Transcript Managing Financial Resources Module 11

Managing Financial Resources
Introduction to Occupations
Financial Responsibility
• Managing your money wisely
• Budgeting allows you to fulfill
present and future needs and wants
• Planning
– Allows you to get what you need and want
– Keeps you from wasting your money
Main purposes of a budget:
• Live within your income
• Achieve your financial goals
• Buy wisely
• Avoid credit problems
• Plan for financial emergencies
Your Budget
•
•
A plan for spending and saving based
on your income and your expenses
You must first set goals
1. Estimate disposable income-(net
income) take-home pay
2. Set aside predetermined amounts to
save for long- and short-term goals
3. Estimate your expenses
Budget Parts
• Fixed Expensesremain the same
every month
– Rent/house
payments
– Gasoline
– Insurance
– Heating/utility costs
• Variable Expensesdifferent as
needs/wants
change
–
–
–
–
–
Telephone bill
Clothing
Food
Entertainment
Vacations
Average Monthly Income
Net Earnings (Take home pay)
Interest on Savings
Gifts
$1,188
5
20
$1,213
Average Monthly Expenses
Rent
Car loan
Car insurance
Food
$350
220
70
160
Medical and Dental care
50
Clothing
80
Transportation
125
Entertainment
60
Gifts and contributions
40
Miscellaneous
40
$1,195
Savings Accounts
• Help you establish credit worthiness
– Proof of your ability to repay any loan
• Automatic Payroll Deductions
– Money is withheld from your paycheck and sent
directly to your savings account
• Savings Clubs
– Allow you to make regular deposits that cannot
be withdrawn until a certain date
• Interest
– Money that the bank pays you for use of your
money
– Based on amount in your account multiplied by
bank rate (%)
Savings Terms
• Principal-the money in a savings earning interest
• Deposit-money given over to a bank for
safekeeping
• APR-Annual Percentage Rate-interest
• Liquidity-the ease with which you can get your
money out of the account/investment
• Diversify-to purchase a variety of investments to
protect against large losses and to increase the
rate of return
Before choosing a savings
account, ask this…
• How safe is my money going to be in the
savings account?
• How quickly can I withdraw money when I
need it?
• Is the bank conveniently located and does it
offer complete service?
• How much interest will I earn on my deposit?
• What penalty is there for an early
withdrawal?
Where can you save?
• Commercial Banks– offer checking, savings and many other services
• Savings Banks– deal mainly with savings plans and property loans
• Savings and Loan Associations– offer same services as commercial banks but specialize in
mortgages and higher interest rate savings accounts
• Credit Unions– nonprofit and organized for benefit of certain groups of
workers
• Brokerage Investment firms– sell accounts that may involve high risk and less
convenience, but greater rate of return
Savings Options
• Mutual Funds-higher risk investments
• Individual Retirement Accounts-IRA– account used to save money for retirement where interest
earned is not taxed until the money is withdrawn. Cannot
be withdrawn before age 59 ½.
• Savings Bonds– when you buy one, you are lending money to the
government
– You buy a bond for half of the face value, it grows in value
until it matures when it can be redeemed for full face value
• Money Market Account– you deposit money that is pooled with money from other
savers and then invested
• Certificates of deposit (CD)– you deposit an amount of money for a fixed amount of time
