Managing Financial Resources Module by jolinmilioncherie


									Managing Financial Resources

Introduction to Occupations
           Financial Responsibility
• Managing your money wisely
• Budgeting allows you to fulfill
  present and future needs and wants
• Planning
  – Allows you to get what you need and want
  – Keeps you from wasting your money
      Main purposes of a budget:

• Live within your income
• Achieve your financial goals
• Buy wisely
• Avoid credit problems
• Plan for financial emergencies
          Your Budget
•   A plan for spending and saving based
    on your income and your expenses
•   You must first set goals

1. Estimate disposable income-(net
   income) take-home pay
2. Set aside predetermined amounts to
   save for long- and short-term goals
3. Estimate your expenses
            Budget Parts
• Fixed Expenses-           • Variable Expenses-
  remain the same             different as
  every month                 needs/wants
  – Rent/house                change
    payments                  –   Telephone bill
  – Gasoline                  –   Clothing
  – Insurance                 –   Food
  – Heating/utility costs     –   Entertainment
                              –   Vacations
Average Monthly Income
 Net Earnings (Take home pay)   $1,188
 Interest on Savings                5
 Gifts                             20
Average Monthly Expenses
 Rent                            $350
 Car loan                         220
 Car insurance                     70
 Food                             160
 Medical and Dental care           50
 Clothing                          80
 Transportation                   125
 Entertainment                     60
 Gifts and contributions           40
 Miscellaneous                     40
             Savings Accounts
• Help you establish credit worthiness
  – Proof of your ability to repay any loan
• Automatic Payroll Deductions
  – Money is withheld from your paycheck and sent
    directly to your savings account
• Savings Clubs
  – Allow you to make regular deposits that cannot
    be withdrawn until a certain date
• Interest
  – Money that the bank pays you for use of your
  – Based on amount in your account multiplied by
    bank rate (%)
            Savings Terms
• Principal-the money in a savings earning interest
• Deposit-money given over to a bank for
• APR-Annual Percentage Rate-interest
• Liquidity-the ease with which you can get your
  money out of the account/investment
• Diversify-to purchase a variety of investments to
  protect against large losses and to increase the
  rate of return
          Before choosing a savings
          account, ask this…
• How safe is my money going to be in the
  savings account?
• How quickly can I withdraw money when I
  need it?
• Is the bank conveniently located and does it
  offer complete service?
• How much interest will I earn on my deposit?
• What penalty is there for an early
               Where can you save?
• Commercial Banks-
  – offer checking, savings and many other services
• Savings Banks-
  – deal mainly with savings plans and property loans
• Savings and Loan Associations-
  – offer same services as commercial banks but specialize in
    mortgages and higher interest rate savings accounts
• Credit Unions-
  – nonprofit and organized for benefit of certain groups of
• Brokerage Investment firms-
  – sell accounts that may involve high risk and less
    convenience, but greater rate of return
               Savings Options
• Mutual Funds-higher risk investments
• Individual Retirement Accounts-IRA-
   – account used to save money for retirement where interest
     earned is not taxed until the money is withdrawn. Cannot
     be withdrawn before age 59 ½.
• Savings Bonds-
   – when you buy one, you are lending money to the
   – You buy a bond for half of the face value, it grows in value
     until it matures when it can be redeemed for full face value
• Money Market Account-
   – you deposit money that is pooled with money from other
     savers and then invested
• Certificates of deposit (CD)-
   – you deposit an amount of money for a fixed amount of time
     at a stated interest rate
           Checking Accounts

• A substitute for using cash
• Check-
  – a written document that authorizes the
    transfer of money from a bank account to a
    person or business
• You can write checks up to the amount
  of your balance
          Verify your statement for
• Balanced checking account provides a practical
  record keeping system
• Overdraw-
   – to write a check that cannot be covered by the funds in
     an account
• Bounce-
   – be returned due to insufficient funds
• Float a Check-
   – write a check when you know you do not have enough
     money in the account to cover it
• Insufficient Funds Fees-
   – fees charged for bounced checks
            Parts of a Check
• Payee-
   – the company or person who the check is written to
• Drawer-
   – account owner who is authorized to sign the check
• Memo Line-
   – lists purpose of the check

