BUDGET UNIT

WHAT IS A BUDGET?

• expenses for set period of time

• income + expenses for set period of time

• A tool to help you prioritize your spending no matter how litle or how much money you has.

CREATING A BUDGET, STEP ONE: TRACKING YOUR EXPENSES...

• Determine how much you spend and to whom you are paying that money

• know your income

WHY IS IT NECESSARY TO TRACK YOUR EXPENSES?

- an accurate record of what comes in/ goes out

EXPENSES

_Anything and everything you spend your money on!

- fixed and variable expenses

_Keep ALL receipts to help itemize all expenses on a special budget tracking sheet

Don't forget to record cash purchases, or at least the total amount of cash that you withdrew/spent from the ATM

STEP TWO: BREAK YOUR SPENDING INTO DIFFERENT CATEGORIES OF EXPENSES

_Essential Expenses-

Examples? clothing, gas, insurance, grocery bill

Fixed: needs: Examples? rent, electrical, health insurance, credit cand bill

Variable: wants: Examples? special sneakers, new videogame, going out to eat, new computer

_Non-Essential expenses: Examples? hobbies + interests

STEP THREE: SEPARATE YOUR WANTS AND NEEDS...

Sounds like? —> trade offs+ opportunity costs

-Check your budget tracking sheet to see where you're spending your money

- determine which items are not needed.

THE IMPORTANCE OF STEP THREE:

- take emotion out of spending

STEP FOUR: SET REALISTIC GOALS

-The objective of successful budgeting is to help you plan for actual expenses while setting goals for spending and saving

- Come up with ideas for increasing income

_KEY: Create responsible spending HABITS!

- having a tool for keeping track of your spending and saving finances

_ Understand that "life" happens and readjust your budget to account for "emergency" situations goals

STEP FIVE: INFORM YOUR FAMILY AND FRIENDS OF YOUR PLAN

• It won't do any good if your spouse continues to spend in ways you have not planned for

• Friends will be more understanding of refusals to join them for dinner three times a week if they know what your goals are

STEP SIX: DETERMINE HOW LONG IT WILL TAKE TO REACH YOUR FINANCIAL GOALS

-Make sure it is something you can live with

-Provides incentive to find creative ways to save money

WHY IS IT IMPORTANT TO HAVE AN IDEA OF HOW LONG IT WILL TAKE TO REACH YOUR GOALS?

→ need to see results/success

TOP FOUR REASONS BUDGETS FAIL

1. Budgets restrict you too much

-Reduce the amount you spend on "luxury items' instead of simply efiminating them. You’ll stick to your plan

2. Treating it as a fixed entity + knowing that you can change it

_ Enables you to constantly evaluate your success. Know that budgets are fluid.

3. You don't think enough about the purchases you make

-You don't need coffee from Starbucks every morning!

4. Too emotional

-Gifts for holidays, weddings, professional dues, subscriptions, periodical insurance fees must be PLANNED for and worked into the budget AHEAD of time!

In your own words, explain the difference between a fixed expense and a variable expense.

A fixed expense is an expense that never charges price (paid at regular intervals) and remains constant. A variable expense is an expense that may vary throughout time based on external factors.

1. Briefly summarize the Pay Yourself First strategy.

You pay every l't bill of the month to your savings, then transter a pre-determined anount of i into smingt.

2. The 50/30/20 budget recommends you spend 50% of your budget on needs. What factors would impact your ability to stick to this rule?

If the costs of needs increase, you may need to allocate more money of your budget to pay for them.

Budget for essential expenses first, such as housing, car payments and child care. Most essentials are fixed expenses, and it's important to ensure these are covered each month before you decide how much you'll devote to variable expenses like entertainment and dining out.

It's also important to track nonessential spending, which can help you identify areas for reduced spending if you want to save more money each month.

The 50/30/20 rule can help you budget for fixed and variable expenses. It calls for allocating 50 percent of your money to things you need, 30 percent to nonessential things and 20 percent to savings.

BUDGETING FOR TRANSPORTATION

1. Which of these cost-saving measures are doable for you right now as a teenager? How might this change as you get older?

Some of the measures that are doable are using the bike, not speeding, carpooling and limiting your financing. This way change because when you’re older, you can ride share, use public transportation and take better care of your car.

1. A security deposit is money that your landlord holds in case you break your lease or damage the apartment. What is the typical security deposit amount owed when you sign a new lease agreement?

Equal to 1-2 months of rent

2. If you have a pet in your apartment, you may be asked to pay extra when you sign your lease agreement. What's the difference between a pet fee, pet deposit and pet rent?

