Personal Finance

Personal FinanceUnderstand responsible earning, spending, savings, borrowing.

There are Four Basic Economic Activities of ConsumersEarning

Spending

Savings

Borrowing

EarningEarning --- gaining money by working, owning a business, or receiving investment returns. Money gained from earning is called earnings.

A persons career choices, ability to find employment, and ability to advance determine his or her expected earnings and standard of living. Factors Affecting Earnings Career ChoicesType of career/job Place of employmentAbility to Find Employment Education levelEmployability skillsPrior job performanceEconomic conditionsWorkplace trends and opportunitiesAbility to AdvanceType of career/jobEducation levelJob performanceEconomic conditionsWorkplace trends and opportunities

Earnings

Standard of Living

Responsible Earning involves realizing that career choices greatly affect lifetime earnings & standard of living & considering these factors when making career choices.4Education paysEducationIncome Earning AbilityUnemployment Take Charge Today August 2013 Invest in Yourself Slide #Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona2.3.1.G1SpendingSpending --- using money to purchase goods and services.

The way a person spends money determines the value received and influences the economy. Each purchase contributes to the demand for the product or service purchased

Expenditures- outlays of cash and noncash assets for goods and services. Objects of expenditures may be in form of expenses and assets and some of the latter may be in the form of investment

Expenses expenditures or diminution in assets that provide current benefits only. Ex: food, depreciation, and travel expensesAsset anything of future value. Ex: appliances, cars, house, jewelry, and real estateInvestment asset that is expected to result in future earnings. Ex: jewelry, real estate, and stocks

Note that not all asset acquisitions are investments.

Trade-offs and Opportunity Costs

Because of scarcity, any time a choice is made there are alternatives that are not chosen. When making a choice, other alternatives must be sacrificed. The highest-valued alternative that must be given up when a choice is made is the opportunity cost of the choice. The choice of one item while giving up another is called a trade-off.

Law of ScarcityLaw of Scarcity: An economic system cannot produce all goods and services that consumers want, and most consumers do not have the resources to purchase everything they want. Choices must be made about how limited resources (time, money) are used.

Responsible spendingResponsible spending includes researching and planning purchases in advance and making wise choices in light of opportunity costs and trade-offs that apply

Control of ExpendituresKnow first what you spend for and how muchDetermine what expenditures are not necessarySet the limit for expenditures on a daily, weekly, bi-monthly and monthly basesPrepare a family budget and make every member aware of the limits set for expenditures they can makeCompare budgeted with actual figures so that corrective measures may be adopted

SavingSaving --- putting aside money for later use. Money may be saved in a bank account or in a wallet. The form of savings used determines the financial return

Later Uses For SavingsEmergenciesRecurring expensesFuture purchasesFinancial goalsRetirement

Benefits of Saving

Provide money for future purchasesCan be used to earn incomeProduce a healthy economyIncrease personal financial securityProvide growth opportunities for business ventures

Responsible Saving - forming the habit of saving regularly & finding forms of saving that yield high returnsBorrowingBorrowing --- obtaining money, goods, or services at present in exchange for the promise of future payment . . . Buy now, pay later.

Examples of BorrowingBuying with a credit cardBuying on installmentPayday loansCash advancesLayaway purchases

Reasons for Borrowing

Major purchasesEmergenciesConveniencePrepare for future goalsTake advantage of good sales/offersResponsible borrowing means borrowing only what can be paid back when due

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