Money Management

Money Management

• Money is anything people accept as payment for goods or services.

• Money is scarce (there is not an infinite amount), so people have to plan ahead to make sure they have enough to meet their needs and wants.

Budgeting

• A budget is a plan that shows income and expenses over a period of time.

• A budget’s income (how much money you make) should be EQUAL or HIGHER than expenses.

• You should budget first for your NEEDS • Food, housing, utilities, transportation

• You should budget second for your WANTS • Electronics, vacations, or fun activities

• https://www.youtube.com/watch?v=6Ib-bdko5cE

Savings

• A budget should also include money set aside for saving.

• Saving is when you set aside money for future use.

• Most people save in one of two places: • Banks: businesses that keep money and make loans.

• Credit unions: similar to banks, but they are owned by their members and do not make a profit.

Budgeting Activity You work at a job that gives you two $2,100 paychecks every month (also health insurance). Below are a list of goods and services that you may need or want. Your job is to make a list of what you would buy. Keep in mind, you cannot afford all of it, so you have to choose carefully.

Good or service Price per month Good or service Price per month

Taxes (you must pay) $800 Student loans (college) $500

Rent (nice apartment) $2,000 Vacation down South $500

Movie/concert tickets $100 Car insurance $150

Rent (decent apartment) $1,000 House payment $1,500

New phone $700 Going out to eat $600

Groceries $400 Electricity $100

Gas (for heating) $100 Gasoline $60

Bus/train fare $50 Cable/Internet $150

Phone plan $50 New clothes $200

Car payment $250 Savings Account Whatever is left

Good or Service Price Per Month What’s left?

Monthly income $4,200 $4,200

Taxes (you must pay) -$800 $3,400

House Payment -$1,500 $1,900

Student loans -$500 $1,400

Groceries -$400 $1,000

Car payment -$250 $750

Car insurance -$150 $600

Cable/Internet -$150 $450

Electricity -$100 $350

Gas (for heating) -$100 $250

Gasoline -$60 $190

Phone plan -$50 $140

Savings $140

Here’s a sample budget. Some things that I NEED to pay for are: - Taxes (unless you want

the IRS coming for you) - House payment (shelter) - Groceries (food/water) - Electricity and Gas (part

of shelter and food) - Student loans (you won’t

die if you don’t, but there are legal consequences)

That totals $3,400, leaving me with $800. I can use that $800 for things I really WANT, or things that will make my life easier. - Transportation ( car

payment, insurance, and gasoline) $460

- Cable/Internet - Phone plan That leaves me with $140 that I can save.

Good or Service Price Per Month What’s left?

Monthly income $4,200 $4,200

Taxes (you must pay) -$800 $3,400

Rent (decent apt.) -$1,000 $2,400

Student loans -$500 $1,900

Groceries -$400 $1,500

Car payment -$250

Car insurance -$150

Cable/Internet -$150 $1,350

Electricity -$100 $1,250

Gas (for heating) -$100 $1,150

Bus/train fare -$50 $1,100

Phone plan -$50 $1,050

Savings $1,050

Maybe I want to save more money for my future, and I don’t like that I could only save $140 a month in the last budget. That might lead me to make some changes. Maybe instead of buying a house, I might rent a decent apartment for a little while. That would save me $500 a month. Maybe instead of driving a car (which costs $460 with car payment, insurance, and gasoline), I can take the bus or train, which is only $50 a month, and saves me $410. Now I can save $910 more per month ($1,050 instead of only $140).

Interest

• If you save your money in a bank, you usually put it in a checking or savings account. Especially with a savings account, banks may pay you interest.

• https://www.youtube.com/watch?v=CqD3hnjZBTM

• Interest is the price paid for borrowing money.

• If you put money in a bank, they borrow that money from you to offer services to other people. They pay you a little extra for letting them borrow it.

• https://www.youtube.com/watch?v=GHHesANT6OM

Lending

• Banks use your deposits to make loans to people and businesses.

• Loans can help people buy expensive things, like cars and houses, that they don’t have enough money for right now.

• Loans can help businesses get started, so banks are important for economic growth.

Credit

• Loans are a form of credit.

• Credit is when a buyer borrows a lot of money from a lender to buy something, and then pays it off over time.

• Examples: • Buying things with a credit card, then paying your

balance off later. https://www.youtube.com/watch?v=CI_OwAuGOAw

• Getting a loan to buy a car, then making monthly payments to your bank.

• Whoever lends the money charges interest, meaning that you actually end up paying more for something with credit than with cash upfront.

Investing

• Investing is when you use money now in the hope of making a future profit. • The state puts money into schools now to invest in

students, hoping one day they will have good jobs and contribute to economic growth.

• Some people invest in stocks and bonds.

• A stock is a share of ownership in a company. • You invest in ownership, and when the company makes

a profit later, you get some of that money.

• A bond is a certificate issues by a company or gov’t promising to pay back your money with interest.

Risk vs. Safety

• Safe investments have a low rate of return (the money you can make from it) • Savings accounts are very safe (there’s very little chance

you will lose money), but pay a low interest rate.

• Risky investments can have a high rate of return, but that’s no guarantee (that’s why it’s risky). • The stock market goes up and down all the time.

• If the market goes up, you can make lot of money.

• If the market goes down, you can lose a lot of money.

• https://www.youtube.com/watch?v=v5pPjHglc2E