Chapter 24 BUDGETING SAVING AND INVESTING MONEY 24

Chapter 24 BUDGETING, SAVING, AND INVESTING MONEY 24. 1 Budgeting Money 24. 2 Saving Money 24. 3 Investing Money © Thomson/South-Western CHAPTER 24 Slide 1

Lesson 24. 1 BUDGETING MONEY Objectives n Identify your own personal income and spending patterns n Name and describe the four steps involved in developing and using a budget © Thomson/South-Western CHAPTER 24 Slide 2

Lesson 24. 1 INCOME AND SPENDING PATTERNS n Income is money coming in. n An expenditure is money that is spent. © Thomson/South-Western CHAPTER 24 Slide 3

Lesson 24. 1 RECORD OF INCOME AND EXPENDITURES © Thomson/South-Western CHAPTER 24 Slide 4

Lesson 24. 1 DEVELOPING AND USING A BUDGET n A budget is a plan for managing income and expenditures. n Four steps in developing a budget n n Establishing goals Estimating income and expenditures Setting up the budget Following and revising the budget © Thomson/South-Western CHAPTER 24 Slide 5

Lesson 24. 1 ESTABLISHING GOALS n n n Identify what you need and want All family members should participate Be realistic Be specific Include short-range, medium-range, and long-range goals n Make a list © Thomson/South-Western CHAPTER 24 Slide 6

GOALS WORKSHEET © Thomson/South-Western Lesson 24. 1 CHAPTER 24 Slide 7

Lesson 24. 1 ESTIMATING INCOME AND EXPENDITURES n Choose a budget period n Keep track for at least four weeks n Figure out average income per budget period n Figure out average expenditures per budget period © Thomson/South-Western CHAPTER 24 Slide 8

Lesson 24. 1 SETTING UP THE BUDGET n Savings is cash set aside in a bank account to be used for financial emergencies and goals n Regular expenditures, sometimes called fixed expenditures, are those essential monthly payments that are usually the same amount each month. n Variable expenditures are day-to-day living expenses. © Thomson/South-Western CHAPTER 24 Slide 9

EXAMPLES OF REGULAR EXPENDITURES n n n Lesson 24. 1 Rent or mortgage payment Utilities Insurance Auto payment Credit or loan payments © Thomson/South-Western CHAPTER 24 Slide 10

EXAMPLES OF VARIABLE EXPENDITURES n n Food and beverage Clothing Transportation Household Lesson 24. 1 n Medical care n Entertainment n Gifts and contributions n Taxes © Thomson/South-Western CHAPTER 24 Slide 11

Lesson 24. 1 HOUSEHOLD BUDGET FORM © Thomson/South-Western CHAPTER 24 Slide 12

Lesson 24. 1 FOLLOWING AND REVISING THE BUDGET n Following a budget involves n Allocation, or distribution, of income to the various items on the budget n Keeping accurate records of expenditures n A line item is a single entry, or budgeted item. © Thomson/South-Western CHAPTER 24 Slide 13

Lesson 24. 2 SAVING MONEY Objectives n Discuss the importance of setting aside a portion of income for savings n Name and describe the two basic types of savings accounts n Compute interest rate returns on savings © Thomson/South-Western CHAPTER 24 Slide 14

Lesson 24. 2 WHY SAVE? n Saving will ensure that you have funds available to meet a financial emergency. n Saving will allow you to achieve financial goals. © Thomson/South-Western CHAPTER 24 Slide 15

Lesson 24. 2 TYPES OF SAVINGS ACCOUNTS n Regular savings accounts n Also called passbook accounts n Offer safety, convenience and liquidity n Liquidity refers to an asset that can be easily converted into cash. n Time deposits n A certificate of deposit (CD) is money that is deposited into an interest-bearing account for a predetermined length of time and rate of return. © Thomson/South-Western CHAPTER 24 Slide 16

SAVINGS DEPOSIT FORM © Thomson/South-Western Lesson 24. 1 CHAPTER 24 Slide 17

SAVINGS WITHDRAWAL FORM © Thomson/South-Western Lesson 24. 1 CHAPTER 24 Slide 18

Lesson 24. 2 FIGURING INTEREST RATES n Annual interest rate n Frequency of interest compounding n Compounding is a process in which an institution adds interest to an account, the balance rises, and the account continues to earn more interest based on the higher balance. n Interest pay periods n Annual percentage yield © Thomson/South-Western CHAPTER 24 Slide 19

INTEREST RATES © Thomson/South-Western Lesson 24. 1 CHAPTER 24 Slide 20

COMPOUNDING INTEREST Lesson 24. 1 More frequent interest compounding results in higher returns. More frequent interest compounding results in higher Annual Percentage Yield (APY). © Thomson/South-Western CHAPTER 24 Slide 21

SAVINGS GROWTH Lesson 24. 1 Based on 5. 25 percent interest, compounded daily © Thomson/South-Western CHAPTER 24 Slide 22

EFFECT OF INTEREST RATES ON SAVINGS GROWTH Lesson 24. 1 Based on a $50 a month deposit, compounded daily © Thomson/South-Western CHAPTER 24 Slide 23

Lesson 24. 3 INVESTING MONEY Objectives n Discuss advantages and disadvantages of investing n Explain the following types of investments: stocks, bonds, and money market funds © Thomson/South-Western CHAPTER 24 Slide 24

Lesson 24. 3 WHY INVEST? n Investing is the process of using money not required for personal and family needs to increase overall financial worth. n Investing is different from saving. n There is potential for making a lot of money. n There are risks of losing money. © Thomson/South-Western CHAPTER 24 Slide 25

Lesson 24. 3 TYPES OF INVESTMENTS n n Stocks Mutual funds Bonds Money market funds © Thomson/South-Western CHAPTER 24 Slide 26

Lesson 24. 3 STOCKS n Shares of ownership in a company are called stock. n Brokers are individuals or companies that specialize in selling stocks and other financial investments. n A commission is a fee paid to a broker for purchasing stock for you. n Dividends are profits that a company divides among its shareholders. n Capital gain refers to an increase in the value of stock or another asset. © Thomson/South-Western CHAPTER 24 Slide 27

Lesson 24. 3 MUTUAL FUNDS n A mutual fund is an investment company that pools the money of thousands of investors and buys a collection of investments that may include stocks, bonds, and other financial assets. n Advantages of mutual funds n Diversification n Professional management © Thomson/South-Western CHAPTER 24 Slide 28

Lesson 24. 3 BONDS n A bond represents a loan to a company or government agency. n Types of bonds n Corporate bonds n Government bonds n Municipal bonds © Thomson/South-Western CHAPTER 24 Slide 29

Lesson 24. 3 MONEY MARKET FUNDS n A money market fund is a type of mutual fund that invests in short-term, high-liquidity investments. © Thomson/South-Western CHAPTER 24 Slide 30

Lesson 24. 3 INVESTMENT PLANNING n n Decide on goals and stick to them Do not get greedy Stay away from hot tips Educate yourself about investing © Thomson/South-Western CHAPTER 24 Slide 31