     Peabody                                               41
     Cards and Gifts
    113 Old Cape Rd.
    Dennis, MA 02683                       Feb. 15, 2000

Pay to the
        Hassett Homes                            400.00
order of_________________________________________ $_____________

 Four hundred and 00/100

 First Bank of the Cape
      Hyannis, MA 02601
  MEMO _________________           ____________________________

|:0111      01602I:       749     2454||      41
             Endorsements                    Christie
   Blank endorsement-an                    Ferrentino
    endorsement that consists of only
    the endorser’s name

   Restrictive Endorsement-limits        For Deposit Only
    the use of the check to the purpose
    given in the endorsement

   Special (Full) Endorsement-           Pay to the Order of
    includes the name of the person to       Jeff Jarosz

    whom the check has been               Christie Ferrentino

           Other Banking Services
• Debit Cards
  – Allow you to manage your bank account through
  – Automated Teller Machines-cash machine
  – Requires a Personal Identification Number (PIN)
    and your card

• Banking On-Line-lets you manage your
  money from your home computer
                                 Completing a Deposit

First Bank of the Cape                                                                                     Dollars Cents

                                                              Be sure each item is endorsed
Hyannis, MA 02601                                                                             Cash           639   85
       Feb 14, 2000                                                                           Checks          25   84
Date _________________                                                                        1               47   23
Checks and other items are received f or deposit subject to                                   2               14   56
the terms and conditions of this bank's collection agreement.                                 3
          Peabody                                                                             6
         Cards and Gifts                                                                      7
        113 Old Cape Rd.                                                                      8
        Dennis, MA 02683                                                                           Total      727 48

         I:011            01602I:              749                  2454I:
             Reconciling Your
1.   Find your bank statement balance.
2.   Enter the balance on the worksheet on the back of
     the statement.
3.   Put all canceled checks in numerical order.
4.   Check off each canceled check, each deposit and
     each service charge in your checkbook register.
     Enter any missing information.
5.   Enter any outstanding deposits (made after
     statement was printed) on the statement.
6.   Subtract outstanding checks from bank statement
     balance and balance should equal your
      Sources of Credit

          Retail      Commercial
          Stores        Banks

Private                            Credit
Lenders        Sources             Unions
               Of Credit

 Pawn                          Finance
 Shops                        Companies
           History of Cash and
1. Families used to produce all of their own
   goods and supplied all of the labor
   themselves for the necessities of life
2. Bartering and Trading Society-trade
   goods/services with others who needed
3. Currency Exchange Economy-people are
   paid money for labor and use money to
   buy goods/services
  –   When crops failed or when people did not have
      enough money, the need developed for
      sources of credit
         Credit’s History
• 1800’s-credit was informal and
  interest was rarely charged
• 1900-interest rates dropped when
  bankers realized they could make
  money by lending money
• 1960’s-overuse of credit and high
  inflation rates brought federal
  legislation to protect consumers
            Using Credit Wisely
• Credit-
  – sum of money a person can use before having
    to reimburse the credit lender
• It allows the person to receive a good or
  service now but to pay for it later
• Credit=Loan
• Establishing and maintaining a good credit
  rating is a necessity
  – Your credit rating will affect your ability to
    borrow money, buy insurance, rent a car, lease
    a car or own a home
              Credit Rating-
• a grade or score for a   • Contains information
  borrower, based on how     about you from a
  that person has paid       variety of sources
  their bills in the past
                           • Based on:
• Failure to pay taxes,       – Capacity-can you repay the
  filing for bankruptcy,        debt?
  divorce, application for
                              – Character-will you repay
  a marriage license,           the debt?
  having a child, being
  promoted at work, being     – Collateral-do you have
                                other resources that can be
  involved in a lawsuit or      used to pay the loan?
  being late with loan
  repayments will all      • You have legal access
  show and affect your       to your credit file-
  credit rating              correct any errors you
             Credit Lingo
• Default-
  – failure by borrower to pay money back
• Principal-
  – original amount of money borrowed
• Interest-
  – percentage of amount borrowed which
    must be repaid in addition to amount
Advantages of          Disadvantages
Credit                 of Credit
• Available in         • Lenders charge a
  emergencies            finance charge-a fee
                         based on the amount
                         you owe
• Safer and more       • The risk of overusing it-
  convenient-credit      if you accumulate too
  slips can provide      much debt, you may not
  identification and     be able to make timely
  can record             payments
  adjustments             – You may lose your
                            collateral on secured loans
                          – Your financial reputation
                            will suffer
            Establishing Credit
• Take on a part-time job and earn good
  references from your employer
• Get a co-signor for a small loan/store credit
• Get a credit card to establish a payment
• Offer collateral-resources that can be used
  to repay a loan if the borrower’s income is
  cut off
           The Cost of Credit
• Not all companies compute costs in the same
  way or charge the same amounts
• Annual fees-
  – a fixed amount charged to your account no matter
    how often you use the account
• Finance charges-
  – interest on your unpaid balance
  – If you pay off your balance each month, you pay
    no finance charges
  – APR-Annual Percentage Rate-the yearly cost of
    the loan expressed as a percentage
               Credit Laws
• Fair Credit Billing Act-steps for
  consumers/creditors to follow in case of an error in a
  bill for a revolving credit account

