Personal Finance
Simple steps to financial peace.
https://www.youtube.com/watch?v=_dv1_eMK4Ac
#1 SAVE
Pay yourself first!
How would you cover an unexpected expense?
•
•
Emergency Fund: three to six months of expenses in
readily available cash to be used only in the event of
an emergency
Money Market Account: saving account with higher
interest than a traditional savings account, but lower
interest rate than most other investments.
•
transactions may be somewhat more limited
Saving for Purchases
• Sinking
Fund: saving money for a
specific purpose to allow interest to
work for you rather than against you.
•
A purchase in 5 years or less
• Wealth
Building: The value of money
is affected by the point in time it is
received.
Time Value of Money
Time Value of Money
• The
value of a given amount of
money is greater the earlier that it is
received.
• The earlier that you start saving, the
more quickly your money can earn
interest and grow.
Time Value of Money
• Principal:
original amount of money
loaned or deposited
• Interest Rate: cost of borrowing
money; rich people earn interest,
broke people pay interest
• Compound Interest: interest paid on
interest previously earned.
HOW DOES THE TIME VALUE OF
MONEY RELATE TO OPPORTUNITY
COST?
When deciding to spend money, you must also
consider the interest you could be earning if you
saved or invested it instead.
Investing
Long term savings, more than five years.
#1 Rule of Investing: Do not invest in something you do not
understand!
Investing
• Save
in a savings account for
emergencies and purchases within the
next 5 years.
• A savings account is safe, but over time
will lose value due to inflation.
• An investment gives your dollars a
greater opportunity to grow.
• Remember,
investments are for long
term, more than 5 years
Investing
• Rule
#2:
• Diversification: to spread around one’s
investment dollars among several
different types of investments; results in
lower risk
• Risk:
the degree of uncertainty of return
on an asset, or loss of principle
Investing
•
Risk Return Ratio: relationship of substantial
reward in comparison to the amount of risk
taken
Rate
of return should be higher than the rate
of inflation and taxes (approx. 6%)
•
Rule of 72: method of finding the number of
years required to double your money at a
given interest rate
https://www.youtube.com/watch?v=xZpjmBGIp44
Rule #3
• Dollar Cost Averaging: investing a set
amount on a regular schedule
•
•
•
•
Invest same amount monthly regardless of the
ups and downs of the market
Covers losses and takes advantage of low prices
during a down market.
Do not play the “buy low sell high” game on
stock/mutual fund investments
Up Market
Down market
Investing
•
Mutual Fund: pool of money managed by an
investment company and invested in
multiple companies, bonds, etc.
•
•
Offers investors a variety of goals depending on
the fund and its investment character
Often used to generate income on a regular
basis or to preserve an investor’s money
Only
invest in funds with a long track record.
Investing
Index Funds
Mutual funds using stock market indexes
• Dow Jones Industrial Average: the top
50 companies
• Standard & Poor 500: top 500
companies
House Rules
Real Estate
• Rent or Own? What are the Pros and Cons?
• Mortgage: a secured loan for the purchase
of property.
•
•
•
•
First a place to live, second an investment
Interest paid is tax deductable
Real-estate generally gains value over the long
run
Rental properties can be an investment
• Risky-
must have large stashed of cash to cover
expenses
House Rules
•
Buying a home you can afford, in an attractive
community, and keeping it well-maintained can be a
good investment. For many people, it is a huge
investment and must be made with care, especially in
today’s housing market. Enter the housing market
purposefully.
Have a 20% down payment.
• Avoid teaser rates on mortgages.
• Build up equity (cash value) in your
home and avoid borrowing against it.
• Diversify your overall portfolio of assets
of which your home is only one!
•
https://www.youtube.com/watch?v=RvS6a
nSs1e8
Budgeting
“Control Your Money, or the Lack of it Will Control YOU!”
https://www.youtube.com/watch?v=ctbIRqsggZ8
Key Terms


Budget: cash flow plan; assigns every dollar to a
specific category/expense at the beginning of
each month.
Envelope System: series of envelopes, divided into
pre-determined categories, used to store cash for
planned monthly expenses; helps to control
spending on categories you tend to over spend on.



