How will you use your money???
Chapter 6
Budgeting By Bill Cosby
A fun strategy to get yourself in
the habit of saving…
…put $1/day in a piggy bank, sugar bowl or a
specially marked tin for one month, then at the
beginning of the following month, deposit the
money in a savings account.
$1
$2
$3
$5
a
a
a
a
day
day
day
day
=
=
=
=
$365
$730
$1,095
$1,825
What is a budget?

A budget is a spending and savings plan
based on an estimate of income and
expenses.


Why??? Live within your means, save towards
goals, evaluate spending, financial records
To analyze your financial situation, create
a personal balance sheet.
Assets - Liabilities = Net Worth
 Assets:
Items of value that you own
 Liabilities: Debts/money you owe
6-2: Track Income and Expenses

Fixed Expenses

Promise to pay on certain dates and in certain
amounts



Examples?
Rent, mortgage, property taxes, insurance
Flexible Expenses

Vary in amount and usually in frequency


Examples?
Luxury good, clothing, groceries, gas, heating bill
Budget Pitfalls
Not planning for predictable expenses that
are not synchronized with your budget
period.
 Not being realistic in estimating the
amount of expenses.
 Not being specific enough in setting up
budget categories. (lump under miscellaneous)
 Giving up

Sample Family Budget
9.5%
 Home 44.0%
 Car 12.8%
9.8%
13.7%
5.2%
5.0%
 Clothes 13.7%
12.8%
 Food 9.8%
 Utilities 9.5%
 Entertainment 5.2%
 Savings 5.0%
44.0%
Planning for Financial Security
Chapter 8
8-1: Why Save?

Why should you save money?


Emergencies, Expensive Purchases, Recurring
Expenses, Retirement, Special Goals
Techniques for Building Savings




Set aside money for savings FIRST, then pay
your expenses.
Save part (a percentage) of every paycheck.
Reward yourself
Payroll deductions - authorize a certain amount
to taken from each of your checks and
transferred to another account.
Now that you are starting to
save some money, where
should you put it?
Where should I put my money?
8-2: Savings Institutions and Accounts

Commercial Banks

Credit Union

Savings Banks

Savings Accounts

Savings and Loan
Associations
Where should I put my money?
8-2: Savings Institutions and Accounts

Commercial Banks





Serve individuals and
businesses
Operate for a profit
Offer full range of
banking services
Pays interest (on most
accounts)
Largest savings
institutions in the U.S.

Savings Bank



Owned by it’s depositors
Depositors earn dividends
Offer wide range of
banking services
FDIC Insured (insures up to $250,000)
Savings Institutions and Accounts

Savings and Loan
Institutions




Specialize in providing
funds to home buyers
Offer complete line of
banking services
During the 1980s,
many S&Ls failed and
had to be closed by the
government.
They are now insured
by the SAIF. (Saving
Association Insurance
Fund)

Credit Unions




Not for Profit
Operates as a savings
and lending institution
for it’s members.
Higher rates for
deposits and low rates
for loans.
Insured by the NCUSIF.
(National Credit Union
Share Insurance Fund)
Savings Institutions and Accounts

Savings Accounts




Accounts offered by any banking institution in
which you can deposit money.
Small deposit required…$50-$100
Earn interest
Fees and restrictions




Teller fee
ATM fee
Withdrawal restriction
NSF Fees
Where should I put my money?
8-3: Save with Safety

Certificates of Deposits



Money Market Accounts
Interest Rate

Fixed term




Minimum Deposit usually $500 to $100,000
Early Withdrawal
Penalties
Insured



Interest rate varies
Bank uses the money to
make short-term
investments
Minimum Deposit $1,000 to $2,000
Can deposit and
withdrawal as needed
Insured
Save with Safety

Bonds



A bond is a promise made
by a corporation or
government to pay an
investor a certain amount
of money, plus interest, at
a specified future time.
Similar to an IOU.
Types:


Corporate Bonds
Government Bonds
Save with Safety - Corporate Bonds

Corporate bonds




Junk bonds



Company makes interest
payment
Less risky
Smaller return
Businesses in trouble sell to
make money
High-risk, High yield
Bond rating services



Moody’s, Standard and Poor’s
Evaluate company’s financial
state and rate them
AAA safest – C or D riskiest
What does a savings bond look like?
How much is your bond worth???
Check it out at www.ustreas.gov/kids