Transcript Unit III - Money Management power point notes

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Explain what it means to budget, and identify
reasons to maintain a budget.
Create and maintain a budget that supports
personal and financial goals.
Identify the opportunity cost and benefits of
spending and saving.
Calculate investment accumulations for various
interest rates and lengths of investments.
Analyze and explain the impact of the amount
saved, time, and rate of return on savings growth.
6.5.12G - Analyze the risks and returns of
various investments.
 15.6.12.G. - Identify strategies for
personal financial management.
 15.6.12.Q. - Apply the “Rule of 72” to
estimate the number of periods required
to double an investment.
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A financial plan that allocates future
income toward expenses, savings, and
debt repayment.
› “Where does the money go?”
› Set up a step by step plan
how much money you have to spend.
 how you want to spend your money.
 how to spend money in the future.
 to learn to live on less than available
income.
 To stay out of financial trouble
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Estimate your income.
2. Estimate your current & future expenses
3. Cope with change.
4. Keep personal and financial goals in
mind.
5. Balance your budget on a monthly
basis.
1.
Become a good consumer.
 Exercise will power and self-control.
 Develop a good record-keeping system.
 Evaluate your budget & financial goals
regularly.
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Def. - Sums of money put away for future
use.
 Principle – the initial money put into an
investment or savings account
 Rate of return - earnings from savings or an
investment, stated as a percentage of the
amount invested; usually calculated on an
annual basis.
 Return - the money earned on savings or
investments; it is related to the degree of
risk related to the type of account.
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1.
Make a decision to save & set a goal.
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Decide how to save.
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Be specific, be realistic, set a time frame, state actions to be taken
Do you know how you are spending your money?
Where is the money that you want to save come from?
Are you going to increase your income/decrease your expenses?
Establish and stick to a regular savings
plan.
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2.
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4.
Pay yourself first
Commit to a specific dollar amount or percentage of your income
to save each month
Pay off debt and increase amount to being saved each month.
Consider automatic payroll deductions to savings acct.
Save early & often…
1. Time – the earlier you save and
length of time you save.
2. Investment size – the amount of
money you save from your income
each year.
3. Rate of return –stated as a % and
calculated on an annual basis.
› Return – the money you earn on your
savings or investment .
Def. - Mathematical rule for determining
the number of years it will take for an
investment to double in value.
 Divide 72 by the rate of return (interest
rate).
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› Example – 8% interest rate; 72 / 8 = 9 yrs.
› If you put $2,000 in a Roth IRA at 8% interest, it
will take 9 years to double to $4,000.
Insured up to $250,000 by FDIC (Federal
Deposit Insurance Corp.)
 Types:
1. Basic – most common type when first start
saving; easily accessible
2. Money Market – good for short/med. term
savings goals, ex. vacation, down pmt. on
a car.; easily accessible
3. Certificate of Deposit (CD) – good when
you want savings to grow for specific
period of time; limited access - penalty
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Types of
Accts.
TIME
DEPOSITS
WITH-DRAWALS
INTEREST
Basic
Takes longer No limit on the
to “grow”
# of deposits.
savings
Sometimes a
min. balance
Sometimes
limited to
several each
month (varies
by bank)
Paid
monthly; very
low rate of
return
Money
Market
Can leave it
in as long as
you wish
Min. initial
deposit &
balance; no
limit on # of
deposits
Sometimes
limited each
month; may
include check
writing
privileges
Paid
monthly;
usually higher
than basic
savings acct.
CD
Set for a
specific
amt. of time;
can add
time
One time
No withdrawals; Normally
deposit, specific penalty fee for
higher than
amount of
early w/d.
basic & MM.
money
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Interest – the charge for the privilege of
saving or borrowing money, typically
expressed as an annual percentage rate
› Simple interest & compound interest
Compound interest – interest that is earned
on the principal and existing interest
 Liquidity – the ability to convert your assets
into cash
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Start early – give money time to grow.
1.
*Compound interest – “interest on interest,” money
you didn’t work for; your money makes money for
you!
Buy and hold – keep your money
invested.
3. Diversify – to invest in a variety of stock, bonds,
2.
money market accts., etc., in order to spread risk.
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“Don’t put all of your eggs in one basket”.
Stocks &
Real Estate
Mutual Funds
IRA’s
Savings Accounts
Stocks – part ownership in a company,
higher risk & returns
 Real estate – ownership of buildings or land;
the risks and benefits of being a landlord
 Bonds - lending $ to a corporation or the
gov’t, with the promise of higher returns.
 Mutual funds – a pool of money used by a
company to purchase a variety of stocks,
bonds or money market instruments. (easy
diversification)
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Stock market – a market in which the public
trades stock that someone already own; the
buying and selling of stock.
 Primary market – the market where new
securities are offered for sale for the first
time.
 IPO – Initial Public Offering - a company’s
first sale of stock to the public
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› Stocks & bonds sold only to investment bankers & best
customers
› Corporation/government receives money from sale of
stocks.
› Remainder of stocks sold on the Secondary Markets
Secondary market – a market in which stocks
can be bought and sold once they are
approved for public sale.
Examples:
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› New York Stock Exchange (NYSE)
› American Stock Exchange (AMEX)
› NASDAQ
Not directly linked to the companies issuing
stock.
 Money from sale of stock goes to those selling
the stock, not the corporation
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Dividend – a share of a company’s net
profits paid to stockholders.