unit 2 – savings, spending and budgeting

Unit 2 – Savings, Spending and BudgetingUnit 2 – Savings, Spending and Budgeting

CTE P.F #16) Explain how savings contribute to finance, and financial well being, building wealth, and working to reach financial goals. Compare and contrast savings options. Include time value of money and interest calculation.

OBJECTIVES:

1.Explain how savings and investing contribute to wealth and goals.

2.Explain the time value of money.

3.Explore the cost of living.

**SET UP NOTES AND WRITE YOUR EQ!

Where should all the $$ go??• Smart money managers know exactly how

much money they can count on coming in, and exactly how much money they need to spend on bills and day-to-day purchases.

• This unit is designed to help you get smart about the money you earn and the money you spend.

Vocabulary• Checking Account – an account opened at a financial

institution that can have multiple draws per month using a check or a debit card.

• Savings Account – an account opened at a financial institution that earns a small amount of interest and has limited draws.

• Principal – the original amount of money on deposit.• Time Value of Money – the longer savings are invested, the

more money you will usually earn. • Future Value – is the amount your original deposit will be worth

in the future based on your interest rate. • Spending Plan – a plan on how to spend your money for a set

time frame, also known as a budget.

NOTESNOTES

Credit Unions and BanksCredit Unions and Banks

• For-profit companies For-profit companies owned by owned by shareholdersshareholders

• Managed by a paid Managed by a paid board of directorsboard of directors

• Offers services to Offers services to everyoneeveryone

• Owned by Owned by shareholdersshareholders

• Profits only to Profits only to shareholdersshareholders

• Insured by the FDICInsured by the FDIC

• Not for profit, owned Not for profit, owned by membersby members

• Managed by members Managed by members and volunteer board and volunteer board of directors who are of directors who are elected.elected.

• Offers services to Offers services to only a selected group only a selected group of qualified peopleof qualified people

• Owned by members Owned by members (customers)(customers)

• Profits to all membersProfits to all members• Insured by NCUAInsured by NCUA

BanksBanks Credit UnionsCredit Unions

NOTESNOTES

SSAAVVEE

etting aside money for “big ticket items”etting aside money for “big ticket items”

voids borrowing, which costs you a lot! It’s avoids borrowing, which costs you a lot! It’s a

ery wise thing to do, becauseery wise thing to do, because

very time you pay yourself first, you are very time you pay yourself first, you are developing adeveloping a saving habitsaving habit that leaves you that leaves you with more money to spend later on for things with more money to spend later on for things that are really important to you!that are really important to you!

PAY YOUR$ELF FIRST!PAY YOUR$ELF FIRST!

NOTESNOTES

When You Open a Savings AccountWhen You Open a Savings Account

• You deposit money in the account.You deposit money in the account.

• You can add or take out money at any You can add or take out money at any time.time.

• The savings institution is allowed to use The savings institution is allowed to use your money to invest and earn a profit.your money to invest and earn a profit.

• You are paid a small amount of interest for You are paid a small amount of interest for depositing your money.depositing your money.

• Your money is insured against loss.Your money is insured against loss.

NOTESNOTES

Savings DepositSavings Deposit

Today’s date goes herePrint Your Name Here

Print Your Address HereSign Your Name Here

33 3 33 33

x

125 0 9

375 2 5

75 0 0

425 3 4

11

22

33

44

55

1010

88

77

66

1111

5-E-15-E-1

500 3499

Click the numbers

Saving for Financial GoalsSaving for Financial GoalsUsing a savings account to set aside funds

for your financial goals…– Takes the money you are saving out of your

wallet.– Keeps it in a secure place.– Lets you keep track of what you have saved.– Earns a small amount of interest in the

process.

NOTESNOTES

Quick Write!

• How does saving money help lead to financial success in the long run?

NOTESNOTES

Quick Write

• What do they mean by the “time value of money” ?

Summary & Assignment

• Answer your essential question for the day.

• Using the Cost of Living estimation worksheet, the internet and your parents estimate these expenses for when you move out on your own

• Review Spending Log Requirements!

• CTE P.F #16) Explain how savings contribute to financial well being, building wealth, and working to reach financial goals. Compare and contrast savings options. Include time value of money and interest calculation.

OBJECTIVES:

1.Compare and contrast savings and options.

2.Calculate interest in both simple and compound situations.

3.Analyze the time value of money.

  Basic Savings Account

Money Market CD

(Certificate of Deposit)

Series EE Savings Bonds

 Where to open this account/buy this product 

 Banks and Credit Unions

 Banks (Local or National) – in person or on-line 

 Bank or a Broker

 Bank or on-line

 Interest rates (as of 5/2/06)

 0.5%

 4.0-4.5%(On-line is higher)

 3.0-4.0%(a few months to 5 years)

 3.7%

 When can you get your money?

 Anytime

 1-2 times per month

 It depends on the term of the CD

 After 6 months (but you will pay a penalty before 5 years)

 Can you add money?

 Yes

 Yes

 Need to buy a new CD

 Need to buy a new bond 

 Do you get a statement? 

 No (but can look on-line)

 Yes

 No (in most cases)

 No

Types of Savings Accounts

NOTESNOTES

Simple Interest• I = P(r)(t)

– Interest = Principal x Rate x Time– Remember the rate must be a decimal and

time is accounted for in years. So, 6 months = .5 years.