What categories do you tend to overspend on?
possible categories include food, entertainment, gas, etc.
Impulse Purchase: To buy an item without thinking
about it.

Include spending money (cash) in your budget
Key Terms
Reconcile: to match your bank statement with your
checkbook, preferably within 72 hours of receiving
the statement.
• Zero-Based Budget: cash flow plan that assigns an
expense to every dollar of one’s income, wherein the
total income minus the total expenses equals zero.
How do you budget for bills that may have a different
amount due every month, or that you don’t pay
monthly?
• Sinking Fund! Budget for the high average of that
expense.
•
Personal Finance Review
1.
2.
3.
4.
5.
6.
Name the three categories of savings
How much of an emergency fund should
you have, and where should you keep it?
Why should you have a budget?
What is compound interest?
What is dollar cost averaging?
Name 5 college basketball teams.
The Dangers of Debt
Average American Owes $8,900 in Consumer Debt and
Does Not Use a Budget
New York, NY (PRWEB) March 20, 2013
The Dangers of Debt
• Annual
Fee: fee charged by a credit
card company for the use of their
credit card.
• Annual Percentage Rate (APR): cost
of borrowing money on an annual
basis; takes into account the interest
rate and other related fees on a
loan.
• Credit: money owed.
Getting Out of Debt



•
Stop borrowing!
Sell some stuff! (garage sale)
Debt Snowball: preferred method of debt
repayment; includes a list of all debts
organized from smallest to largest balance;
minimum payments are made to all debts
except for the smallest, which is attacked with
the largest possible payments.
Don’t finance anything for longer than its useful life.

Depreciation: a decline in the value of property;
the opposite of appreciation.
Good Debt. Is There Such a
Thing?
•
Financing makes it possible for you to buy now and
pay later.
• These
“good debts” can help increase
your net worth (assets less liabilities).
•
•
•
Residential home
Education
Automobile
• Do
not finance a car for more than 3 years
• Keep your car for 5-10 years
• DO NOT lease- buy used
https://www.youtube.com/watch?v=BKyV8CTHeJ0
27
Getting A Job
Career Cluster Interest Survey
Getting A Job
•
Make a Plan
•
•
YellowBrickRoad Video #1: Finding Your Career Objective
Interviewing
Many times the person who knows the most about getting
hired gets the position over the most “qualified.”
1.
Pre-Interview Steps
2.
Cover Letters and Résumés
3.
Interview Formats
4.
Interviewee’s Role
5.
During the interview
•
•
•
6.
Dress appropriately- 1st impressions are important
Social Media is fair game!
Post-Interview Follow-up
YellowBrickRoad Video #3: Identifying Your Needs
YellowBrickRoad Video #5: Action Plan
Ins and Outs of Insurance
How to handle RISK
RISK is exposure to the chance of loss.
• What
are 10 risks that you might
face on a particular day?
• Can
life?
•
individuals avoid all risks in
http://www.youtube.com/watch?v=4h0Qvc
6_MfQ
Five Ways to Handle Risk
•
•
•
•
•
Avoid Risk You risk losing money when you gamble.
You can avoid this risk by not gambling or betting.
Retain Risk You accept the risk of doing poorly on a
test because you didn’t study.
Reduce Risk You risk developing lung cancer if you
smoke cigarettes. You reduce this risk if you don’t
smoke cigarettes.
Transfer Risk You risk embarrassing yourself if you give a
presentation in front of the entire school. You transfer
the risk by asking someone else to give the
presentation.
Share Risk You risk making an unpopular choice if you
select a DJ for the school dance by yourself. You share
the risk if you ask others to join a committee to select
the DJ.
•
•
Insurance is a type of risk transfer and sharing
Law of large numbers
Insurance
•
Insurance: protection against financial loss
•
The purpose of insurance is to recover from
financial loss, not profit from it.
Your emergency fund is a type of insurance,
but may not be enough to cover all financial
losses.
Key Insurance Terms
• Premium: cost of insurance; determined by
the level of risk the company considers it will
take granting you the policy
• Deductable: the amount you must pay before
the insurance pays its portion of the expense.
•