• Fair Credit Reporting Act-gives consumers the
  right to get info about their credit file at a credit
  bureau for a fee

• Equal Credit Opportunity Act-race, age, sex and
  marital status may not be used as reasons for
  denying credit

• Truth in Lending Law-lender must provide info
  regarding all costs of borrowing to the consumer
          Credit Cards
• Open-ended form of credit
  – Operate as a revolving charge account-charged
    for purchases made during the month and billed
    at end of month
  – Finance Charge-must pay if bill is not paid in full
• Your Responsibility
  – Obey the agreement you signed with credit card
  – Pay for items you have charged and an accrued
• Who issues credit cards?
  – Credit Card Companies, Banks, Retail Stores,
    Gasoline Companies
         Things to Remember
         about “Easy” Credit
• Too much easy credit shows your
  potential to get in debt as a risk
• Recent changes to bankruptcy laws make
  it harder to ease out of debt is you cannot
• Don’t only pay minimum payments each
  – $200 stereo with 16% interest and 10% annual
    will take 6 years and 58% more
           Installment Buying-
• Sometimes it is smarter to use cash and
  sometimes it is smarter to use credit
• Installment Loans-
  – you receive money in a lump sum and pay it
    back in regular payments called installments
• Application fee-
  – an amount of money charged to apply for a
• Down Payment-
  – a sum or percentage of the total payment paid
    at the time of purchase
          Making Major Purchases
          Requires Careful Planning
• Consider financing alternatives to find
  the most cost effective option
• Consider
  – Operating Costs-gas, oil, maintenance,
  – Fixed Costs-costs that remain constant
  – Variable Costs-costs that change according to
  – Depreciation-amount you lose as the car gets
    older (30% in 1st year)
  – Cost of borrowing money-interest
  – Resale Value-amount of $ something used is
           When Making Major
•   Shop Locally
•   Know Your Accessories
•   Try to Get a Discount
•   Get a Written Agreement
•   Know Your Guarantee
•   Research
               Housing-no more than 30%
               of your income
                                      • Mobile Homes-flexible
• Apartments-easy to find
                                        and inexpensive
  and afford
                                         – Usually depreciate
   – Pay rent to landlord, may
     have to sign a lease             • Houses-offer pride of
      • Landlord can not raise          ownership and is an
        tenants rent until lease is     investment
                                         – Equity-amount of the
      • Tenant does not pay
        property taxes                     house owned by
                                           homeowner (amount
• Condominiums-                            paid off so far)
  apartment-type units that              – Well cared for homes
  are purchased like a                     will appreciate (gain
  house                                    value)
   – Pay a fee for upkeep of             – Must pay taxes on
     grounds                               property and must tend
   – Share space/building with             to its needs
             Home Mortgage
• Biggest debt you will incur in your lifetime
• Conventional Fixed Rate-
   – fixed rate of interest and runs for a fixed
     period of time
• Adjustable Fixed Rate-
   – interest rate varies according to the prime
     lending rate
• Closing Costs-
   – attorney’s fees, title search, title insurance,
      What benefits from paying
      taxes can you name?
• There are 3 levels of government
  – Federal Government-runs the whole
  – State Governments-manage the 50
  – Local Governments-govern counties,
    cities and towns
• All three levels of government need
  money to operate, so you must pay
  taxes to all three
• Taxes-
  – payments that you make to support the
    government and to pay for government
  – The responsibility of every citizen in a
    democratic country
• Voluntary Compliance-
  – the assumption that all citizens will pay
    their income taxes
        What happens if you
        don’t pay your taxes?