at a stated interest rate
Checking Accounts
• A substitute for using cash
• Check– a written document that authorizes the
transfer of money from a bank account to a
person or business
• You can write checks up to the amount
of your balance
Verify your statement for
correctness
• Balanced checking account provides a practical
record keeping system
• Overdraw– to write a check that cannot be covered by the funds in
an account
• Bounce– be returned due to insufficient funds
• Float a Check– write a check when you know you do not have enough
money in the account to cover it
• Insufficient Funds Fees– fees charged for bounced checks
Parts of a Check
• Payee– the company or person who the check is written to
• Drawer– account owner who is authorized to sign the check
• Memo Line– lists purpose of the check
Peabody
41
Cards and Gifts
113 Old Cape Rd.
Dennis, MA 02683
Feb. 15, 2000
Date_____________________
Pay to the
order of_________________________________________ $_____________
Hassett Homes
400.00
___________________________________________________Dollars
Four
hundred and 00/100
First Bank of the Cape
Hyannis, MA 02601
MEMO _________________
|:0111
01602I:
749
____________________________
2454||
41
Endorsements
Christie
Ferrentino

Blank endorsement-an
endorsement that consists of only
the endorser’s name

Restrictive Endorsement-limits
the use of the check to the purpose
given in the endorsement
For Deposit Only

Special (Full) Endorsementincludes the name of the person to
whom the check has been
transferred
Pay to the Order of
Jeff Jarosz
Christie Ferrentino
Other Banking Services
• Debit Cards
– Allow you to manage your bank account through
ATM’s
– Automated Teller Machines-cash machine
– Requires a Personal Identification Number (PIN)
and your card
• Banking On-Line-lets you manage your
money from your home computer
First Bank of the Cape
Hyannis, MA 02601
Feb 14, 2000
Date _________________
Checks and other items are received f or deposit subject to
Be sure each item is endorsed
Completing a Deposit
Slip
the terms and conditions of this bank's collection agreement.
Peabody
Cards and Gifts
113 Old Cape Rd.
Dennis, MA 02683
I:011
01602I:
749
Dollars Cents
Cash
Checks
1
2
3
4
5
6
7
8
Total
2454I:
639
25
47
14
85
84
23
56
727 48
Reconciling Your
Account
1.
Find your bank statement balance.
2.
Enter the balance on the worksheet on the back of
the statement.
3.
Put all canceled checks in numerical order.
4.
Check off each canceled check, each deposit and
each service charge in your checkbook register.
Enter any missing information.
5.
Enter any outstanding deposits (made after
statement was printed) on the statement.
6.
Subtract outstanding checks from bank statement
balance and balance should equal your
checkbook.
Sources of Credit
Retail
Stores
Private
Lenders
Pawn
Shops
Commercial
Banks
Sources
Of Credit
Other
Sources
Credit
Unions
Finance
Companies
History of Cash and
Credit
1. Families used to produce all of their own
goods and supplied all of the labor
themselves for the necessities of life
2. Bartering and Trading Society-trade
goods/services with others who needed
them
3. Currency Exchange Economy-people are
paid money for labor and use money to
buy goods/services
–
When crops failed or when people did not have
enough money, the need developed for sources
of credit
Credit’s History
• 1800’s-credit was informal and
interest was rarely charged
• 1900-interest rates dropped when
bankers realized they could make
money by lending money
• 1960’s-overuse of credit and high
inflation rates brought federal
legislation to protect consumers
Using Credit Wisely
• Credit– sum of money a person can use before having
to reimburse the credit lender
• It allows the person to receive a good or
service now but to pay for it later
• Credit=Loan
• Establishing and maintaining a good credit
rating is a necessity
– Your credit rating will affect your ability to
borrow money, buy insurance, rent a car, lease
a car or own a home
Credit Rating• a grade or score for a
• Contains information
borrower, based on how
about you from a
that person has paid
variety of sources
their bills in the past
• Based on:
• Failure to pay taxes,
– Capacity-can you repay the
filing for bankruptcy,
debt?
divorce, application for
– Character-will you repay
a marriage license,
the debt?
having a child, being
– Collateral-do you have
promoted at work, being
other resources that can be
involved in a lawsuit or
used to pay the loan?