TAKE

NOTES!

Example 1• What is the total interest on this account’s

balance at the end of the investment period? – Principal = $1000.00– Annual Interest Rate = %3.5– Time Invested = 9 months– Simple Interest Account

TAKE

NOTES!

Example 2

• How much interest did this customer earn? What was their account balance at the end of the investment period? – Principal = $2500.00– Annual Interest Rate = %6.5– Time Invested = 15 months– Simple Interest Account

TAKE

NOTES!

Compound Interest

Account Balance

Principal (Amt. Invested)

Interest Rate as a decimal

Number of Interest periods per year

Number of Years Invested

TAKE

NOTES!

Example 1• Sarah is planning to invest in a special

savings program with her bank. If she begins a college plan for her daughter now she will earn 1.5% interest compounding quarterly on a one time investment of $5,000.00. If her daughter is 3 now, what would the account balance when she heads to college at 18?

TAKE

NOTES!

Example 2

• Johny started a credit card when he turned 18, and immediately maxed it out for a $500.00 stereo. He never made a payment. If he has been past due for 6 months, and has a rate of 18% compounded monthly; what is his approximate debt? (Assume no fees)

TAKE

NOTES!

Quick Write

• Which method (simple or compound) will earn you more money in the long run, and how does this impact the time value of money?

Summary & Assignment

• Answer your essential question!

• Lets do some math :)– Simple & Compound Interest

• CTE PF #7) Create a monthly personal budget. Cite findings when calculating earnings and estimating house hold living expenses, taxes, savings, and emergency funds.

OBJECTIVES:

1.Understand budgeting, net worth, assets and liabilities.

2.Create a monthly budget.

3.Research and estimate monthly income and expenses.

**SET UP NOTES AND WRITE YOUR EQ!

The 411 on Creating a Budget

• A budget is an important part of achieving the goals you set in your financial plan, because you can build the amount you need to save into your planned expenses.

Vocabulary

• Fixed expenses cost the same amount every time.

• Variable expenses fluctuate in amount, so you usually have more control over how much they’ll be.

• Periodic or occasional expenses are ones you don’t pay every month, and can be either fixed or variable.

NOTESNOTES

FIXED, VARIABLE, OR PERIODIC?

Expense Fixed Variable Periodic

Loan Payment X    

Electric Bill   X  

Twice-yearly Insurance Payment    

X

???      

???      

Reasons for a Spending Plan Reasons for a Spending Plan ……Helps you determine where you are Helps you determine where you are

spending your money currently.spending your money currently.

……Helps you decide where to spend your Helps you decide where to spend your money in the future. money in the future.

……You have an organized way to save for You have an organized way to save for things that cost more. things that cost more.

……Puts you in control of your financial Puts you in control of your financial future, beginning NOW.future, beginning NOW. NOTES

NOTES

??

People Without a Budget… People Without a Budget…

……Are less likely to know what they have.Are less likely to know what they have.……Have no plan, often coming up short Have no plan, often coming up short

before their next paycheck or allowance.before their next paycheck or allowance.……Are almost certain to have no plan to Are almost certain to have no plan to

save for more expensive spending goals.save for more expensive spending goals.

NOTESNOTES

Example 1:

• Assume your monthly pay is $945.00 and you have budgeted 25% for rent. What is the maximum amount of rent you can pay?

Example 2:

• Look at the expenses below, what is the total fixed expense amount? – Rent $450.00– Electric $175.24– Car Payment $325.00– Grocery Bill $125.89

Steps to Writing a Budget

• First – decide the time frame for tracking income and expense. Weekly or Monthly

• Second – List all Income, no matter the source, and total.

• Third – Make categories for each of your expenses. Don’t forget to P.Y.F.!

• Fourth – Subtract your expense from your income.

• Fifth – Make final adjustments. NOTESNOTES

Personal Personal Plan for Plan for One WeekOne Week

$20.00Balance

$120.00Savings and Spending

$140.00Income

$120.00Total Savings & Spending

15.00Miscellaneous

33.00Transportation

16.50Gifts and Contributions

10.00Entertainment

14.50Clothing

11.00Food

$20.00Savings (PYF)

Savings and Spending

$140.00Total Income

15.00Allowance

$125.00Part-Time Job

Income (after taxes)

One Week

Personal Spending/Savings Plan

$20.00Balance

$120.00Savings and Spending

$140.00Income

$120.00Total Savings & Spending

15.00Miscellaneous

33.00Transportation

16.50Gifts and Contributions

10.00Entertainment

14.50Clothing

11.00Food

$20.00Savings (PYF)

Savings and Spending

$140.00Total Income

15.00Allowance

$125.00Part-Time Job

Income (after taxes)

One Week

Personal Spending/Savings Plan

The Living Budget

• Remember your expenses and income are not fixed forever… them may change.

• Your goals will change as you age.

• Your spending habits will change as you age.

• It is important that you analyze and adjust your budget frequently. It should become a part of your bill routine.

Summary & Assignment

• Use the budget worksheet to detail out your monthly budget. You must cite all sources you use. Create a list in MS Word of your sources as you go. Print and attach that list to the worksheet when you are done!