• Late or Incorrect Tax Returns
  – Pay penalties or interest charges

• Refuse to pay income tax
  – Heavy fine or imprisonment
             IRS Lingo
• Filing Status-tax rates are determined by your
  marital status
• Deductions-expenses that allow people to subtract
  from their taxable income
• Exemptions-an allowance for every person
  dependant on taxpayer
• Gross Income-all taxable income you earn (wages,
  tips, salaries, interest, dividends)
• Taxable Income-amount that can be taxed after
  exemptions and deductions
        Income Taxes-tax you pay on
        your income (money you make)
• Income may come from work, the interest
  you earn or profit
• Calculated as a percentage of your income,
  tax rate is higher with higher income
• Taxable income-your income after you
  subtract certain permitted amounts
• Your employer will withhold money from
  your paychecks to pay income tax from
          Other Taxes

• Sales Tax
  – Calculated as a percentage of the price of an item.
  – This tax goes to the state or local government
  – Rate varies from state to state
  – Local sales taxes may be added to the cost of

• Property Taxes
  – Main source of money for local governments
  – Based on the value of property-land and buildings
           Where do your tax
           dollars go?
Here’s a list of services paid for in full
    or in part by your tax dollars:
• Education-            • Health-
  – public libraries       – hospitals and medical
    and public               research studies
    schools             • Military services
• Transportation-       • Postal services
  – roadways and
    mass transit,
                        • Safety-
    dams and airports      – law enforcement and
                             fire protection
           Federal Income Tax
• You must complete and file an income tax return
  each year
• W-2-sent by employer showing earnings and
  deductions for a year
• W-4-filled out by employee on 1st day at work
  listing exemptions
• 1099-sent by bank reporting interest on savings
• If you’re single and earn at least $6,400 in a
  year, you must file a tax return
• You must mail your return by April 15

• Simplest to fill out, you can fill it out
  – You’re single and earned less than
    $50,000 during the year
  – You are not claiming an exemption for
    being over 65 or for being blind
  – You have no dependants
                 Filing out a tax return
                            Gather the necessary
                            information (W-2,
                            statement of interest...)

Keep a photocopy of the
completed tax returns

                          Obtain the tax forms
                          you’ll need

Take your time
completing the forms
         Sometimes things go
• How can you plan for unexpected
• When you buy insurance, you pay
  an agreed-upon amount of money to
  an insurance company
• The company pays for losses
  caused by events that would
  otherwise ruin you financially
         Insurance Language
• Insurance policy-a legal contract between
  a person buying insurance (policyholder)
  and an insurance company. It explains
  – Who is covered
  – Types of losses for which the company will pay
  – Amounts the company will pay
  – Cost of insurance

• Insurance coverage-refers to losses that
  an insurance company agrees to cover
           Insurance Language
• Benefit –
   – money paid by an insurance company for a loss
• Beneficiary-
   – the policyholder
• Premiums-
   – the amount a policyholder pays an insurance
• Deductibles-
   – the portion of a loss that you pay before the
     insurance company pays the remaining cost
• Claim-
   – an oral or written notice to an insurance company
      Holding down insurance
• Know what type of insurance you
• Call several insurance agencies to
  ask about coverages and costs
• Ask about different premium costs
  with different deductibles
• Don’t buy more coverage than you
                Types of Auto Insurance
• Bodily Injury and Property Damage-(Liability
   – Covers damage or injury for which you’re responsible
   – Doesn’t cover injuries or property damage to your car
• Personal Injury Protection-required-enables “no
  fault” payments to be made
• Uninsured Motorist Coverage-mandatory-covers
  you if you are in an accident caused by a driver
  with no insurance at all
• Auto Collision-optional-pays for restoration of
  your vehicle after an accident
• Auto Comprehensive-covers theft, fire, glass
  breakage, etc.
         Buying Automobile

