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Personal Finance Lecture Notes


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									Creating a Budget

    Creating a Budget:
         A drip from your bathtub faucet can send thousands of gallons of water
            down the drain each year. Your money can dribble away as well.
    A $ 14.00 pizza, an $ 80.00 pair of sun glasses, a $ 16 movie ticket - - they don’t
            seem like much at the time.
    BUT a lifetime pattern of careless spending can be painful, even ruinous.
    Money problems can cause stress, wreck personal relationships, and trap people
            in jobs they don’t like just so they can pay their bills.
    There is a better way

     Calculate Income vs. Spending
             Budgeting begins simply with writing how much money you receive and
                how much you spend.
     Four Steps to Successful Budgeting:
1. Make a list of all your earnings. Then calculate your total monthly income.
2. For one month, keep a record of everything you spend money on, from car payments to
        candy bars.
3. At the end of the month, organize the records of your purchases into categories such as
        food, clothing, entertainment, car payments, and etc.
4. On a sheet of paper or computer spreadsheet, make a list. Then calculate your money.
     My Spending and Saving Plan
     Monthly Expenditure:
     Car Payment                      $ 120.00
     Insurance                        $ 42.00
     Gasoline                         $ 27.00
     Maintenance                      $ 30.00
     Food: Lunches                    $ 58.00
     Snacks                           $ 34.00
     Movies:           Theater        $ 28.00
     Rentals                          $ 4.00
     Clothes:          Shoes          $ 16.00
     Other clothes                    $ 39.00
     Savings for school trip          $ 50.00
     Magazine subscription            $ 5.00
     CDs                              $ 24.00
     Gifts                            $ 0
     Savings                          $ 0
     Emergencies                      $ 0
                                                             Total Budget $ 477.00
     This record can reveal how little money is left over at the end of the month.
     Experts recommend that we put aside 10% of each month’s money and put it into
    Living within your Budget
           Look at your budget and find ways to cut your spending.
           Previous example – could cut the shoes down to $ 7.00 and other clothes
                   down to say $ 25.00. Cut out the magazine subscription $ 0.00. Take a
                   lunch to school instead of buying the school lunch.
    Adjust your cuts into the list and now you have a new budget. Try to live by that
               budget as much as possible.
    Your budget is a plan for saving and spending.
    If you have a hard time living within your budget seek help from others – parents,
          friends (maybe not), or financial professionals – to help you live within your
    The Number ONE Rule to live by when making a budget is to always pay your
               self first.
    If you want to save 10% of your money each month to invest – take out the 10%
          first and then budget the rest of the money. This is the easiest way to build
          wealth and have an easier time when you get older.
Opening and Managing a Checking Account

    If your piggy bank is bursting, consider opening a checking account.
    Before banks dotted every street corner in America, some people stuffed their
              money under the mattress for safekeeping.
    It wasn’t very safe!
    Choosing a Bank
           The most common types of bank accounts are checking and saving.
           If you plan to take money out of the account frequently, you would need
                     to consider a checking account.
Opening a checking account is fairly easy.
           First, you will need some money
           Second, you will need some kind of identification, i.e. Driver’s license or
                     pay stub.
           Third, you will need a Social Security #.
           Fourth, you will need to visit a bank close to your home and ask a teller
                     how to open the account. They can set it up for you.
    Some banks will pay interest on your checking account, other banks will not.
    Some banks have fees and other things assigned to a checking account – other
              banks don’t have these fees.
    Some questions to ask when opening an account?
           Do I have to keep a minimum balance to avoid any and all fees?
           Is there a monthly fee? If so, how much?
           Will I be charged a check writing fee?
           How many checks can I write per month?
           Will the bank return my canceled checks each month or keep them on file?
           Will I be charged ATM fees?
           What other fees are associated with this account?
    Keeping Records:
           When you open an account, you will receive a checkbook that includes
                     sequentially numbered checks and a check register (a booklet in
                     which you will record your account transactions).
           If you keep good records, your life will be a lot easier when you have
                     reconcile your account.
           Every time you write a check or use a debit card, record that transaction in
                     your ledger.
    Number One Rule to Remember
    Even if you have checks left in your checkbook, you may not have the money in
              the account to cover the check!
    Balancing a Checkbook
           Each month you will receive a statement – a record of your checking
                     account activity during the last month.
           It will list deposits, withdrawals, ATM fees, ATM transactions, interest
                     paid, fees charged.
           Any check that you wrote that has cleared the bank may be returned to
           Most banks keep the original and send you a copy of the front and back of
    Process of a Check
           1. You write a check to your insurance company for your car
           2. The insurance company deposits your check into its bank
           3. The check goes through one or more regional Federal
                     Reserve banks.
           4. The Federal Reserve bank sends the check back to your bank.
           5. Your bank deletes the money from your account and tells
                     the Fed to credit the amount to the insurance company’s account.
           6. The Fed credits the money to the insurance company’s bank.
           7. The money is credited to the insurance company’s account. Your bill is
                     now paid.
    It’s extremely important to balance your checkbook each and every month.
    That means comparing the transactions in the bank statements to your own
              records to make sure that they agree.
    There is usually a worksheet on the back of the statement to help you balance
              your checkbook.
    If you have problems balancing the checkbook, contact the bank for help.
Saving & Investing

