1. Unit 3 Review
Learning Target: I will review the unit in preparation for an upcoming exam.

2. The Basics of Budgeting
Gross Pay = Pay before taxes and voluntary deductions
Net Pay = Pay after taxes and voluntary deductions
Net pay can also be called disposable income because you can “dispose of” or spend it as you choose
Budget: a spending plan (usually created on a monthly basis) which includes the following:
Income: How much money you earn
Fixed Expenses: Regular expenses you pay every month and change very little
Variable Expenses: Expenses that change from month to month (if they are incurred at all)
Budget Balance: A comparison of your income and expenses
Surplus: Income > Expenses (you are building wealth—YAY!)
Balanced: Income = Expenses (look out!)
Deficit: Expenses > Income (you are accumulating debt!)

3. Budgeting Advice Budget every month! Always spend less than you earn!
No matter how much money you make, you will never be wealthy if you don’t manage your spending.
Always spend less than you earn!
Make sure you are always running a budget surplus so you can build WEALTH, not DEBT (more to follow)
Pay yourself first!
Set a savings goal as part of your budget (no matter how small) and list it at the beginning of your Variable Expenses; even better, enroll in an automatic savings or retirement plan

4. Balance Sheet and Net Worth
Assets: things that you OWN that add to your income (put money in your pocket)
Liabilities: things that OWE that add to your expenses (put money in your pocket)
Net Worth: Assets – Liabilities
“Cycle of Wealth”: Income > Expenses  Purchasing Assets  Income Increases  Purchase More Assets  Income Increases
“Cycle of Poverty”: Expenses > Income  Accumulating Liabilities  Expenses Increase  Accumulate More Liabilities  Expenses Increase (until bankruptcy!)
How do you know when you are wealthy?
When you have accumulated enough assets that generate enough to cover your expenses without working!

5. Banks
Banks are financial intermediaries that link savers with borrowers; when you deposit money into the bank, you are the lender; banks lend your deposits at a higher interest rate than they pay you  PROFIT!
Types of financial institutions: savings and loans, commercial banks, credit unions, brokerage firms, insurance companies, investment banks
Deregulation has allowed any bank to offer ALL services (no more specialization)!
All US banks are insured unconditionally by the US government though the FDIC or NCUA for $250,000 per depositor per account!

6. Banking Basics
4 Types of accounts: Checking, Savings, Certificates of Deposit (CDs), Money Market Deposit Accounts (MMDAs)
Checks are orders to pay another party; they must be deposited and take time to process (4-5 business days)!
Debit cards allow purchase withdrawn directly and immediately from your checking account and transferred to another party; always keep your receipts!
Checks and Debit cards can usually only be used with Checking; interest is usually only paid to Savings and CDs; MMDAs are special!
ATMs (Automated Teller Machines): allow you to deposit, withdraw, or transfer funds from your account, and to verify your account balance; always use your bank’s ATMs to avoid fees!

7. Managing Your Accounts
Know your accounts’ limits on checks, transfers and withdrawals!
Checking accounts often require a minimum balance requirement; this is often waved if customer receives direct deposit.
Online banking, app banking and phone banking are all services banks may offer but BEWARE LIMITS and FEES!
Be familiar with your bank’s routing number and your account number (located at the bottom of your checks).
When filling out a check, use the correct date, fill the check out completely, neatly and correctly; never leave anything blank and NEVER sign a blank check!
Keep a record of all your transactions, keep track of your account balance and regularly (usually at the end of your monthly statement cycle) verify that the bank has posted your transaction correctly!

8. Insurance
Company provides a guarantee of compensation for specified forms of loss, damage, injury or death; people obtain such guarantees by buying insurance policies by paying premiums.
Risk is spread over a pool of policyholders; expectation is that only a few policyholders will experience loss; company keeps/invests difference  PROFIT!
Policyholders usually agree to pay a portion of claim (deductible/copay); Higher Deductible = Lower Premium (but you pay more for claim)!
Riskier you are to insure  higher your premium (company may even refuse to issue policy)

9. Insurance
Auto: protection against losses caused by an auto accident or other damage to a car; (Collision, Liability, Comprehensive; Uninsured Motorist)
Medical: Provides payment for certain health-care costs including coverage for dental and vision care; (Traditional, HMOs, high deductible; Health Savings Accounts)
Renters/Homeowners: protection in case of loss of personal possessions in a home/rental unit, as well as injury to others on the property (Physical Damage; Loss/Theft; Liability)
Life: protection to dependents of policy owner when policy owner dies; (Term vs. Cash Value: Whole, Universal, Variable)
Disability: Provides income over a specified period when a person is ill and unable to work; most disability policies end at retirement age of 65-70