DRIVING MY FINANCIAL FUTURE

Transcription

1 STUDENT ACTIVITY 2 Write all of the things you d like to have or do that cost money, you can make the list as long as you want. Review the items you have listed and group them into the 3 category boxes below. Discuss your choices with your Student friends and then create your own budget scenarios. Spending List: BUDGET LIKE A BOSS STUDENT ACTIVITY BOOK , 5, 6,

2 BUDGET LIKE A BOSS STUDENT ACTIVITY BOOK STUDENT ACTIVITY 2 SPENDING CATEGORIES: MUST HAVE NICE BUT NOT NECESSARY NOT REALLY IMPORTANT TO ME

3 BUDGET LIKE A BOSS STUDENT ACTIVITY BOOK STUDENT ACTIVITY 2 Create your Budget: Suppose you have earned $100 from babysitting which you can spend however you want. Review the sample budget below and then create 3 different budgets for how you might use the money based on your values. SPEND SAVE GIVE SAMPLE BUDGET: $25 ON MUSIC LESSONS & $25 FOR CLOTHING $25 GIFTS FOR YOUR FRIENDS $25 TO ANIMAL SHELTER BUDGET 1 BUDGET 2 BUDGET 3

4 BUDGET LIKE A BOSS STUDENT ACTIVITY BOOK STUDENT ACTIVITY 2 Now let s get more specific about your budget and things you might need to pay for. Using the upper practice budget as a guide, create your own budget based on your anticipated future needs. Feel free to estimate how much you will earn through different jobs. CATEGORY PRACTICE BUDGET: EARNINGS EXPENSES BALANCE FORWARD Earnings (allowance, babysitting, yard work, etc.) $100 $100 Savings $30 $70 Cell Phone $20 $50 Entertainment $15 $35 Shopping $25 $10 Gifts $10 $0 ENDING BALANCE $0 PRACTICE BUDGET: CATEGORY EARNINGS EXPENSES BALANCE FORWARD Earnings (allowance, babysitting, yard work, etc.) Savings Cell Phone Entertainment Shopping Gifts Other Other ENDING BALANCE

5 RECOMMENDED MONTHLY BUDGET GUIDELINES STUDENT ACTIVITY 3 Experts recommend that no matter your income, there are certain maximum amounts that a person should spend on items. Below is a table of the most common expenses and the recommended percentage of your monthly income that should be spent on each category. You can always choose to spend more than the recommended amount on a category but that will require that you reduce your spending in another area. For example, if you want to spend 15% on your car payment, you might reduce your occasional spending to 5%. ITEM SAMPLE: RECOMMENDED MAXIMUM PERCENT OF INCOME INCOME RECOMMENDED MAXIMUM PAYMENT Rent 30% $3, $ Utilities 10% $3, $ Car Insurance 5% $3, $ Cell Phone 5% $3, $ Occasional Spending 10% $3, $ Savings 10% $3, $ Food 15% $3, $ Car Loan 10% $3, $ Entertainment 5% $3, $ ITEM PRACTICE: RECOMMENDED MAXIMUM PERCENT OF INCOME INCOME Rent 30% $1, Utilities 10% $1, Car Insurance 5% $1, Cell Phone 5% $1, Occasional Spending 10% $1, Savings 10% $1, Food 15% $1, Car Loan 10% $1, Entertainment 5% $1, RECOMMENDED MAXIMUM PAYMENT

6 ALLOWANCE an amount of money parents give kids to help them learn to manage money. The amount is usually given weekly. Sometimes an allowance is tied to completing responsibilities household chores or jobs for the family. ANNUAL PERCENTAGE RATE (APR) the rate of interest (in terms of a percent, such as 8.75%) being charged for a loan over a year s time. The APR rate includes interest, transaction fees, and service fees. APPRECIATE to grow in value. Usually a term used in relation to investments: stocks, collectibles, etc., which are now worth more than you paid for them. ASSET any item of value that you own: house, land, gems, stocks, bonds, money in savings, etc. ATM these letters stand for Automatic Teller Machine. This is an electronic banking station that enables people to take care of banking business 24 hours a day, 7 days a week. You can deposit and withdraw money, pay loans, etc., at most ATMs. AUTO INSURANCE this insurance helps you pay for damage you cause as a result of an accident to people or property, medical expenses you may have and the cost of fixing your car. It will also pay all these expenses if someone hurts you or your car and they do not carry insurance themselves. BALANCE 1) In talking about loans, the balance is the difference between the amount owed and the amount paid. If you pay $45 on a $100 debt, your balance is $55. 2) In talking about checkbooks, balancing means to account for all money that came into and went out of your account, so that at the end of the month you and your bank statement agree. 3) In talking about savings, your balance is what is left in your savings account after you deposit or withdraw money. BANK CARD this plastic card looks like a credit card, but it is used to withdraw money from a savings or checking account. When you use a debit card at Automatic Teller Machines or in stores to make purchases, money is immediately withdrawn from your account. You cannot withdraw more money than you have in the account. BANKRUPTCY a state of being in so much debt that you are legally declared unable to pay in full the people and companies you owe. When you legally declare yourself bankrupt in some states, you must sell off all your possessions and pay off your debts as best you can.

