Download Money Management Overview

Money Management
Unit B
Your Financial Plan
1.
Determine Your Current Situation – analyze how to use your
money now based on your values
2.
Set and prioritize your goals – short (5 yrs), medium (5-10
yrs), long term (10+). Be specific, realistic and measureable
3.
Develop a long term plan – create a feasible working plan
4.
Organize your records – bills, bank records, etc.
5.
Set up a budget – realistic, responsible, restraint. Monitor
and modify as needed.
6.
Keep it simple – easy to track, make progress and follow
through.
Your Financial Goals
•
Specific – do not plan to “save for a new car”
•
Measureable – save $50 per week for a new car
•
•
•
Realistic – I make $150 per week and need $20/week
for my cell, spend $50 per week on myself, and save
$30 per week.
Implement plan and be firm with yourself!!
Adjust as you change the big ticket items you are
saving for
•
Adjust as you reach your goals
•
Adjust as your income changes
Determine Your Cash Flow
•
•
•
Cash flow – how much money you bring in and spend during a time
period
Income – money coming in. What you earn; net income
•
Working
Weekly
•
Allowance
Bi-weekly
•
Gifts**
Monthly
•
Selling your things**
Irregular
Expenses – money going out. What you are spending.
Class survey
1.
Did my spending reflect what is important to me?
2.
Two years from now, which of these purchases will still mean something to
me?
3.
Would I be embarrassed if my family and friends saw my list?
4.
What percentage of my spending is for necessities?
Expenses
•
•
•
•
•
Estimate – educated guess based on information you
have. Approx. how much do you expect to earn and
spend during this time period.
Cash flow statement – summary of your receipts,
payments and income.
Fixed expenses – expenses that stay the same month to
month
Variable expenses – expenses that change month to
month
Periodic expenses – expenses that are paid at different
points during the year
•
Emergency fund – planning for unexpected expenses
•
Savings – separate account for personal item and future
Organizing Expenses
•
Needs – things you must
have. Simple forms.
•
Wants – things you
would like to have.
Net Cash Flow
•
Net cash flow – the difference between your expenses
and income
•
Surplus – when your income > expenses
•
Deficit – when your expenses > income
•
•
Discretionary income – money left over after paying for
your essential expenses
Budget variance – the difference between the
budgeted amount to spend and the actual amount you
spend
Using Your Budget
•
•
•
•
•
•
•
•
Personal Financial Statement – document with
information about a person’s current financial position
and summarizes income and spending.
Net worth – reflected on your balance sheet, shows the
difference between what you own and owe.
Assets – items of value that a person possesses; cash, real
estate, investments, possessions
Liquid assets – cash and items than can be quickly
converted to cash
Real estate – land and structures a person owns
Market value – the price at which your real estate would
sell
Personal possessions – belongings other than real estate
Investments – retirement, stocks, bonds
Evaluating Your Financial Progress
•
•
Debt ratio – liabilities dividend/net worth
•
Compares total what you owe by what you’re worth
•
Lower the better
Liquidity ratio (not a %) – liquid assets/monthly expenses
•
•
•
•
Indicates # of months you can still pay expenses in a financial
emergency
Higher the better
Debt-payments ratio – monthly credit payments/net
income
•
How much of your earnings goes towards paying debts
•
< 20% is ideal
Savings ratio – Savings each month/gross income
•
What you save compared to what you make
•
At least 10% is ideal
Using Your Budget
•
•
•
•
•
Liabilities – debts you owe
Current liabilities –short-term debts to be paid within a
year
Long term liabilities – debts that do not have to be repaid
for at least a year
Discretionary income – money left over after paying your
expenses/liabilities
Insolvency – when your liabilities >assets
Personal Statement Resources
•
•
•
•
http://www.kiplinger.com/tools/cashflow.html
http://www.calculatorweb.com/calculators/budgetc
alc/
http://www.saveandinvest.org/web/groups/foundati
on/@foundation/documents/foundation/p118408.pd
f go to page 11
www.billmonk.com
Financial Services & Institutions
Financial services for the short-term
Checks, ATM,
prepaid
cards
Regular
savings, MMA
Credit Cards
Regular,
Online,
Automatic,
Phone, M.O.
