Chapter 3- Budgeting

Fixed vs. variable expenses Fixed expense/cost Remain the same no matter how much you use of a service or consumer item Can change only very slightly and are usually paid on a regular basis Examples? Variable expense/cost change depending on your use of products or services Fixed- mortgage, insurance, cable-internet, cell phone (if you have unlimited plans) Variable- electricity, heating oil/gas, credit card Groceries, Clothing??

Sample Budgets So many different options: College Student Single Person-First job Another option Married- homeowners Software to help, templates, Create a student budget- Results on board. Budget Article for column 2

Largest components of budgets Housing Mortgage/Rent What % of income should you spend? Loans Student Credit Cards Car Insurance Home, Car, Life, Health Housing= 30-40% of after tax income. Average Student Loan- $243 a month Car insurance more or less as you age? About $2,500-$3000 for early 20’s Life insurance more or less as you age? Whole, term, etc. Chapter 9 SHOULD you Rent or Buy- Article Create a monthly Budget for your first years out of college based on today’s costs (Computer Lab)

Type of Mortgages Length ARM vs. Fixed Rate Points Fannie Mae, Freddie Mac Sub-prime Lending Historical Rates vs. Current Length 30,20,15 Adjustable Rate Mortgage 3/1, 5/1, 10/1 vs. Fixed Points- sometimes also called "discount points", are a form of pre-paid interest. One point equals one percent of the loan amount, For each point purchased, the loan rate is typically reduced by 1/8% (0.125%) Fannie Mae- Federal National Mortgage Association (founded 1938 post Depression); established to provide local banks with federal money to finance home mortgages in an attempt to raise levels of home ownership and the availability of affordable housing Freddie Mac- Federal Home Loan Mortgage Corporation created in 1970 to expand the secondary market for mortgages in the US, buys mortgages on the secondary market, pools them, and sells them as a mortgage-backed security to investors Sub prime lending- making loans to people who may have difficulty maintaining the repayment schedule; credit scores below 640; characterized by higher interest rates, poor quality collateral, and less favorable terms (what happens when FREDDIE MAC buys these?) Closing Costs Article SUB PRIME LENDING CRISIS- what happened??- Computer Lab (PowerPoint, Paper Song)