7 BLUE CHIP STOCK a name given to the stocks of major corporations, like IBM and General Motors. The name is derived from the most highly valued poker chip, the blue chip. BOND an IOU issued by a corporation or government that confirms you are lending the corporation or government money. Bonds pay interest regularly to lenders. At the end of the term of the bond, the borrower returns to the lender the face value of the bond (the amount the lender invested in the bond). BROKER a licensed professional who advises people about investments; also helps people buy and sell stocks, bonds, mutual funds, etc. The broker earns a fee for this help, called a commission, usually a percentage of the transaction. BROKERAGE COMPANY a company that charges a fee to buy or sell investments for you. BUDGET a plan you create for controlling spending and encouraging saving. CERTIFICATE OF DEPOSIT a type of investment that requires you to invest money for a certain length of time and guarantees the same rate of return (interest) for that entire time. CDs usually require a minimum deposit. CHARGE to borrow money (from a store, service provider, or credit card company) to make a purchase. If you do not pay the debt off in full within the card issuer s grace period (usually days), you will pay interest on the amount you owe. CHECK REGISTER a small booklet comes with your checkbook and gives you record sheets that so you can keep track of all the deposits, ATM withdrawals, and checks you write. If you keep your check register up-todate, you always know how much money you have in your checking account. COLLATERAL property used to assure the payment of a loan. In other words, if the borrower does not pay back the loan, the borrower must give up this property or money. COLLECTIBLES objects such as art, jewelry, baseball cards, and antiques that people buy in the hope that the objects value will increase. COMMODITIES raw materials such as oil, wheat, soybeans, pork, or gold you buy. In buying commodities you are hoping that the price will rise, so that you can sell the commodity for a profit.

8 COMPOUND INTEREST interest on an investment, like a savings account, that is calculated not only on the money you originally invested, but also on any interest the investment has already earned. CORPORATION the most common form of organizing a business the organization s total worth is divided into shares of stock, and each share represents a unit of ownership and is sold to stock holders. A corporation is considered a separate entity from the stockholders for legal and tax purposes. Examples of corporations: Pepsi Cola, Intel, The Gap. COVERAGE this is a very detailed list of what an insurance policy will pay for and how much. CREDIT a loan that enables people to buy something now and to pay for it in the future. CREDIT LIMIT the highest amount you may charge on a credit card. Your limit is set by your card company s opinion of your ability to handle debt. CREDIT HISTORY a record of your borrowing and paying habits. Credit reporting companies track your history and supply this information to credit card companies, banks, and other lenders. CREDIT RATING OR SCORE this is a score or grade that credit companies assign to you based on how you handle your money and pay your bills. DEBIT CARD this plastic card looks like a credit card, but it is used to withdraw money from a savings or checking account. When you use a debit card at Automatic Teller Machines or in stores to make purchases, money is immediately withdrawn from your account. You cannot withdraw more money than you have in the account. DEBT money or goods you owe. DEPOSIT to put money into a bank or investment account. DIRECT DEPOSIT some employers electronically deposit paychecks directly into an employee s bank account. The employee then gets a paper copy of the deposit, called an Earnings Statement as proof of the deposit. DISABILITY INSURANCE if you become too sick from an illness or too injured in an accident to go to work and earn money, disability insurance will help provide an income for you.

9 DIVERSIFY to spread out the money you invest into different types of investments: bonds, stocks, CDs, mutual funds, etc. The idea is to avoid putting all your eggs in one basket. Different kinds of investments do well in different kinds of economic climates. Therefore, if one of your investments drops in value, the other kinds of investments should hold or increase their value. DIVIDEND a payment made by a company to a stockholder to share in the company s profits. DISCOUNT to reduce from an original price or an item s full worth. Earned Income wages paid in exchange for work. EARNINGS STATEMENT a paper copy, proof that a paycheck has been electronically deposited in a bank account; an employer sends employees earnings statements to confirm that a paycheck has been electronically deposited in the employee s bank account. ENTREPRENEUR a person who assumes the risk to start a business with the idea of making a profit. EXPENSES things you pay money for - both needs and wants. FACE VALUE the value printed on the bond. FICA a payroll tax. FICA stands for Federal Insurance Contributions Act (FICA) tax. This tax is used to fund Medicare and Social Security. FDIC-INSURED established as part of the Banking Act of 1933, the Federal Deposit Insurance Corporation (FDIC) protects bank customers from possible losses by insuring various kinds of savings accounts up to $100,000 per account. FINANCE CHARGE the fee you pay when you do not pay off the entire credit card debt within a single payment period, usually about days. FIXED not changing. Fixed interest rates never change during the time of the investment or loan. FIXED EXPENSES expenses which stay basically the same from month to month, such as housing and transportation.