Daily
Cash
Savings
Credit
Checking
Financial Services & Institutions
Financial services for the long term
• Savings
• Investment
• Credit
services
CDs,
Bonds
Cash &
home
loans
Mutual
funds,
advice
Tax prep,
insurance
• Other
Basic Banking Concepts
•
•
•
•
•
•
•
•
Savings account – deposit money for safekeeping. Banks
use about 90% of your money for loans.
Interest – cost of loans
Withdrawal limit
Checking account – able to withdraw, pay bills, make
purchases, use checks daily
Checks – written request from your bank to issue it to
someone else
Payee – person who check is made out to
Payer – issuer of the check
Debit card – allows electronic transaction from checking
account
•
Direct deposit
•
Automatic payment
Types of financial institutions
Banks, Savings & Loan Associations, Credit Unions
•
Commercial Banks – accept deposits, make loans
•
•
•
•
•
S&L – originally setup to provide mortgages to those who
could not be approved by commercial banks
•
•
•
Privately owned
For profit
Most influential to economy
Highly regulated by the Fed & FDIC
Today, offers similar services to commercial banks
Regulated and insured by government
Credit Unions – nonprofit, owned/operated by users
•
•
•
•
“members” are part owner
Offer high dividends/lower interest rates
Member eligibility – what do the have in common
Regulated and insured by government
Types of financial institutions
Payday Lenders and Check Cashing Companies
1. Most expensive financial institutions in the U.S.
2. Charges fees
3. Payday lenders – make short term, small loans to people
until they receive their paycheck (2 weeks)
4. Target: low income people; welfare, military, little
savings, live paycheck to paycheck
5. Typically cannot pay in timeframe  renew loan
6. Multiple issue (average 9x/yr)/renewal fees  high rates
7. Cycle of debt
8. Pay a fee of up to $30/week = 900% interest/year
Types of financial institutions
What is a payday loan?
•
•
•
•
•
•
Small cash advance – usually $500 >.
Borrower gives lender a postdated check in amount
of loan
Borrow receives cash, less fees (up to 15%)
At date of paycheck (next pay; 2 weeks) personal
check is cashed or loan is renewed – rolling over
Option to write check for new loan in order to pay
previous - back to back transaction
www.cashnetusa.com
Types of financial institutions
What are costs of payday loans?
•
Fees are about $15 for every $100 borrowed
•
Fees charged daily/weekly
•
•
•
•
Borrow $500 for two weeks @ $10 per $100 per week =
$50 in one week or $100 in two weeks
Cash is not instant; fees are charged to rush transaction
Some companies penalize you for paying early; do not
want to lose their interest payment
On average, Americans often use 12 transactions to
pay back a $300 loan, = up to $600 in the end
Types of Banking Transactions
Financial transactions – exchange of money between 2 or more businesses or
individuals.
•
Deposit – addition of funds to your account balance
•
Withdrawal – cash taken out of bank account
•
•
•
•
Debit – any transaction that removes funds from your
account; withdrawals, payment with ATM, check writing,
fees charged to checking account
Credit – any positive addition to your account; deposits,
returns
Transfer – movement of funds from one account to
another
Loan – temporary transfer of money from one person or
institution to another
Types of Banking Transactions
Automated Clearing House – The Fed & NACHA
•
ACH – electronic system for transferring money between
banks; called electronic funds transfer
•
ACH payments include:
•
•
Payroll direct deposits
•
SS and other government deposits
•
Consumer payments (automatic)
•
Business to business payments
•
E-checks
•
E-commerce payments
•
Fed, state, local taxes
Replaces writing paper checks
Online Banking & Account Protection
•
•
•
•
See account, make transfers, payments, check history,
pay bills
Register with username, password, pin, security
questions
Proceed with caution when using public computers
Contact bank immediately with problems and/or
concerns
Federal Deposit Insurance Corp.