    It’s never too early to prepare for your financial future, whether that means
             holiday shopping, next year’s vacation, college, or retirement.
    Paving the way to a sound financial future involves more than getting a job and
             living within a budget.
 How much you save and how much you invest depends on the lifestyle you
         choose for yourself in the present and the lifestyle you plan for your
 Saving:
       Why do you need to save your money?
       While you might have enough earnings to meet your daily expenses,
              saving is a way to make sure you have money for special purchases
              and future expenses, whether planned or unplanned.
 Types of Accounts:
      1. Savings Account
         It’s a good idea to use a savings account for savings that you might need
                  to use within a short period of time.
         When you deposit money in a savings account, your bank or credit union
                  will record the deposits, withdrawal, fees, and any interest earned
                  by your account.
  2. Money Market Accounts
         A money market deposit account will let you save and write a limited
                  number of checks.
         It usually earns higher interest than a savings account, but also usually
                  requires a higher minimum balance and has more fees.
         They have variable interest rates.
  3. Time Deposits
         This is a certificate of deposit – CD that offer a guaranteed interest rate for
                  a fixed period of time.
         The longer term will have higher interest rates.
         There is a high penalty if you take the money out early.
 How to choose… a savings account
       Deposits and Withdrawals
               What is the minimum balance?
               When can I make my first withdrawal?
               How many deposits and withdrawals am I allowed to make each
               Am I limited in the dollar amount of my withdrawal?
               What are the penalties for early withdrawal?
               Can I use an automated teller machine (ATM) to make deposits
                          and withdrawals?
       Interest
               What is the interest rate?
               Is it compounded? How frequently?
               What is the minimum balance required to earn Fees
               What fees apply to this account?
               What is the minimum balance needed to avoid fees?
               Do certain transactions carry a penalty fee?
               What ATM fees apply?
               Interest?
               When is the interest paid?
    Truth in Savings:
            This is a federal law that requires banks to provide you with certain
                   information about the accounts they offer.
                    Annual percentage yield
                    Interest rates
                    Fees and other charges
                    Features like minimum balance needed to avoid fees
    Investing
            Saving is a great way to plan for your future
            Many experts advise saving 10% of your earnings annually
            While keeping your money in a savings account is safe, investing your
                       money can give your dollars the opportunity to grow.
       1. Bonds
            It is an IOU issued by a corporation or government.
            They pay you back over a period of years.
       2. Stocks
           • A popular form of investing – stocks represent ownership in a company.
           • You are also buying a right to receive a fraction of its profits.
           • Stocks are riskier than bonds
       3. Mutual Funds
           • An investment that diversifies your money.
           • Mainly used for retirement by Americans.
The safer the investment the lower the return on your investment.

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