being late with loan
• You have legal access
repayments will all
to your credit fileshow and affect your
correct any errors you
credit rating
find
Credit Lingo
• Default– failure by borrower to pay money back
• Principal– original amount of money borrowed
• Interest– percentage of amount borrowed which
must be repaid in addition to amount
borrowed
Advantages of
Credit
• Available in
emergencies
• Safer and more
convenient-credit
slips can provide
identification and
can record
adjustments
Disadvantages
of Credit
• Lenders charge a
finance charge-a fee
based on the amount
you owe
• The risk of overusing itif you accumulate too
much debt, you may not
be able to make timely
payments
– You may lose your
collateral on secured loans
– Your financial reputation
will suffer
Establishing Credit
• Take on a part-time job and earn good
references from your employer
• Get a co-signor for a small loan/store credit
card
• Get a credit card to establish a payment
history
• Offer collateral-resources that can be used
to repay a loan if the borrower’s income is
cut off
The Cost of Credit
• Not all companies compute costs in the same
way or charge the same amounts
• Annual fees– a fixed amount charged to your account no matter
how often you use the account
• Finance charges– interest on your unpaid balance
– If you pay off your balance each month, you pay
no finance charges
– APR-Annual Percentage Rate-the yearly cost of
the loan expressed as a percentage
Credit Laws
• Fair Credit Billing Act-steps for
consumers/creditors to follow in case of an error in a
bill for a revolving credit account
• Fair Credit Reporting Act-gives consumers the
right to get info about their credit file at a credit
bureau for a fee
• Equal Credit Opportunity Act-race, age, sex and
marital status may not be used as reasons for
denying credit
• Truth in Lending Law-lender must provide info
regarding all costs of borrowing to the consumer
Credit Cards
• Open-ended form of credit
– Operate as a revolving charge account-charged
for purchases made during the month and billed
at end of month
– Finance Charge-must pay if bill is not paid in full
• Your Responsibility
– Obey the agreement you signed with credit card
company
– Pay for items you have charged and an accrued
interest
• Who issues credit cards?
– Credit Card Companies, Banks, Retail Stores,
Gasoline Companies
Things to Remember
about “Easy” Credit
• Too much easy credit shows your potential
to get in debt as a risk
• Recent changes to bankruptcy laws make
it harder to ease out of debt is you cannot
pay
• Don’t only pay minimum payments each
month
– $200 stereo with 16% interest and 10% annual
will take 6 years and 58% more
Installment BuyingLoans
• Sometimes it is smarter to use cash and
sometimes it is smarter to use credit
• Installment Loans– you receive money in a lump sum and pay it
back in regular payments called installments
• Application fee– an amount of money charged to apply for a
loan
• Down Payment– a sum or percentage of the total payment paid
at the time of purchase
Making Major Purchases
Requires Careful Planning
• Consider financing alternatives to find
the most cost effective option
• Consider
– Operating Costs-gas, oil, maintenance,
insurance
– Fixed Costs-costs that remain constant
– Variable Costs-costs that change according to
needs
– Depreciation-amount you lose as the car gets
older (30% in 1st year)
– Cost of borrowing money-interest
– Resale Value-amount of $ something used is
worth
When Making Major
Purchases:
•
•
•
•
•
•
Shop Locally
Know Your Accessories
Try to Get a Discount
Get a Written Agreement
Know Your Guarantee
Research
Housing-no more than 30%
of your income
• Apartments-easy to find
and afford
– Pay rent to landlord, may
have to sign a lease
• Landlord can not raise
tenants rent until lease is
up
• Tenant does not pay
property taxes
• Condominiumsapartment-type units that
are purchased like a
house
– Pay a fee for upkeep of
grounds
– Share space/building with
neighbors
• Mobile Homes-flexible
and inexpensive
– Usually depreciate
• Houses-offer pride of
ownership and is an
investment
– Equity-amount of the
house owned by
homeowner (amount
paid off so far)
– Well cared for homes
will appreciate (gain
value)
– Must pay taxes on
property and must tend
to its needs
Home Mortgage
• Biggest debt you will incur in your lifetime
• Conventional Fixed Rate– fixed rate of interest and runs for a fixed
period of time
• Adjustable Fixed Rate– interest rate varies according to the prime
lending rate
• Closing Costs– attorney’s fees, title search, title insurance,
points
What benefits from paying
taxes can you name?
