Tuesday April 21, 2015 Review from Yesterday Budgeting Notes Agenda Homework Review from Yesterday Budgeting Notes Compound Interest Video Banking Notes What are the three parts of a budget? Why is savings so important? Why is saving now better than saving later? What is the difference between a credit card and a debit card?

Civics and Economics Day 142

Review of Yesterday What is the “general” relationship between income and education? What is are the two questions to you have to ask when considering a career path? How does income determine ones purchases? Ex: What is going to be different between Bill Gate’s house and my house?

Budgeting and Bank Accounts

A plan for spending and saving money What is a Budget? A plan for spending and saving money

Why Budgets Make Sense Budgets help you: A good budget is: Realistic Set priorities Achieve what’s important to you A good budget is: Realistic Ongoing Clear and easy to use A good budget is: Flexible: It should change as your needs change. Ongoing: It’s not a one-time event. A budget should be part of your everyday life. Clear and easy to use: 12 page spreadsheets are out!

Budget Categories Expenses Income Savings Gross Net Emergencies Fixed Variable Discretionary Income Gross Net Savings Emergencies Short-Term Long-Term Retirement Be clear on what you make and how much you spend. Anticipate all of your potential expenses.

Income: Money Earned Gross income: An individual’s income before taxes. Net income: Income after taxes are paid. Taxes can range from 15% to 31%. A good budget is: Flexible: It should change as your needs change. Ongoing: It’s not a one-time event. A budget should be part of your everyday life. Clear and easy to use: 12 page spreadsheets are out!

Expenses Fixed Variable Discretionary Expense: A cost to meet a need or pay a debt Types of expenses Fixed Rent/Mortgage Variable Gas Discretionary

Discretionary Expenses A cost determined by personal wants that may be controlled Movies, videos, Video Games Sports Going out to eat Grooming and clothes Concerts and plays Vacations Others?

Savings: Pay Yourself First Savings: unspent income Types Emergencies: Plan to set aside three months’ living expenses Short-term: Vacation, clothes, new basketball shoes Long-term: Large ticket items (house, car, college) Retirement: It’s never to early to start A good rule of thumb is to keep at least three months’ worth of living expenses in your savings account just in case you run into an emergency like losing your job or your car breaks down.

Compound Interest http://www.investopedia.com/video/pl ay/what-is-compound-interest/

Difference in Interest Simple Interest Compound Interest Initial Amount: 10,000 1st year: 10,500 2nd year: 11,000 3rd year: 11,500 Gain : 1,500 Initial Amount: 10,000 1st year: 10,500 2nd year :11,025 3rd year: 11,576.25 Gain: 1,576.25

Start Saving Young! (10% return) Save $2,000 per year from age 19 – 26 $1,035,148 by age 65 Save $2,000 per year from age 27 – 65 $805,185 by age 65 Time value of money Invest fewer dollars at a younger age but have 25% more Save $2,000 per year from age 19 – 26 Invest a total of $16,000 over 8 years and then don’t invest anything else Save $2,000 per year from age 27 – 65 Invest a total of $78,000 over 39 years Based on 10% annual rate of return Source: Smart Women Finish Rich, pg 223.

Banking

Different Types of Bank Accounts Checking Money that is meant to be spent in current budget period Earns very little interest Savings Money that is put away for later. Savings Accounts earn interest!

Checks

Debit Cards and Credit Cards Debit cards: money is drawn directly and immediately from a checking or savings account Works just like cash Credit Card: acts as an instant loan Balances not paid in full each month will be charged interest (approx. 12-30%)

Overdraft When you swipe your card for more money than is in your account. Consequences: Removes unplanned money from an account Can incur a fee Can result in a negative balance (Additional fee) Enough Overdrafts can cause an account to be closed.

Homework Answer the following questions in complete sentences. What are the three parts of a budget? Why is savings so important? Why is saving now better than saving later? What is the difference between a credit card and a debit card?