1. Chapter 19 Lesson 2
Budgeting Your money

2. Using a Personal Budget
The best way of managing your money is to budget.
A budget is a careful record that tracks all the money you earn and spend.
A budget is also a tool.
It can help you cut down on impulse spending and save money for things you really want.

3. Budgeting Basics
The three parts of a budget are income, expenses, and the balance.
Income is the money you earn, or any other money that you receive.
Expenses are ways in which you spend money.
The balance is the amount of money you have left after you subtract your expenses from your income.
If you have more income than expenses, you have a surplus.
If you have more expenses then income, you have a deficit.
A deficit is a negative balance.

4. Making a Budget Follow these steps to develop a budget:
1) Make a list of everything you spend for two weeks.
It is important to record everything you spend.
2) For the same time period, record all the money you take in and its source.
3) After you have recorded the data analyze it.
At the end of the two weeks did you have a surplus, a deficit, or a balanced budget?
4) If you had a deficit, review your spending to see where your money went.
5) If you had a balanced budget, decide if you want to increase savings.
6) If you had a surplus, you can increase spending, or you can save the extra money.

5. Using Credit
A character in a play by William Shakespeare gave some famous advice when he warned, “Neither a borrower nor a lender be.” This advice is not very practical today.
Credit is the key tool used for borrowing money today.
Credit is permission to pay later for goods and services obtained today.
With credit, you can buy something now like a meal or clothing, while promising to pay for it later.

6. Credit Basics
Understanding how credit works in our society requires knowing some important terms.
A lender is a person or a institution that gives someone money temporarily for a fee, or cost.
The fee charged for borrowing money called interest.
The money lent at interest is called a loan. The recipient of a loan is a borrower.
The annual percentage rate (APR) is the annual cost of credit expressed as a percentage of the amount borrowed.
A credit rating is an estimate of a borrower`s pervious credit experiences, financial situation, job history, and other information.
Collateral is property, such as a house a car, or another valuable item, that a borrower pledges as security for a loan.
If a borrower fails to repay a loan, the lender can seize the collateral as payment.

7. Sources of Credit
One source of credit that you may is retail store credit.
These cards are likely to be preapproved credit lines, or amounts, of $250, $500, or $1,000.
These cards can be used to buy anything in the store up to the preapproved amount.
You then must pay a certain portion of the purchase back every month.
These payments include interest on the amount you owe.
Banks, credit unions, savings and loan associations and finance companies offer credit to adult consumers who have a good credit rating.
A bank is a financial institution that provides financial services such as checking accounts and car and home loans.
A credit union is like a bank but is formed by a group with a common bond.
For example, a credit union may exist for all workers at a given company.
The money that workers save is then lent out to other members.
A finance company specializes in making loans to individuals.
They are also less regulated than banks, and they charge a much higher rate off interest.
Stores that sell expensive merchandise offer credit.

8. Sources of Credit Cont. This credit helps customers make purchases.
A credit limit is the maximum amount a borrower may charge.
Large credit purchases, such as a car, usually require the buyer to make a down payment.
This means that the buyer must pay a part of the purchase price when making the purchase.
The remaining balance is then divided into equal monthly payments.

9. Credit Cards
Perhaps the most common for of credit in use today is the credit card.
A credit card allows consumers to pay for goods and services using borrowed money, up to a preset limit.
When you apply for a credit card, the lender checks your credit rating.
The lender then decides what you can afford to pay back, based on that rating, and assigns a dollar limit.
Some lenders do not charge interest if you pay off the full credit balance each month.
Late payments can result in even higher interest rates.
High interest charges on unpaid balances add up quickly.
Example: You buy an item that costs $2000 with a credit card which charges 18% interest. If you pay off the entire bill immediately, you pay $0 in interest.
You may choose to pay only the minimum amount owed.
It will then take you more than 10 years to pay for the item.
By that time you will have paid $1,142 in interest.
Which means that the $2000 item will have cost you $3,142.

10. Benefits and Drawbacks of Credit
Making monthly payments on time can teach you financial discipline.
Analyzing your financial situation to see if you can afford to use credit for a purchase is an important life skill.
Credit also caries serious dangers.
In a recent year Americans carried a whopping $2.4 Trillion in debt.
Consumers who only pay back the minimum monthly payment soon find that they are in perpetual debt.
This means that their debt goes on forever, often at a high interest rate.
An unexpected job loss or a serious medical problem can load an unlucky or careless consumer into financial ruin.

11. Your Responsibilities as a Borrower
Before you take out a loan or a make a credit card purchase, you need to make sure you can afford the payments and are able to make those payments on or before the due date,
To do this you must understand all aspects of the credit agreement.
What is the APR?
Will the APR stay the same throughout the duration of the contract, or will it change?
How big are the payments?
How often will I make the payments?
How long will I make payments?
What are the fees for late payments?
Are there any other fees?

12. Your Responsibilities as a Borrower Cont.
Calculate your existing expenses, and add up your source of income.
Compare the two sums and calculate weather you have enough income to cover the additional expense of the credit card or loan payment.
To go ahead with the purchase you need to adjust your budget by making cuts to other expenses or finding other sources of income.
You must also consider how long your income will support credit payments.
If your earnings are likely to decrease in the near future, you might not want to take on the additional expense of a new payment.