10 GRACE PERIOD the time, usually about days, which you have to pay a bill or a loan in full. If you pay within the grace period, you do not have to pay a finance charge. GROSS PAY the entire amount of your income or paycheck before any deductions like taxes or insurance payments are subtracted. HEALTH INSURANCE people buy health insurance to help them pay for medical expenses like going to the doctor, prescription drugs or surgery. HOMEOWNER S INSURANCE people have homeowner s insurance so they will have the money to fix or replace their home and its contents. Damage can be done by fire or storms, or even by a burglar. INDEX FUND an index fund is designed to track the performance of a specific group of stocks or bonds. An example is an index fund that tracks the performance of the S&P 500 by holding all the stocks in this index. INCOME TAX money that wage earners pay the government to run the country. The amount of the tax depends upon how much you earn. INSUFFICIENT FUNDS a phrase that means you did not have enough money to cover an expense. Usually checks that bounce are returned stamped with the phrase, insufficient funds. The amount of the check was larger than the balance in the checking account. INSURANCE insurance is a type of plan that can help protect you from an event in life that costs a large amount of money. A policy will pay you money to cover the cost of these events. See auto insurance, disability income insurance, renter s insurance, homeowner s insurance and health insurance. INSURE to protect yourself from loss. You pay premiums (payments) to an insurance company who, in turn, agrees to pay for losses to your property (house, car, jewelry, etc.) or your person (in case of injury). You can buy insurance that protects you even when you cause a loss to other people. For example, you cause a car accident. INSURED SAVINGS accounts that are insured up to $100,000 by the Federal Deposit Insurance Corporation (FDIC). Banks are insured by the FDIC, so your money in bank accounts is insured. INTEREST the amount paid by a borrower to a lender for the privilege of borrowing the money.

11 INVESTMENT using your money to try to make more money for example, by depositing money in a bank or by buying a bond or stock in a company. INTEREST RATE the price paid for the use of someone else s money expressed as an annual percentage rate, such as 6.5%. INVEST to put your money into CDs, money market accounts, mutual funds, savings accounts, bonds, stocks or objects that you hope will grow in value and earn you more money. LATE FEE A fee charged to you for missing a payment date. If your payment arrives late or not at all, the charge is added to your debt. Late fees are strong penalties. Credit companies routinely charge $30 or more if you miss your payment date. Get organized! LIEN a right given to a lender over a borrower s property or money when the borrower cannot pay a debt. LIFE INSURANCE people buy life insurance so if they die, their family will receive money that can help them go on living the way they are living today. LIQUID an investment that can be easily turned into cash. LIQUIDITY how quickly an asset (any item of value that you own) can be turned into cash. In other words, you don t have to wait until a certain date or pay a penalty to withdraw your money. LOAN money or an object that is lent, usually with the understanding that the loan will be paid back, usually with interest. LONG-TERM an example of Long- term savings might be saving to buy a car or pay for college. You need months or years to save this amount of money. People invest long-term for many, many years, for retirement, for example. MINIMUM PAYMENT the smallest amount you are required to pay a lender each month on a debt. MONEY MARKET ACCOUNT a savings account offered by a bank (or a mutual fund). The account typically requires 1) a minimum deposit and 2) that you maintain a minimum balance. The account invests in certificates of deposit and treasury bills and pays a rate of interest that rises and falls with the economy.

12 MORTGAGE usually refers to the money borrowed from a lender to buy a house; the borrower makes payments on the loan each month until the entire loan, along with interest, is paid in full. MUTUAL FUND a savings fund that uses cash from a pool of savers to buy a wide range of securities, like stocks, bonds, and real estate. This is a way to diversify your investments because you own small units of each of the fund s investments. The fund is managed by professionals and permits small amounts of money to be invested. NET PAY the amount of your income or paycheck after any deductions like taxes or insurance payments are subtracted. This is your take-home pay. OPPORTUNITY COST the next best alternative that is given up when a choice is made. For example, when you spend your money, you lose your opportunity to use it in other ways. OVERDRAW: to take more money out of an account than is available in the account. You write a check for $25.00, but your account contains only $20. You will have to pay the bank a penalty charge for going over the limit. PENNY STOCK a nickname for extremely low priced stock, usually only a few dollars a share. These stocks are considered highly speculative, which is another way of saying highly risky. They are priced low because they have not yet proven themselves in the market. PERCENTAGE a way of measuring. The number 100 (which stands for the whole amount) is usually divided into 100 smaller, but equal, parts, each called a percent. So a percentage usually refers to a certain number of parts within the whole. Therefore, 6% is 6 units out of 100% (the whole). If you have invested $100, and you earn 8% interest on the money, you will earn 8 parts of the whole, or $8. A percentage explains a number in relation to the whole. PUBLISHED INDEX is a listing of stocks that is used to track the value of the stocks that make up the list. For example, the S&P 500 is an index containing the stocks of 500 corporations, most of which are American. This is the most watched index, because many investors think that the performance of this index indicates how well the economy is doing overall. PREMIUMS premium is another word for payments on an insurance policy.