Fee → one-time non-refundable fee

Deposit → one-time refundable

Rent → monthly charge added to rent

Buying a home achieves which two financial goals at the same time?

A. Providing a place to live, investing for the future

B. Providing a place to live, paying for your college expenses

C. Providing a place to live, bringing you great happiness

D. Providing a place to live, paying off your consumer debt

2. Millennials are buying fewer homes than in previous generations for each of these reasons EXCEPT...

a. They have to self-fund retirement to a greater extent

b They find apartments to be trendier and more fun

c. They are paying down large student loans instead

d. They prefer to spend money on travel experiences rather than homeownership.

3. How much money should you put toward your home's downpayment?

a. Your entire emergency fund

b. 3 times your monthly expenses

c. 20% of the price of the home

d. 5 years' worth of payments

You should meet each of these 3 requirements before you consider buying a home:

(Choose three)

A. You qualify for good mortgage terms

B. You have enough saved for a down payment AND an emergency fund

C. You plan to stay in the home for 5 or more years

D. You are married and have children

—-————————————————————

BANKING UNIT

Checking Account - a financial account into which people deposit money and from which they withdraw money by writing checks or using debit or ATM cards

Savings Account - an interest-bearing deposit account at a banking establishment that is not typically used for transactions and has no maturity date

Debit Card - a small, specially coded plastic card issued by a bank that allows the cardholder to transfer funds electronically and immediately from his or her Checking account as if the cardholder were writing a check to pay for a purchase. A debit card is different from a credit card in that debit card users are limited to accessing only the available balances in their deposit account. Credit cards allow users to borrow funds that must be repaid.

Credit Card - a small, specially coded plastic card issued by a bank or other business, authorizing the cardholder to purchase goods and services on credit. Credit cards allow users to borrow funds (that must be repaid that the user does not currently have.

Money Order - a form of payment that a person can buy for a specific amount and sign over to the person or firm named on the money order. People must pay a fee to obtain a money order. A money order cannot bounce because full payment is needed before a money order is issued.

Cashier's Check - a form of check bought for a specific amount and paid to a person or firm named on the check. People pay a fee for a cashier's check. A cashier's check cannot bounce because full payment is needed before a cashier's check is issued.

Traveler's Check - a form of check that can be used to obtain cash; the buyer of the traveler's check pays a specific dollar amount to acquire these checks, which are issued in standardized packets by a traveler's check issuer. The checks are written to a person or firm and signed by the person writing the check. Often these come with protection against loss or theft. Traveler's check issuers usually charge a fee when they sell these instruments.

1. What is the primary advantage of using a physical card instead of a digital wallet?
   →doesn’t require additional security measures
   → some ATMs do not support digital payment

2. What are the advantages of using a digital wallet over a physical credit card?

   —> all cards in one place—> increased security

   → payment is made Faster

3. Imagine a scenario where someone has lost both their physical wallet and mobile phone. Based on the video's discussion about tracking and authentication, which lost item would be easier to secure against unauthorized use and why?

The individuals digital wallet would be casier to secure because he/she could log onto another device and close out his/her card from there.

1. Why is it important to choose a P2P service that your friends and family already use?

It will make exchanging money more convenient

2. What are the pros and cons of using P2P payments instead of traditional methods like cash or checks?

Con: Banks aren't responsible for lost money in P2P seams

Pro: you can send money faster + easier

3. How has the rise of P2P payment systems impacted the way society handles money?

Society now is paying people back in less time than before.

What precautions do you think you could take to avoid fraud when using peer-to-peer payment apps?

—>additional security measures

—> payment limitations

—> Know who you are sending money to

If a bank is a member of the Federal Deposit Insurance Corporation (FDIC), its customers' checking and savings accounts are insured up to $200,000. —> TRUE

Banks and payday loan organizations charge about the same amount of interest on loans. —> FALSE, banks are lower than payday

What happens when you deposit money into a bank?

How do banks contribute to the circular flow/of our economy?

If you deposit $100 into a bank, they will loan out $90 which then goes out into the economy and goes to another bank. Repeats.

Why does banking work?

Banking works on trust. When you want to use the money in your account, they’ll have it

How is banking all about trust? Explain.

You trust that when you go into a bank and request money, they have it available for you

How do banks make money?

Banks make money by selling CDs and loans, and well as interest rates.

What types of things affect the interest rate that a bank charges?

The amount of people that want a loan or how much business that bank is getting!

Summarize the four steps required for starting a bank.

