1 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Chapter Ten Making Financial Decisions

2 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Learning Outcomes 1.How to create a budget 2.Strategies for financing your education 3.The differences between cash, credit, and checking accounts

3 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Budgeting Estimating income and expenses Creating a financial plan Auditing your budget

4 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Estimating Income and Expenses Gather facts about your income and expenses Estimate income Predict Expenses

5 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Creating a Financial Plan Make a plan to balance income and expenses More income than expenses, No Worries If expenses outweigh your income –Separate discretionary costs (wants) and nondiscretionary costs (needs) –Nondiscretionary costs are unavoidable

6 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Auditing Your Budget Reconciling –Helps you watch your spending before any overwhelming problems occur File your records each month Did you overspend? Underspend?

7 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Financing Your Education Can be done through working And/or Financial aid: Grants, Loans and Scholarships

8 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Working College work-study programs –Federally funded job programs for students who can prove financial need Part-time jobs on campus Off-campus employment –Many employers support college attendance with flexible schedule Employer tuition assistance –Comes with requirements

9 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Financial Aid: Grants, Loans, and Scholarships Grants and Scholarships –Do not have to be repaid School Loans –Obtained from government and/or private sources and must be repaid –Able to borrow for all expenses –Student loans are exempt from bankruptcy and must still be repaid

10 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Types and Sources of Scholarships Institutional Local Merit Military Minority Restricted

11 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Borrowing Money? Answer These Questions First! 1.How many terms will you attend school? 2.How much money do you need to graduate with a degree? 3.What will your monthly payments be when you repay the loan? 4.When do you have to repay the loan? 5.Considering your career goals and possible starting salary ranges, will you be able to start repaying the loan as soon as you graduate? 6.Is getting a loan the right choice for you?

12 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Types of Low Interest Loans Institutional loans Insured supplementary loans Perkins loans Stafford student loans

13 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Managing Your Money If you have a student loan or a credit card with an outstanding balance, you are a consumer debtor

14 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Credit Cards Don’t purchase more than you can afford Beware of identity theft Check your credit report

15 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Credit Debt Danger Signs 1.You do not think of credit card balances as debt 2.You frequently pay your bills late because you don’t have money to pay them 3.Creditors call or write asking for payment 4.You have little or no savings 5.You have little or no idea what your living expenses are 6.You have more than two or three credit cards with outstanding balances 7.You carry several cards in your wallet and use them impulsively and often 8.You pay only the monthly minimum on each account 9.You don’t know the sum of your debts

16 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Credit Debt Danger Signs 10.You have to borrow money or get a cash advance to pay creditors 11.You spend more than 20% of your take-home pay on credit card payments 12.If you’re married, you use all of your or your spouse’s income to make payments on credit cards 13.It will take you more than a year to pay off your credit card debt 14.You’ve considered consolidating your payments into one loan 15.You lie to friends or family about your spending or what you really owe 16.You’ve been denied credit 17.You frequently bounce checks or overdraw your account 18.You have one or more credit cards that are at or near their spending limits

17 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Protecting Your Financial Identity against Theft 1.Sign your card as soon as you get it 2.Keep your credit card in a safe place 3.Keep your PIN safe 4.Shred or tear up credit card offers from the mail 5.When using your card, shield it from others’ view 6.Keep your credit cards separate from your wallet 7.Keep a list of your credit cards and numbers in a safe place 8.Check your credit card statements

18 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Debit Cards Take money from your checking or savings account and pay now Some debit cards work only with a PIN

19 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Checking Accounts Accepted almost universally as long as you have proper identification Convenient Avoid writing checks payable to cash

20 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill How to Balance Your Checking Account 1.Write checks in the order in which they are numbered 2.Keep all debit/ATM receipts 3.Keep all deposit receipts 4.Give deposits hours to clear 5.Go through your bank statements 6.Go through your checkbook register 7.Subtract the amount on checks from balance 8.Add deposits to balance 9.Deduct bank service charges 10.Check your math 11.File cancelled checks. They are legal receipts

21 © 2012 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill Cash Helps identify the real amount you have to spend –Forces you to stay on budget