1. 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?

2. Civics and Economics Day 142

3. 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?

5. Budgeting and Bank Accounts

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

7. 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!

8. 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.

9. 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!

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

11. 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?

12. 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.

13. Compound Interest
ay/what-is-compound-interest/

14. 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

15. 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.

16. Banking

17. 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!

18. Checks

19. 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 %)

20. 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.

21. 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?