13 PRINCIPLE this is the amount of money you borrow in a loan. You pay this back plus interest. PROFIT the money you ve earned after you subtract a) any money you had to spend to make the product or perform the service. B) any taxes that had to be paid on your earnings. RATE OF COMPOUNDING when an account compounds interest (figuring interest on interest already earned) it does so regularly. Compounding can take place annually, semi-annually, quarterly, monthly, or daily. The more often interest is compounded the faster your money will grow. RENTER S INSURANCE a type of home insurance that protects against damage and losses that occur in an apartment or a rented residence. This insurance also protects belongings and helps you pay for an accidents that may occur to other people while they are in your apartment or rented home. REAL ESTATE property in the form of land or buildings. RETURN the amount of money a saver receives from a savings account or fund. The return is usually talked about as a percentage, such as This account returns 7.37%. RISK the likelihood that you will lose money on an investment. RULE OF 72 math formula that determines the number of years needed to double your money at a given interest rate. Here s how it works: you divide 72 by the interest rate. Therefore, money invested at 10% interest rate will double in 7.2 years. SAVE hanging onto your money for a future use instead of spending it. Saving is the opposite of spending. SAVINGS ACCOUNT a bank account that pays you interest for keeping your savings in it. Banks use your money to make loans, so they pay you interest for the use of your money. Your savings is insured up to $100,000 by the FDIC, so you don t have to worry about borrowers taking your money and not paying it back. SECURED CREDIT CARD this credit card is secured with a cash balance, a savings account, for example. You cannot touch this balance, or the card will be deactivated (turned off). If you charge over your limit, the bank will take the balance from your account.

14 SCARCITY a lack of something, like money, natural resources, etc. Scarcity forces you to make choices about how you use or treat whatever is scarce. SHARE a unit of ownership in an investment or a company. SHAREHOLDER someone who owns stock in a company. SHORT-TERM short-term savings is for something you know you will need to pay for soon, like a new MP3 player. Short term investing usually means choosing an investment that is liquid, meaning you can pull your money out easily. SOCIAL SECURITY TAX a tax used to fund a program of the US government that gives money to elderly people. The elderly receive funds because the federal government has deducted money from each of their paychecks during the course of their working lives. The money taken out of their paychecks has been deposited into the Social Security fund. Employers, too, deposited money to this fund on behalf of each employee. When people reach a certain age, they become eligible to receive Social Security payments. The government mails checks each month. These payments help the elderly live, now that they are no longer working full-time. The money they receive is drawn out of the Social Security fund, where it has been earning interest for many years. SOLE PROPRIETOR a business owned by a single person. SPLITTING to divide stock in order to lower its price so that more people will invest in it. In a two-to-one split, 100 shares of $70 per-share stock become 200 shares of $35 per-share stock. In a three-to-one split, 90 shares at $60 a share become 270 shares at $20 a share. STANDARD & POOR S 500 the S&P 500 is an index containing the stocks of 500 corporations, most of which are American. This is the most watched index, because many investors think that the performance of this index indicates how well the economy is doing overall. STANDARD OF LIVING the level of material well-being of an individual or group. STOCK a certificate representing a share of ownership in a company.

15 STOCK MARKET an organized way for 1) people to buy and sell stocks and 2) corporations to raise money. There are three widely known stock exchanges: The New York Stock Exchange, the American Stock Exchange, and the National Association of Securities Dealers Automated Quotation System (you hear it called NASDAQ on the news). UNEARNED INCOME money you make that is not the result of your labor, such as interest from a savings account or other kind of investment. U.S. BOND a kind of investment in which you lend money to the government for a certain amount of time and at a certain interest rate. You are paid interest according to the terms of your bond. At the end of the agreed-on time, the borrower (the government) returns to you the amount you originally lent. VARIABLE EXPENSES kinds of spending that can be controlled and typically change from month to month. For example, groceries can be a variable expense. You can choose to buy expensive food, (steak, lobster, lamb chops, or shrimp) or inexpensive food (chicken legs, turkey, hamburger). With variable expenses, you have choices. WITHDRAW take money out of an account. WITHDRAWAL the act of taking money out of an account.

16 BUDGET LIKE A BOSS STUDENT ACTIVITY BOOKLET ON YOUR OWN: Explore: Budget Like a Boss Word Search