A. Start organizing the group

B. Write a business plan

c. Research market + location

D. Start raising money to fund a bank

How safe is your money in a bank?

Your money is quite safe because the FDIC protects it by making sure Banks comply with banking laws and protects your money with insurance

What does FDIC stand for, and why was this corporation started?

FDIC stands for Federal Deposit Insurance Company, and it was started because Congress wanted to improve the security of banks and prevent bank failures.

How does the FDIC contribute to the success of the economy?

FDIC contributes to the success of the economy by maintaining the trust of depositors to keep the system working.

Savings → low minimum balance or none; most common; safe place with small interest

Money Market → Interest-earning savings account with limited transfers per month

Certificates of Deposit—> deposits money for a certain amount of time (can’t take out deposits)

1. A fully amortized payment is split into which two components?

a. The principal and the payment

b. The principal and the interest

c. The loan term and the interest

d. The interest rate and the total interest

2. Casey has an amortized loan payment of $400, and the interest they owe for that month is $50. By how much does Casey pay down the principal?

a.$50

b. $350

c. $400

d. $450

3. As the months progress on an amortized loan...

a. The payments stay the same, but the principal is paid down more quickly

b. The payments stay the same, but the principal is paid down more slowly

c. The payment sizes decrease, but the principal is paid down at the same rate

d. The payment sizes decrease, and the principal is paid down more quickly

4. If you can afford it, why is it a great idea to pay MORE than your amortized payment on a car, home, or other loan? Select all that apply.

a. You will pay your loan off faster

b. You will pay less total interest

c. You will pay less total principal

d. You will pay less money overall

CREDIT UNIT

1. Understanding Credit

• Definition of Credit: The ability to borrow money or access goods and services with the promise to pay back later.

• Credit Score

  • Definition: A numerical representation of a person's creditworthiness, typically ranging from 300 to 850.

• Factors Affecting Credit Score:

  • Payment History – On-time payments, avoiding late fees.

  • Credit Utilization  – The ratio of credit used to credit available.

  • Length of Credit History – How long you’ve had credit accounts.

• Types of Credit

  • Revolving Credit: Credit that allows borrowing up to a set limit (e.g., credit cards).

  • Installment Credit: Fixed amounts borrowed over time (e.g., personal loans, mortgages).

• Managing Credit

  • Building Good Credit:

    • Pay bills on time.

    • Keep credit card balances low (below 30% of your limit).

    • Avoid opening too many new credit accounts.

    • Credit Cards

    • Interest Rates (APR): The annual percentage rate charged for borrowing on a credit card.

    • Minimum Payment: The smallest amount that must be paid to avoid penalties, but paying only the minimum can lead to high interest charges.

    • Fees: Late fees, annual fees, cash advance fees, foreign transaction fees.

• How Credit Affects Car Loans

  When applying for a car loan, your credit score plays a significant role in determining whether you’ll be approved and what the loan terms (interest rate, loan amount, etc.) will be.

  • Excellent Credit (700-850): If you have a high credit score, you’ll likely qualify for the best interest rates and loan terms. Lenders see you as a low-risk borrower, which could result in lower monthly payments.

  • Down Payment: A larger down payment can reduce the loan amount you need, improving your chances of approval and lowering your monthly payment.

  • Loan Term: Shorter loan terms (e.g., 36 months) often come with lower interest rates than longer terms (e.g., 72 months).

• How Credit Affects Mortgages

  A mortgage is a large loan, so your credit score plays a critical role in determining the loan amount, interest rate, and whether you’ll be approved. In general, the higher your credit score, the better your mortgage terms.

  • Excellent Credit (740+): If your score is above 740, you’ll likely receive the best interest rates, sometimes lower than 4%. This could save you thousands of dollars over the life of your loan.

  • What Lenders Look for in a Mortgage

    • Credit Score: This is one of the most important factors, but lenders also consider other financial information.

    • Down Payment: A larger down payment (typically 20% or more) reduces the lender’s risk and can help you qualify for a loan with better terms. If you put down less than 20%, you may need private mortgage insurance (PMI), which can increase your monthly payments.

    • Improving Your Credit for Car Loans and Mortgages

      • Pay Your Bills on Time: This is the most important factor in your credit score. Late payments can have a significant negative impact.

TAXES UNIT

Basics of Taxes

• Definition: Taxes are financial charges imposed by the government on individuals and businesses to fund public services.

• Income Tax: A tax on personal earnings (wages, salaries, tips).

• Sales Tax: A tax on goods and services purchased, usually a percentage of the sale price.