• There are 3 levels of government
– Federal Government-runs the whole
country
– State Governments-manage the 50
states
– Local Governments-govern counties,
cities and towns
• All three levels of government need
money to operate, so you must pay
taxes to all three
Taxes
• Taxes– payments that you make to support the
government and to pay for government
services
– The responsibility of every citizen in a
democratic country
• Voluntary Compliance– the assumption that all citizens will pay
their income taxes
What happens if you
don’t pay your taxes?
• Late or Incorrect Tax Returns
– Pay penalties or interest charges
• Refuse to pay income tax
– Heavy fine or imprisonment
IRS Lingo
• Filing Status-tax rates are determined by your
marital status
• Deductions-expenses that allow people to subtract
from their taxable income
• Exemptions-an allowance for every person
dependant on taxpayer
• Gross Income-all taxable income you earn (wages,
tips, salaries, interest, dividends)
• Taxable Income-amount that can be taxed after
exemptions and deductions
Income Taxes-tax you pay on
your income (money you make)
• Income may come from work, the interest
you earn or profit
• Calculated as a percentage of your income,
tax rate is higher with higher income
• Taxable income-your income after you
subtract certain permitted amounts
(deductions)
• Your employer will withhold money from
your paychecks to pay income tax from
work
Other Taxes
• Sales Tax
– Calculated as a percentage of the price of an item.
– This tax goes to the state or local government
– Rate varies from state to state
– Local sales taxes may be added to the cost of
items
• Property Taxes
– Main source of money for local governments
– Based on the value of property-land and buildings
Where do your tax
dollars go?
Here’s a list of services paid for in full
or in part by your tax dollars:
• Education– public libraries
and public
schools
• Transportation– roadways and
mass transit,
dams and airports
• Health– hospitals and medical
research studies
• Military services
• Postal services
• Safety– law enforcement and
fire protection
Federal Income Tax
Returns
• You must complete and file an income tax return
each year
• W-2-sent by employer showing earnings and
deductions for a year
• W-4-filled out by employee on 1st day at work
listing exemptions
• 1099-sent by bank reporting interest on savings
accounts
• If you’re single and earn at least $6,400 in a
year, you must file a tax return
• You must mail your return by April 15
1040EZ
• Simplest to fill out, you can fill it out
if:
– You’re single and earned less than $50,000
during the year
– You are not claiming an exemption for
being over 65 or for being blind
– You have no dependants
Filing out a tax return
Gather the necessary
information (W-2,
statement of interest...)
Keep a photocopy of the
completed tax returns
Obtain the tax forms
you’ll need
Take your time
completing the forms
Sometimes things go
wrong
• How can you plan for unexpected
events?
• When you buy insurance, you pay
an agreed-upon amount of money to
an insurance company
• The company pays for losses
caused by events that would
otherwise ruin you financially
Insurance Language
• Insurance policy-a legal contract between
a person buying insurance (policyholder)
and an insurance company. It explains
– Who is covered
– Types of losses for which the company will pay
– Amounts the company will pay
– Cost of insurance
• Insurance coverage-refers to losses that
an insurance company agrees to cover
Insurance Language
• Benefit –
– money paid by an insurance company for a loss
• Beneficiary– the policyholder
• Premiums– the amount a policyholder pays an insurance
company
• Deductibles– the portion of a loss that you pay before the
insurance company pays the remaining cost
• Claim– an oral or written notice to an insurance company
Holding down insurance
costs
• Know what type of insurance you
want
• Call several insurance agencies to
ask about coverages and costs
• Ask about different premium costs
with different deductibles
• Don’t buy more coverage than you
need
Types of Auto Insurance
• Bodily Injury and Property Damage-(Liability
insurance)-Mandatory
– Covers damage or injury for which you’re responsible
– Doesn’t cover injuries or property damage to your car
• Personal Injury Protection-required-enables “no
fault” payments to be made
• Uninsured Motorist Coverage-mandatory-covers
you if you are in an accident caused by a driver
with no insurance at all
• Auto Collision-optional-pays for restoration of
your vehicle after an accident
• Auto Comprehensive-covers theft, fire, glass
breakage, etc.
