1. Employment and Budgeting

2. Salary and Fringe Benefits
There are two basic types of job pay.
A wage is an hourly payment of a fixed amount, such as $9, for up to 40 hours.
The overtime wage is usually 50% more.
A salary is a fixed annual amount, such as $18,720.
A 40-hour week is normal, but extra work may be required.
Note: A salary of $18,720 is identical to a wage of $9 per hour, assuming 40 hours of work per week for 50 weeks plus 2 weeks of vacation.

3. Salary and Fringe Benefits
The job’s specifications and the worker’s experience determine starting pay.
Usually a worker receives a raise for good performance after an annual review.
Fringe benefits – Extra rewards given to workers in addition to salary or wages, such as insurance coverage and paid vacation.
Note: This is the fourth of six important areas to consider when choosing a career.

4. Salary and Fringe Benefits
An incomplete list of possible fringe benefits includes
paid vacation time
paid sick time
health insurance
life insurance
pension plan
Discuss: Have you heard of other types of fringe benefits such as stock options?

5. Payday
A payday is the day you are paid for work you have already performed.
Discuss: If you are (or were) employed, how long did you work before receiving your first paycheck?

6. Pay Period
Pay Period – A length of time for which an employee’s wages are calculated.
Most businesses have weekly, biweekly, semimonthly, or monthly pay periods.
Most companies delay payday for a week or more to do proper record keeping.
Discuss: How often do the employees you know receive paychecks?
Discuss: If you know someone who receives a paycheck once a month, what are the pros and cons expressed about this time frame?

7. Paychecks and Paycheck Deductions
Your paycheck stub will state your gross pay, net pay, and deductions.
Gross Pay – The total amount of money earned during a pay period.
Net Pay – The amount of money left after all deductions have been taken from the gross pay.

8. Paychecks and Paycheck Deductions
Common deductions are
federal and state income taxes
health insurance contributions
charitable contributions
social security and medicare taxes
union dues and uniforms
pensions and savings plans
Discuss: If you have received a paycheck, were you surprised at the amount subtracted for deductions?

9. A Paycheck Stub Questions:
1. How long is Juan’s pay period? (from Oct. 24 through Oct. 31)
2. How many hours did Juan work? (25 regular hours; 0 overtime hours)
3. List the types and amounts of Juan’s payroll deductions. ($56.25 for federal income tax, $6.25 for state income tax, $26.34 for social security tax, $4.57 for medicare tax, $1.35 for state unemployment and disability insurance)
4. How much has Juan earned this year? ($7, )
5. How much did he earn this week? ($280.24)
6. After comparing gross income to the number of hours worked, what is Juan's hourly pay rate? ($15)

10. Taxes Paying taxes is one of your responsibilities as a wage earner.
Tax money pays for government services such as public education, the armed forces, and social security.
Internal Revenue Service (IRS) – The agency that enforces federal tax laws and collects taxes.
Discuss: Why do you think so few people are happy with the U.S. tax system?

11. Income Tax Income Tax – A tax on all forms of earnings.
The federal government, most states, and many cities place a tax on income.

12. Did You Know?
The nation’s first income tax was enacted by Congress to finance the Civil War.
Source:

13. Social Security Tax
Federal Insurance Contributions Act (FICA) – An act that allows the federal government to reserve a percentage of a paycheck for social security tax.
Taxes for social security are figured as a percentage of earnings.

14. Social Security Tax
The paycheck deduction for this tax appears under the heading of FICA.
Whatever the employee pays, the employer pays a matching amount.
Medicare is the part of social security that covers hospital and medical insurance.
Discuss: Do you have any opinions about some of the proposals expressed for updating the social security system?

15. State Income Tax
If your state collects income tax, that return is due at the same time as the federal income tax return.

16. Need for Money Management
How much you earn affects the wants and needs you are able to buy.
Budget – A plan for the use or management of money.
Spending habits can affect your budget more than the total income you have available.
Discuss: If you don’t follow a budget now, when do you think you should start?
Discuss: What tips would you recommend for preparing a good budget?

