I2B Money Management UNIT Test

Earned income

Any money received from working; salary tips, commission

Unearned income

Money received from sources other than working; gifts, lottery, gambling, interest

Salary

a fixed regular payment; monthly, semimonthly, bi-weekly, weekly

Wage

paid for each hour worked

Regular Pay

Employees paid by hour that work the normal 40hrs/week

Overtime Pay

Employees paid by hour that work more than 40hrs/week

Required withholdings

Based on % of income

Federal income tax (FIT)

State income tax (SIT)

Voluntary withholdings

Can be % or set $

Union dues, retirement, health insurance, donations, savings plan

Gross pay

the total amount you earn BEFORE any deductions

Net pay

Amount left over, when all withholdings and deductions are taken out of your gross pay (take-home pay/disposable income)

Incentive Pay

Financial reward for performance

Commission

A set percentage of a sale paid to a salesperson instead of in addition to a salary/wage

Only earned when a sale is made

\*the more you sell the more you make

(EX): selling cars, real-estate companies

Bonus

a reward added to wages on seasonal basis

Parts of a budget

Disposable income = net earned + unearned

Expenses = fixed or variable

Cash surplus = saved or invested (negative if you spend more than earned)

Statement of Net Worth

Shows a person’s net worth based on his or her assets and liabilities

Assets

items of value that a person owns

Liabilities

money owed (loans/debts)

Net worth

Liabilities - Assets = net worth

CAN be negative

Checking accounts

A type of bank account that allows you to make payments

* written to a payee
* must be endorsed for funds to transfer
* Connected to debit cards (used to make purchases - merchant receives $ immediately)
* Money in the account is insured by FDIC (up to $250,000)

Banks charge different fees for a variety of services

Overdraft - check written for more money than your account contains

Stop Payment Order - A request that the bank not honor a specific check

Unbanked Options

Money order, travelers check, cashier’s check

Money Order

like a check, except that it can NEVER bounce

Travelers Check

check forms in specific denominations that are used instead of cash while traveling

Cashier’s check

also called bank draft; is a check written by a bank on it’s own funds

Savings account

for RAINY days & have a lower to NO risk

Saving for short term needs

6-18 months (less than a year)

Home/car repairs, emergencies, vaccinations, social events

Saving for midterm needs

1-3 years

Saving for long term needs

5+ years

Expenses that are costly + require years of saving/planning

College

Retirement

Buying a home

Getting a car

Safety of principal

You are guaranteed NOT TO LOSE your savings deposit even if the bank or other financial institution fails and goes out of business (FDIC insured)

Liquidity

How quickly you can turn saving into cash when you want it

Liquidity - LOW interest rate

Banks pay YOU interest

With most savings accounts + money market accounts you EARN interest to your account monthly

Interest is compounded

Money grows faster - interest on interest

Why APY reflects compounding

Total interest earned/principal is MORE than simple interest

Types of savings accounts

Regular Savings, CD, Money Market Account