Buying Automobile
Insurance
• Shop around
• Drive carefully
• Take driver education classes
• Buy only the coverage you need
• Raise your deductibles
• Take advantage of insurance
discounts
Types of Health
Insurance
• Workers Compensation
• Basic Hospitalization-covers emergency
room and other hospital services (including
surgery) according to a schedule of fees and
with limits on amounts paid
• Major Medical– covers a portion of your expenses that go beyond
the schedules of limits
– Also covers everyday doctor expenses and “out
of hospital” medical services
Health Insurance
• Major Medical Coverage- • Health Maintenance
includes hospital and
Organization-no
surgical expenses, doctor
deductibles
visits, prescription drugs
– Members pay a small coand medical tests
payment for doctor visits
– Requires you to pay a
– Choice of physicians is
deductible and coinsurancelimited
a percentage of your
medical expenses
• Preferred Provider
– Able to choose any hospitals
and physicians you prefer
– Pay higher premiums and
higher co-payments
Organization-offer lowcost advantages of
HMO’s but allow more
freedom of choice with
doctors.
Other Types of Medical
Insurance
• Medicare– federally sponsored form of medical insurance for
people who receive Social Security Benefits
• Medicaid– federally sponsored form of medical insurance for
people on welfare
• Group Plans-keep premium risks down by
spreading the risk over a large number of people
– Have a deductible, coinsurance and major medical
coverage
• Individual Plans-for those not insured by a group
plan
– Can be very expensive
Life Insurance- Provides money
to your loved ones in case you die
• You’ll purchase a policy and pay premiums to an
insurance company
• The company agrees to pay a benefit to your
beneficiary if you die
• The premium amount depends on factors such
as your age, health and type of policy you buy
• Ask:
– Should you buy life insurance?
– How much life insurance do you need?
– What are some tips on buying life insurance?
Buyer Beware!
• Be a smart consumer
• Consumer Fraud-dishonest business
practices trying to cheat you
• They succeed by taking advantage
of the consumer’s search for a good
deal
Consumer Fraud
• Propaganda– gimmicks lure consumers into buying products that
they do not really want or need
• Leader Advertising– merchant advertises a lead item at a bargain price
and when the customer arrives, switches their
attention to a higher-priced item (bait and switch)
• Fake Sales– goods are priced lower when the original price was
too high
• Low Price Lures– offer low price work and then “discover” other
“needed” repairs
Consumer Fraud
• Pyramiding– businesses that have salespeople report to a manager
who does less work but gets a large percentage of the
profits
• Drug and Health Schemes– wonder/miracle drugs, pills, creams or machines which
promise impossible results
• Substitute or Rebuilt Products– door-to-door or telephone caller selling rebuilt/stolen
goods as new
• Con Artists– a person who swindles others by gaining their
confidence
Protect Yourself-Know
Your Rights
• Know regular prices
• Shop at different stores and compare
• Learn the meaning of sales terms (fire clearance, red
tag, liquidation)
• Do not buy on impulse
• Read labels for care instructions and ingredients
• Check to see if a container is open
• Read all forms and contracts before you sign
• Ask a lot of questions
• Do business with reliable people
• Use your Better Business Bureau
Seeking Redress (getting
action to solve a problem)
1. Go in person to the place where you purchased
item
2. Give them copies of sales slips, warranties,
pictures of the damage
3. BE FIRM and describe problem-tell them what
you want done
4. Write to the manufacturer, include all info and
copies
5. Complain to a government consumer
protection agency
6. Take legal action
Consumer Groups
• Many private groups investigate
consumer complaints, educate the
public on consumer issues and try to
get customer legislation passed
– CAP Consumer Action Panels-formed
by trade associations
– Consumers’ Union-publishes
Consumer Reports and Consumers’
Research