• Shop around
• Drive carefully
• Take driver education classes
• Buy only the coverage you need
• Raise your deductibles
• Take advantage of insurance
           Types of Health
• Workers Compensation
• Basic Hospitalization-covers emergency
  room and other hospital services (including
  surgery) according to a schedule of fees and
  with limits on amounts paid
• Major Medical-
  – covers a portion of your expenses that go beyond
    the schedules of limits
  – Also covers everyday doctor expenses and “out
    of hospital” medical services
               Health Insurance
• Major Medical Coverage- • Health Maintenance
  includes hospital and      Organization-no
  surgical expenses, doctor  deductibles
  visits, prescription drugs
                              – Members pay a small co-
  and medical tests             payment for doctor visits
   – Requires you to pay a          – Choice of physicians is
     deductible and coinsurance-      limited
     a percentage of your
     medical expenses            • Preferred Provider
   – Able to choose any hospitals   Organization-offer low-
     and physicians you prefer      cost advantages of
                                    HMO’s but allow more
   – Pay higher premiums and
     higher co-payments             freedom of choice with
           Other Types of Medical
• Medicare-
   – federally sponsored form of medical insurance for
     people who receive Social Security Benefits
• Medicaid-
   – federally sponsored form of medical insurance for
     people on welfare
• Group Plans-keep premium risks down by
  spreading the risk over a large number of people
   – Have a deductible, coinsurance and major medical
• Individual Plans-for those not insured by a group
   – Can be very expensive
           Life Insurance- Provides money
           to your loved ones in case you die
• You’ll purchase a policy and pay premiums to an
  insurance company
• The company agrees to pay a benefit to your
  beneficiary if you die
• The premium amount depends on factors such
  as your age, health and type of policy you buy
• Ask:
  – Should you buy life insurance?
  – How much life insurance do you need?
  – What are some tips on buying life insurance?
         Buyer Beware!
• Be a smart consumer
• Consumer Fraud-dishonest business
  practices trying to cheat you
• They succeed by taking advantage
  of the consumer’s search for a good
              Consumer Fraud
• Propaganda-
  – gimmicks lure consumers into buying products that
    they do not really want or need
• Leader Advertising-
  – merchant advertises a lead item at a bargain price
    and when the customer arrives, switches their
    attention to a higher-priced item (bait and switch)
• Fake Sales-
  – goods are priced lower when the original price was
    too high
• Low Price Lures-
  – offer low price work and then “discover” other
    “needed” repairs
               Consumer Fraud
• Pyramiding-
   – businesses that have salespeople report to a manager
     who does less work but gets a large percentage of the
• Drug and Health Schemes-
   – wonder/miracle drugs, pills, creams or machines which
     promise impossible results
• Substitute or Rebuilt Products-
   – door-to-door or telephone caller selling rebuilt/stolen
     goods as new
• Con Artists-
   – a person who swindles others by gaining their
           Protect Yourself-Know
           Your Rights
• Know regular prices
• Shop at different stores and compare
• Learn the meaning of sales terms (fire clearance, red
  tag, liquidation)
• Do not buy on impulse
• Read labels for care instructions and ingredients
• Check to see if a container is open
• Read all forms and contracts before you sign
• Ask a lot of questions
• Do business with reliable people
• Use your Better Business Bureau
          Seeking Redress (getting
          action to solve a problem)
1. Go in person to the place where you purchased
2. Give them copies of sales slips, warranties,
   pictures of the damage
3. BE FIRM and describe problem-tell them what
   you want done
4. Write to the manufacturer, include all info and
5. Complain to a government consumer
   protection agency
6. Take legal action
         Consumer Groups

• Many private groups investigate
  consumer complaints, educate the
  public on consumer issues and try to
  get customer legislation passed
  – CAP Consumer Action Panels-formed
    by trade associations
  – Consumers’ Union-publishes
    Consumer Reports and Consumers’

To top