17. Did You Know?
The origin of the word “budget” is the Latin word “bulga.” A bulga was a small pouch that could be used to carry money or other items of value.
Source:

18. Sources of Income
The first step in making a budget is to identify your steady sources of income.
Conservatively estimate income that varies, such as tips and gifts.
Knowing your expected income will help you know how much to plan for paying expenses.
Discuss: In the adult world, what happens when expenses exceed income?
(Possible answers: People use credit more, borrow money from friends, get a loan, and/or go bankrupt.)

19. Types of Expenses
Fixed expense – Something for which a set amount of money must be paid regularly, such as rent, insurance, or tuition.
Flexible expense – An expense that varies in amount and does not occur on a regular basis, such as food, transportation, or entertainment.
Note: Occasionally fixed expenses will change, such as an increase in rent prices or a reduction in insurance rates.

20. Think About It When can savings be considered an expense?
Answer: when a set amount is saved routinely (which makes it a fixed expense) or occasionally (which makes it a flexible expense)
Note: The textbook and money managers recommend making savings a fixed expense.

21. Did You Know?
Expenses are often identified by how frequently they occur:
daily expenses – every day
weekly expenses – once a week
monthly expenses – once a month
quarterly expenses – four times a year
semiannual expenses – twice a year
annual expenses – once a year

22. Types of Expenses
You have more control over flexible expenses because they often
vary with your wants.
can be adjusted.
Fixed expenses can be minimized by saving for a major purchase and paying the full amount instead of making monthly payments.
Note: Making monthly payments involves the use of credit, which can be costly. Chapter 27 explains credit.

23. How Do You Spend Your Money?
To use money wisely, you must know how much is spent on fixed and flexible expenses.
Discuss: Name some fixed expenses common to most students. Name some flexible expenses.

24. A Spending Calendar
A spending calendar will help you track how you spend your money over time.
Record all expenses for each day in the calendar.
Total your expenses for each week and month.
After a month, the calendar will start to show your pattern of spending habits.
Discuss: Do students generally spend more money on fixed or flexible expenses?

25. A Spending Calendar Sun Mon Tue Wed Thu Fri Sat Week Total
Savings $10.00 Grocery $65.34
Lunch $5.00 Gas $9.25
Lunch $5.00 Movie $9.00
Lunch $6.35 Gas $35.00
Lunch $5.00
Lunch $7.00 Dinner $16.00
DVDs $26.95 Clothes $34.34
$234.23
Savings $10.00 Grocery $34.69
Lunch $6.35 Cable $69.95
Lunch $7.00
Lunch $5.00 Gas $8.75
Lunch $5.00 Dinner $25.00
Gift
$25.00
$210.74
Discuss: What type of person does this spending calendar reflect?

26. How Do You Want to Spend Your Money?
Discuss: Do you think it is possible for some wants and goals to outstrip even the best money management system?
A good money management system helps you use your income to obtain your “wants” and reach your goals.

27. A “Want” List Create a list of things you want.
Your want list should contain two columns, labeled now and later.
The now column is for items you want within a year.
The later column is for long-range goals that take more than a year to acquire.

28. A “Want” List Now Cost Later
DVD box set Hardcover book Concert tickets Concert T-shirt Weekend trip
$ $ $ $ $150.00
Used car New computer Trip to Europe Complete works of favorite author in hardcover
$5, $1, $1, $300.00
Discuss: What type of person does this want list represent?

29. Think About It
Which items on your “want” list are most important? are least important?
Which items would you eliminate if you needed to reduce expenses?
How do you plan to pay for the items on your “want” list?

30. Planning a Budget
Your budget is your personal guide to spending and saving.
Begin by reviewing your spending calendar to see how you spend money.

31. Planning a Budget Also review your “want” list to focus on your goals.
For a workable budget, your estimated income must equal or exceed expenses.
Once a budget is planned, try to follow it, but change it when necessary.
There are five guidelines for planning a good budget.

32. Planning a Budget 1. Estimate your income.
2. List your fixed expenses.
3. Review your short-term and long-term goals.
4. Estimate your flexible expenses.
5. Set aside a portion of each paycheck for savings and miscellaneous expenses.

33. Think About It
What changes might you make in your expenses in the following cases?
Your income decreases.
Your income increases.
How would your budget change if one or more of your fixed expenses increased?