrower have?
Have you worked for ten years and have little to show for it?
4. Collateral- What secures the debt?
What backs up the borrower in case they stop making cash payment.

23. Conditions
5. Conditions– What are the conditions surrounding the loan?
What is the economy currently like?
Are there any special situations with the borrower?
What interest rate is being considered?

24. What things will hurt your credit?
Being late on making payments
Not making payments at all
Having too much debt (debt to income ratio)