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Managing Your Money Class Notes: 1 - 9 Copyright © 2011 Pearson Education, Inc. Managing Your Money Class Notes: 1 - 9 Copyright © 2011 Pearson Education, Inc.

Unit 4 A Taking Control of Your Finances Copyright © 2011 Pearson Education, Inc. Unit 4 A Taking Control of Your Finances Copyright © 2011 Pearson Education, Inc. Slide 4 -3

4 -A Controlling Your Finances n n Know your bank balance. Never bounce a 4 -A Controlling Your Finances n n Know your bank balance. Never bounce a check or have a debit card rejected. Know what you spend. Keep track of debit and credit card spending. Don’t buy on impulse. Think first; buy only if the purchase makes sense. Make a budget, and don’t overspend it. Copyright © 2011 Pearson Education, Inc. Slide 4 -4

Latte Money CN (1) n n 4 -A Calvin isn’t rich but he gets Latte Money CN (1) n n 4 -A Calvin isn’t rich but he gets by, and he lvoes sitting down for a latte at the college coffee shop on a busy day. With tax and tip he usually spend $5 on his large latte. He gets at least one every day (on average), and about every three days he has a second one. He figures it’s not a big indulgence. 1. Is it? (what is the cost) Copyright © 2011 Pearson Education, Inc. Slide 4 -5

Credit Card Interest CN (2) n n 4 -A Cassidy has recently begun to Credit Card Interest CN (2) n n 4 -A Cassidy has recently begun to keep her spending under better control, but she still can’t fully pay off her credit card. She’s maintaining an average monthly balance of about $1100, and her card charges a 24% annual interest rate, which bills at a rate of 2% per month. 2. How much is she spending on credit card interest? Copyright © 2011 Pearson Education, Inc. Slide 4 -6

4 -A A Four-Step Budget 1. List all monthly income, including a prorated amount 4 -A A Four-Step Budget 1. List all monthly income, including a prorated amount for any income not received monthly (such as once-a-year payments). 2. List all monthly expenses, including a prorated amount for expenses that don’t recur monthly. 3. Subtract total expenses from total income to determine your net monthly cash flow. 4. Make adjustments as needed. Copyright © 2011 Pearson Education, Inc. Slide 4 -7

4 -A College Expenses Example: You pay $3500 for tuition, $750 in student fees, 4 -A College Expenses Example: You pay $3500 for tuition, $750 in student fees, and $500 for textbooks each semester. How should you handle these expenses in computing your monthly budget? Amount paid over a whole year: Prorated Amount: Put $800 per month into your expense list. Copyright © 2011 Pearson Education, Inc. Slide 4 -8

4 -A CN (3 -4) n n Juan pays $500 per month in rent, 4 -A CN (3 -4) n n Juan pays $500 per month in rent, a semiannual car insurance premium of $800, and an annual health club membership fee of $900. 3. Find the monthly expense Randy spends an average of $25 per week on gasoline and $45 every three months on the newspaper. 4. Find the monthly expense Copyright © 2011 Pearson Education, Inc. Slide 4 -9

College Student Budget CN (5) n n 4 -A Brianna is creating a budget. College Student Budget CN (5) n n 4 -A Brianna is creating a budget. Monthly expenses: Rent $700, Gas $120, Health Ins. $140, Auto Ins. $75, Renters Ins. $25, Cell $110, Utilities $100, Food $300, Entertainment $250. In addition, over the entire year she spends $12, 000 for college expenses, $1000 on gifts for family and friends, $1500 on vacations, $800 on clothes, $600 for charity. Her income consists of (after tax) $1600 per month and $3000 scholarship at first of year. 5. Find her total monthly cash flow. n (montly cash flow = monthly income – monthly expenses) Copyright © 2011 Pearson Education, Inc. Slide 4 -10

4 -A Adjust your Budget n n n Once you evaluate your current budget, 4 -A Adjust your Budget n n n Once you evaluate your current budget, you’ll almost certainly want to make adjustments to improve your cash flow for the future. There are no rules for adjusting your budget, so use your critical thinking skills to come up with a plan that makes sense for you. You might find it helpful to evaluate your own spending against average spending patterns. Copyright © 2011 Pearson Education, Inc. Slide 4 -11

Affordable Rent CN (6) n n 4 -A You’ve worked up a budget and Affordable Rent CN (6) n n 4 -A You’ve worked up a budget and find that you have $1500 per month available for all your personal expenses combined. 6. According to the spending averages in Figure 4. 1 on p. 202, how much should you be spending on rent? Copyright © 2011 Pearson Education, Inc. Slide 4 -12

4 -A Look at the Long Term n n Figuring out your monthly budget 4 -A Look at the Long Term n n Figuring out your monthly budget is a crucial step in taking control of your personal finances, but it is only the beginning. Once you understand your budget, you need to start looking at the longer term issues. Issues depend on your personal circumstances and choices. Before making any major expenditure or investment, be sure you figure out how it will affect your finances over the long term. Copyright © 2011 Pearson Education, Inc. Slide 4 -13

Cost of a Car CN (7) n n 4 -A Jorge commutes both to Cost of a Car CN (7) n n 4 -A Jorge commutes both to his job and to school, driving a total of about 250 miles per week. His current car is fully paid off, but it’s getting old. He is spending about $1800 per year on it for repairs, and it gets only about 18 miles per gallon. He’s thinking about buying a new hybrid that will cost $25, 000 but that should be maintenance-free aside from oil changes over the next five years and it gets 54 miles per gallon. 7. Should he do it? Copyright © 2011 Pearson Education, Inc. Slide 4 -14

Is a College Class Worth Its Cost CN (8 -9) n n n 4 Is a College Class Worth Its Cost CN (8 -9) n n n 4 -A Across all institutions, the average cost of a threecredit college class is approximately $1500. Suppose that betw 4 en class time, commute time, and study time, the average class requires about 10 hours per week for your time. 8. Assuming that you could have had a job paying $10 per hour, what is the net cost of the class compared to working? 9. Is it a worthwhile expense? Copyright © 2011 Pearson Education, Inc. Slide 4 -15

4 -A Base Financial Goals on Solid Understanding n n Find a way to 4 -A Base Financial Goals on Solid Understanding n n Find a way to make your budget allow for savings; understand how savings work and how to choose appropriate savings plans. Understand the basic mathematics of loans. Understand how taxes are computed and how they can affect your financial decisions. Understand how the federal budget affects future personal finances. Copyright © 2011 Pearson Education, Inc. Slide 4 -16

Homework 4 A: p. 205 1 -12, 1 web, 1 world, CN 1 -9 Homework 4 A: p. 205 1 -12, 1 web, 1 world, CN 1 -9 n n P. 205 Excercises 4 A Review Questions 1 -6 Does it Make Sense 7 -12 1 Web Project n n n 4 -A Personal Budgets US Spending Patterns 1 World Project n n n Personal Bankruptcies Consumer Debt US Savings Rate Copyright © 2011 Pearson Education, Inc. Slide 4 -17