BUDGETING, BANKING, & MONEY MANAGEMENT

MR. TIERNEY

PERSONAL FINANCE

OBJECTIVES

Manage a budget and make smarter spending decisions

Describe the types of accounts that banks offer

Balance a checking account Describe methods you can use to limit the

risk of identity theft

3.1 – Budgets & Spending Plans

Terms to Know Budget Discretionary Income Philanthropy Recurring Expenses

Terms to Know Fixed Expenses Variable Expenses Budget Surplus Budget Deficit

3.1 – Budgets & Spending Plans

Budget – a plan for how you will spend your money. Also known as a spending plan, a budget helps you figure out how much you can spend and save on a given income.

3.1 – Budgets & Spending Plans

Live within your means! – In other words, keep the amount you spend below the amount you receive in income.

A budget will help you make sure you are living within your means. It tells you what should be happening!

3.1 – Budgets & Spending Plans

When creating a budget it is important to prioritize needs and wants. You may “need” food, but a porterhouse steak isn’t “needed” when a sandwich will fulfill the need.

A budget will help you set limits on what you should be spending on things.

3.1 – Budgets & Spending Plans

Creating a budget1. Calculate monthly income

2. List all expenses (*include savings contributions)

3. Decide how much you can and should be spending on each category.

4. Subtract expenses from income. If the number is positive, your budget is likely in good shape. If the number is negative you need to readjust your budget.

3.1 – Budgets & Spending Plans

Calculate income When calculating your income use your net income (income after

taxes). Include all sources of income (multiple jobs, investment income,

allowances, etc.) Figure out what your total income is for a specific time period.

(The most common time frame to budget for is month to month). Look at previous pay stubs – figure out what your average monthly

income is. Consult your check register in your checkbook If you are a salaried employee, use your annual salary and payment

frequencies to figure out your monthly income. Be honest with yourself when it comes to calculating projected

income. Things happen that can reduce income (unpaid sick days, rain outs for outdoor workers, etc.) if you overestimate your income, you will run out of money before you pay all of your expenses.

3.1 – Budgets & Spending Plans

INCOME Discretionary Income – The income left after all taxes and expenses

have been subtracted from total income. This money you have “discretion” over what you can do with it. In other words, it is income that is not budgeted for a specific item.

Disposable income is after taxes, discretionary income is after taxes and expenses.

Pay Yourself First – this is common personal finance ideology that you should create a budget category for savings first so that you prioritize long term financial goals first.

Figure out savings. If you have a savings goal, figure out how much

you can comfortably save each month and see how long it will take you to save. i.e. - I can save $25.00 a month towards a new gaming

console. The new console costs $200.00. Therefore it will take eight months to reach the goal or 200/25 = 8.

If the savings goal is to be able to buy the console in four months, you would need to save $50.00 a month to get there: 200/50=4

3.1 – Budgets & Spending Plans

Consider your monthly outflow of cash, or your monthly expenses.

Recurring Expenses – Expenses that you pay regularly. Usually monthly but sometime annually.

Fixed Expenses – Expenses that stay the same from month to month. (rent, mortgage, student loans, any installment loan, etc.)

Variable Expenses – sometimes referred to as, living expenses, are those that fluctuate each month based on usage. (groceries, electricity, gas for your car, etc.)

3.1 – Budgets & Spending Plans

Subtract total expenses from your total income. The amount left should hopefully be a positive number. This is extra money (discretionary income) after all things are accounted for. This can be added to savings, used on other items, etc.

If your expenses are higher than your income, you will need to reduce your spending or increase your income or you will run out of money.

3.1 – Budgets & Spending Plans

Budget Variance – the difference between an amount budgeted and an actual amount spent.

3.1 – Budgets & Spending Plans

Make smart spending decisions Avoid Impulse Shopping – Purchasing products

you were not planning on purchasing. Buyer’s Remorse – regretting a purchase after

making it. This most commonly occurs when someone feels they have spent too much money.

3.1 – Budgets & Spending Plans

Businesses spend hundreds of millions of dollars advertising, or trying to get you to buy products. Because of this, there is a lot of pressure on consumers.

3.1 – Budgets & Spending Plans

3.1 – Budgets & Spending Plans

Technique How it works Example

Bandwagon Taps into your desire to have the same things your peers have

McDonald's - "Over 9.9 Billion Served"

Endorsement Uses an expert or celebrity to pitch the product, in the expectation that

you will trust this person's opinion.

Peyton Manning - DirecTV

Promotional Offers you a discount when you buy a product

Bed, Bath, & Beyond sends you a promotional flyer offering you a discount for being a great

customer.

Technique How it works Example

Facts and Figures Appeals to your sense of logic by offering information about the product.

Our car is five star safety rated.

Name-Calling Tries to one-up the competition by saying how the product is better

Burger King features an ad that compares its Whopper with the McDonald’s Big Mac. The ad makes the Whopper look much larger and has the text: “Big Mac? Seems more like a medium.”

Emotional Taps into your fears and desired to make you interested.

Michelin features an ad with a baby resting in a tire and says: “So much is riding on your tires.”

Association Attempts to connect the product to something you have positive associations with.

Snuggle Bear Fabric Softener – The ads make you think that the product makes your clothes as soft as a teddy bear

Urgency Makes you feel as if you have to act now.

"Hail Sale" - while supplies last. This weekend only! Hurray because they are going fast!

3.1 – Budgets & Spending Plans

3.2 Understanding Banks and Bank Products

3.2 Understanding Banks and Bank Products TERMS TO KNOW

Retail Bank Liquidity Federal Deposit

Insurance Corporation (FDIC)

Credit Union Checking Account Automated Teller

Machine (ATM)

TERMS TO KNOW Debit Card Savings Account Money Market Deposit

Account Annual Percentage Yield

(APY) Nominal Interest Rate Real Interest Rate Fee Schedule

3.2 Understanding Banks and Bank Products Why should people keep their money in a

bank rather than in a piggy bank at home?

Retail Bank – A financial Institution that takes deposits ad makes loans to everyday citizens. It is for profit, open to the public, and offers a wide range of financial services.

3.2 Understanding Banks and Bank Products Why you should keep your money in a bank.

90% of Americans have money on deposit with a bank according to the Federal Reserve.

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