© thomson/south-westernslidechapter 241 budgeting, saving, and investing money 24.1budgeting money...
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CHAPTER 24 1© Thomson/South-Western Slide
BUDGETING, SAVING,BUDGETING, SAVING,AND INVESTING MONEYAND INVESTING MONEY
24.1 Budgeting Money
24.2 Saving Money
24.3 Investing Money
Chapter 24
CHAPTER 24 2© Thomson/South-Western Slide
BUDGETING MONEYBUDGETING MONEY
Identify your own personal income and spending patterns
Name and describe the four steps involved in developing and using a budget
ObjectivesObjectives
Lesson 24.1
CHAPTER 24 3© Thomson/South-Western Slide
INCOME AND INCOME AND SPENDING PATTERNSSPENDING PATTERNS
Income is money coming in. An expenditure is money that is spent.
Lesson 24.1
CHAPTER 24 4© Thomson/South-Western Slide
RECORD OF RECORD OF INCOME AND INCOME AND EXPENDITURESEXPENDITURES
Lesson 24.1
CHAPTER 24 5© Thomson/South-Western Slide
DEVELOPING AND DEVELOPING AND USING A BUDGETUSING A BUDGET
A budget is a plan for managing income and expenditures.
Four steps in developing a budget Establishing goals Estimating income and expenditures Setting up the budget Following and revising the budget
Lesson 24.1
CHAPTER 24 6© Thomson/South-Western Slide
ESTABLISHING GOALSESTABLISHING GOALS
Identify what you need and want All family members should participate Be realistic Be specific Include short-range, medium-range,
and long-range goals Make a list
Lesson 24.1
CHAPTER 24 7© Thomson/South-Western Slide
GOALS WORKSHEETGOALS WORKSHEET Lesson 24.1
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ESTIMATING INCOME ESTIMATING INCOME AND EXPENDITURESAND EXPENDITURES
Choose a budget period Keep track for at least four weeks Figure out average income per budget
period Figure out average expenditures per
budget period
Lesson 24.1
CHAPTER 24 9© Thomson/South-Western Slide
SETTING UP THE BUDGETSETTING UP THE BUDGET
Savings is cash set aside in a bank account to be used for financial emergencies and goals
Regular expenditures, sometimes called fixed expenditures, are those essential monthly payments that are usually the same amount each month.
Variable expenditures are day-to-day living expenses.
Lesson 24.1
CHAPTER 24 10© Thomson/South-Western Slide
EXAMPLES OF EXAMPLES OF REGULAR EXPENDITURESREGULAR EXPENDITURES
Rent or mortgage payment Utilities Insurance Auto payment Credit or loan payments
Lesson 24.1
CHAPTER 24 11© Thomson/South-Western Slide
EXAMPLES OF EXAMPLES OF VARIABLE EXPENDITURESVARIABLE EXPENDITURES
Food and beverage Clothing Transportation Household
Medical care Entertainment Gifts and
contributions Taxes
Lesson 24.1
CHAPTER 24 12© Thomson/South-Western Slide
HOUSEHOLD HOUSEHOLD BUDGET BUDGET FORMFORM
Lesson 24.1
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FOLLOWING AND FOLLOWING AND REVISING THE BUDGETREVISING THE BUDGET
Following a budget involves Allocation, or distribution, of income to
the various items on the budget Keeping accurate records of expenditures
A line item is a single entry, or budgeted item.
Lesson 24.1
CHAPTER 24 14© Thomson/South-Western Slide
SAVING MONEYSAVING MONEY
Discuss the importance of setting aside a portion of income for savings
Name and describe the two basic types of savings accounts
Compute interest rate returns on savings
ObjectivesObjectives
Lesson 24.2
CHAPTER 24 15© Thomson/South-Western Slide
WHY SAVE?WHY SAVE?
Saving will ensure that you have funds available to meet a financial emergency.
Saving will allow you to achieve financial goals.
Lesson 24.2
CHAPTER 24 16© Thomson/South-Western Slide
TYPES OF SAVINGS ACCOUNTSTYPES OF SAVINGS ACCOUNTS
Regular savings accounts Also called passbook accounts Offer safety, convenience and liquidity
Liquidity refers to an asset that can be easily converted into cash.
Time deposits 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.
Lesson 24.2
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SAVINGS DEPOSIT FORMSAVINGS DEPOSIT FORM Lesson 24.1
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SAVINGS WITHDRAWAL FORMSAVINGS WITHDRAWAL FORM Lesson 24.1
CHAPTER 24 19© Thomson/South-Western Slide
FIGURING INTEREST RATESFIGURING INTEREST RATES
Annual interest rate Frequency of interest compounding
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.
Interest pay periods Annual percentage yield
Lesson 24.2
CHAPTER 24 20© Thomson/South-Western Slide
INTEREST RATESINTEREST RATES Lesson 24.1
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COMPOUNDING INTERESTCOMPOUNDING INTEREST Lesson 24.1
More frequent interest compounding results in higher Annual Percentage Yield (APY).
More frequent interest compounding results in higher Annual Percentage Yield (APY).
More frequent interest compounding results in higher returns.More frequent interest compounding results in higher returns.
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SAVINGS GROWTHSAVINGS GROWTH Lesson 24.1
Based on 5.25 percent interest, compounded dailyBased on 5.25 percent interest, compounded daily
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EFFECT OF INTEREST RATESEFFECT OF INTEREST RATESON SAVINGS GROWTHON SAVINGS GROWTH
Lesson 24.1
Based on a $50 a month deposit, compounded dailyBased on a $50 a month deposit, compounded daily
CHAPTER 24 24© Thomson/South-Western Slide
INVESTING MONEYINVESTING MONEY
Discuss advantages and disadvantages of investing
Explain the following types of investments: stocks, bonds, and money market funds
ObjectivesObjectives
Lesson 24.3
CHAPTER 24 25© Thomson/South-Western Slide
WHY INVEST?WHY INVEST?
Investing is the process of using money not required for personal and family needs to increase overall financial worth.
Investing is different from saving. There is potential for making a lot of money. There are risks of losing money.
Lesson 24.3
CHAPTER 24 26© Thomson/South-Western Slide
TYPES OF INVESTMENTSTYPES OF INVESTMENTS
Stocks Mutual funds Bonds Money market funds
Lesson 24.3
CHAPTER 24 27© Thomson/South-Western Slide
STOCKSSTOCKS
Shares of ownership in a company are called stock. Brokers are individuals or companies that specialize
in selling stocks and other financial investments. A commission is a fee paid to a broker for
purchasing stock for you. Dividends are profits that a company divides among
its shareholders. Capital gain refers to an increase in the value of
stock or another asset.
Lesson 24.3
CHAPTER 24 28© Thomson/South-Western Slide
MUTUAL FUNDSMUTUAL FUNDS
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.
Advantages of mutual funds Diversification Professional management
Lesson 24.3
CHAPTER 24 29© Thomson/South-Western Slide
BONDSBONDS
A bond represents a loan to a company or government agency.
Types of bonds Corporate bonds Government bonds Municipal bonds
Lesson 24.3
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MONEY MARKET FUNDSMONEY MARKET FUNDS
A money market fund is a type of mutual fund that invests in short-term, high-liquidity investments.
Lesson 24.3
CHAPTER 24 31© Thomson/South-Western Slide
INVESTMENT PLANNINGINVESTMENT PLANNING
Decide on goals and stick to them Do not get greedy Stay away from hot tips Educate yourself about investing
Lesson 24.3