Financial Basics

Mr. Andrew Biddell

INTRODUCTION

• I was fascinated by investing when young

• I studied business in college• You do not have to be great at math, but need to understand concepts

• Currently in the military

FINANCIAL BASICS

Overview

• Saving vs. investing• Making a financial plan• Budgeting• Ways to save and invest• Sales Transactions

DO YOU SAVE?

DO YOU INVEST?

Most children start out saving by putting coinsinto a piggy bank. Didn’t you? Saving money ina piggy bank is a great way to learn that youshould save some of your money for things youwant. It’s easy and it’s rightthere in your room. But, howsafe is your money in a piggybank? You won’t get more outthan what you put in.

SAVING VS. INVESTING

Saving• Generally short-term • Postpones spending

Investing• Generally long-term• Exchanges money for something with the future

expectation of receiving a profit• Has risk factors

MAKING A SUCCESSFUL FINANCIAL PLAN

1. Start as early as possible.

2. Set goals.

3. Include both short- and long-term strategies.

4. Make a budget.

5. Review the plan on a regular schedule.

6. Put the plan in writing.

Savings

Investments

Fixed Expenses

Expenses that do not change over time

Variable Expenses

Expenses that vary over time

Debts

What you owe

BUILDING AMONTHLY BUDGET

MONTHLY BUDGET EXAMPLE

Money

Earned

From

Chores

- Savings - Investments- Fixed

Expenses

- Variable

Expenses- Debts

= Money

Left over

$30 - $5 - $5 - $5 - $3 - $2 = $10

Cleaning

Chores

Into Savings

Account

To help pay

for your first

car

To help with

Cleaning

Supplies

Bought a

Birthday

Gift for Mom

Pay back

money

loaned to

you from

sister

For you to

spend or

additional

savings/

investments

REASONS TO SAVE

•Provide for unexpected emergencies•Need to fix a tire on your bike

•Purchase expensive items in the future.•Want to purchase a new bike in two years

•One day you will want to retire from working

Several years ago you might have bought ice creamfrom a store for $3.00? Well, now that ice cream maynow cost $4.00 or even more!

A 12 oz. bag of potato chips used to sell for $2.79. Youcan still buy a bag of the same potato chips for $2.79but now it only has 9.25 oz. of chips. Same price butfewer chips!

Inflation means that the sameamount of money will now buyless or the same item that youonce bought now costs more.

Whether you keep your

money in a piggy bank or in

a sock in your underwear

drawer, we all tend to lose

things at times. Have you

ever put something

somewhere “safe” and then

forgot where you put it?

CONCERNS AND ISSUESWHEN SAVING

• Safety

• Your savings are insured if stolen

• Liquidity

• When you go to the bank to withdraw money, they will have it.

• Rate of Return (Earnings)

• You earn interest on the money you save

What is a ?

• Safe place to store money

• Then loans that money out

• Pays you interest to store your money there

• Banks must keep enough money on hand to pay you when you remove money

WAYS TO SAVE AT A BANK

• Savings Accounts

• Checking Accounts

• Money Market Accounts

• Savings Bonds

Put your money in a savings account at a bank to solve your piggy bank problems

• Provides safety for your money from theft

• Money can be deposited (added) or withdrawn (removed)

• Provides liquidity (Easy access)

• Provides a rate of return (free money just for keeping it in a

bank)

• No ability to write checks with it, but does

come with a debit card

IMPACT OF RETURNS ON SAVINGSThis chart shows what happens to $100 in an account when no money is withdrawn and interest is compounded yearly.

Investing for the Long Term

• Historical Performance of the Stocks

• Reasons to Invest

• Investing Considerations

SAVING VS. INVESTING

• Stocks have historically outperformed all other means of saving or investing

• 8%-10% for stocks vs 1%-2% for savings accounts

• So, if you invested $100 into stocks or saved it in a bank 20 years ago and you never deposited or withdrew any money, it would now be:

• Stocks: $280

• Saving Account: $140

PLACES TO INVEST

• Stocks• When a company makes a profit, you get part of that profit

• Bonds• IOU to a company that they will repay with interest at a later date

• Mutual Funds

• Like a stock, but a collection of companies

• Real Estate

• Collectibles/Valuables

• Sports collectibles, art, rare coins

• When something is exchanged for something of value

• For example, when you buy a new gaming system

• You pick the one you want

• You pay the store for the gaming system

• The store gives you the gaming system

• The store gives you a receipt for the transaction

WHAT IS A SALES TRANSACTION?

IMPORTANT PARTS OF A SALES TRANSACTION?

• At least 2 people are required

• Buyer

• Seller

• The seller is offering a product or a service in exchange for sale

• A price is agreed upon between the seller and buyer

• Something of value has to be exchanged from the buyer to the seller

• Typically this is money, but can be anything (trading)

IMPORTANT PARTS OF A SALES TRANSACTION?

• A product or service has to be given from the seller to the buyer

• It must be the agreed upon product

• The product or service has to function as advertised

• A receipt showing the exchange of the product or service for money is given from the seller to the buyer

Questions?

Overview

• Saving vs. investing• Making a financial plan• Budgeting• Ways to save and invest• Sales Transactions