• Property Tax: A tax based on the value of owned property, such as real estate.

• 2. Types of Taxes

  • Federal Income Tax: Tax levied by the federal government based on earnings.

  • State Income Tax: Some states have their own income tax.

  • Social Security and Medicare Taxes (FICA): Federal taxes that fund social security and healthcare for seniors.

  • Capital Gains Tax: Tax on the profit from the sale of assets like stocks or real estate.

  • Estate and Gift Tax: Taxes on the transfer of wealth, either during life (gifts) or after death (inheritance).

  • Self-Employment Taxes: If you’re self-employed, you are responsible for paying both the employee and employer portion of these taxes. This is known as the Self-Employment Tax, which includes both Social Security and Medicare taxes. The total rate is 15.3%

• 3. Tax Forms and Filing

  • W-2: The form employees receive showing annual wages and the federal, state, or other taxes withheld. Employers must provide employees with a W-2 by January 31 each year.

  • 1099 Forms: Used to report income for self-employed individuals or freelancers.

  • 1040 Form: The main form used for filing personal income taxes in the U.S.  The primary form for filing individual income taxes in the U.S. reports your income, tax deductions, and tax credits, and calculates your tax refund or tax due.

  • W-4 Form (Employee’s Withholding Allowance Certificate)

    • The W-4 form is filled out by employees to tell their employer how much money to withhold from their paychecks for federal taxes. Your withholding affects how much you owe when you file your tax return and whether you’ll get a refund.

  • Tax Deductions vs. Tax Credits:

    • Tax Deductions reduce the amount of income that is taxable (e.g., student loan interest, mortgage interest).

    • Tax Credits directly reduce the amount of taxes owed (e.g., Child tax credit, Earned income tax credit).

  • Filing Status

    • Single – Unmarried or legally separated.

    • Married Filing Jointly – Married couples filing together.

    • Married Filing Separately – Married couples filing separately.

    • Head of Household – Typically a single parent with dependents.

    • Qualifying Widow(er) – For individuals who have lost a spouse and have dependent children.

  • Withholding and Refunds

    • Withholding: The portion of your paycheck that is automatically deducted for federal, state, and local taxes.

    • Refunds: If you overpay your taxes during the year, you may receive a refund after filing your tax return.

  • Determining If Someone is a Dependent: A dependent is someone you support financially, and claiming them on your tax return may entitle you to various tax benefits, such as exemptions (if applicable in the current year), tax credits, and deductions.

    There are two types of dependents you can claim:

    1. Qualifying Child

    2. Qualifying Relative

    Qualifying Child

    A Qualifying Child must meet all five of the following criteria:

    1. Relationship Test

    • The person must be your child, stepchild, adopted child, foster child, brother, sister, half-sibling, step-sibling, or a descendant of any of these (e.g., your grandchild).

    • 2. Age Test

      • The child must be under 19 at the end of the tax year or under 24 if a full-time student (defined as being enrolled for at least 5 months during the year).

      • The child can be any age if they are permanently and totally disabled.

        3. Residency Test

      • The child must live with you for more than half the year.

      • There are exceptions for temporary absences like going to school or military service.

      • Support Test

        • The child must not have provided more than half of their own support. This means the child must rely on you (or someone else) for financial support, including food, housing, clothing, education, etc.

    • Qualifying Relative

      A Qualifying Relative is someone who does not meet the requirements for a Qualifying Child but is still eligible to be claimed as a dependent. To be a Qualifying Relative, the person must meet all four of the following criteria:

      1. Not a Qualifying Child

      • The individual cannot be your Qualifying Child or the qualifying child of another taxpayer.

    • Relationship or Member of Household Test

      • The person must either be a relative (such as a parent, grandparent, aunt, uncle, niece, nephew, sibling, etc.) or live with you for the entire year as a member of your household (even if not related).

      3. Gross Income Test

      • The individual’s gross income for the year must be less than $4,700 (for 2023). Gross income includes all income that is taxable, such as wages, interest, and social security benefits.

      • This limit doesn’t include non-taxable income like certain welfare benefits.

    • Support Test

      • You must provide more than half of the person's total financial support for the year. This includes things like food, housing, medical care, and other living expenses. If they support themselves or are supported by someone else more than half the time, they may not qualify.

      • Divorce or Separated Parents

        • If parents are divorced, the custodial parent (the parent with whom the child spends the most nights) usually claims the child as a dependent. However, the noncustodial parent may still claim the child under certain circumstances if the custodial parent agrees and signs a Form 8332 (Release/Revocation of Release of Claim to Exemption for Child).