•
•
FDIC is an independent government agency
FDIC preserves and promotes public confidence in the
U.S. financial system by insuring deposits in banks for up
to $250,000
•
They identify, monitor and address risks to the deposit
insurance funds
•
They limit the effect on the economy and the financial
system when a bank fails
•
The standard insurance amount is $250,000 per depositor,
per insured bank, for each account ownership category
•
FDIC calculator
FDIC
Basic Coverage Limits
•
•
•
•
Single Accounts (owned by one person with no
beneficiaries): $250,000 per owner
Joint Accounts (two or more persons with no
beneficiaries): $250,000 per co-owner
IRAs and other certain retirement accounts: $250,000
per owner
Revocable trust accounts: Each owner is insured up
to $250,000 for each unique eligible beneficiary
named or identified in the revocable trust, subject to
specific limitations and requirements
Types of Checking Accounts
Please research these topics and create your own notes.
•
•
•
•
If you go to a bank to open a checking account, what
paperwork will you need?
What are some terms and conditions of
•
Free checking accounts?
•
Interest-earning checking accounts?
•
Joint checking accounts
What information is listed on a check?
What financial services are offered with checking
accounts?
Checking Account Tools
Checks and Debit cards
•
Checks may come free when opening an account
•
Some accounts require you to pay to print checks
with your contact info
•
•
Sometimes there are fees attached to using checks
Checks can be personalized and come with
carbonless copy sheets – duplicate checks
Checking Account Tools
Debit Cards
•
Used just as you do a credit card – purchases or withdraw
from ATM
•
Money is taken immediately out of account – no postdate
•
Some banks limit the total amount to spend or WD in a day
•
Fees may apply per use or annually
•
Fast and convenient
•
Must record transactions
•
ATMs are commonly found in many practical locations
•
Fees applied for using ATMs outside of your bank
Checking Account Tools
How checks and debits are processed
•
•
•
•
•
•
Since 2004, regulations made it easier for companies to
process checks electronically
Image of check is scanned and processed immediately
Floating check – writing a check without the money in
account, but putting it in by the time the check
reached your bank
Common practice before electronic checks
If check is deposited into bank of which it wasn’t
written, may take a day to process
Debits and cash withdrawals are transacted and
reflected immediately
What Are All Those Fees?
•
•
Types of Checking Account Fees
Monthly fees – maintenance of account, keeping funds
under minimum required
ATM Fees – for using ATMs of other banks, charged by
your and the other bank
•
•
•
•
•
Bank of America
Online bill-pay fees – replaces mailed, written checks; flat
monthly fee or waived
Overdraft/NSF fees – balances below zero; $30-$30 per
day. Charges for bounced check; charged twice
Stop-payment feed – Change your mind about written
check or scheduled payment, stop-pay order is issued.
Typical fee is $25; good for lost, incorrectly written checks
Only 45% of banks still offer free checking
10 Annoying Bank Fees – How to Avoid Them
http://money.usnews.com/money/personal-finance/articles/2012/08/10/10-annoyingbank-feesand-how-to-avoid-them
•
•
•
•
•
•
•
•
•
•
1. Early account closure fee.
2. Monthly or annual maintenance fee.
3. Minimum balance fee.
4. Returned deposit fee.
5. Foreign transaction fee.
6. Lost debit card fee
7. Paper statement fee
8. Redeeming rewards points fee
9. Returned mail fee
10. Human teller fee
What You Need, What You Get
•
Minimum deposit
•
Signature card
•
Starter checks
•
Personalized checks (order/pay)
•
Checkbook register/checkbook cover
•
ATM card
Sample Check Register
•
Number/Code: If you've written a check, put the check number here. Or use a
transaction code: DC for Debit Card, ATM or a cash withdrawal, D for Deposit,
and T for a transfer to your savings account, etc.
•
Date: Always record the date of anything you do.
•
Description of transaction: Business name, other info
•
•
•
Payment/Debit: Here you record the amounts of money going out of your
account.
Deposit/Credit: Here you record the amounts of money coming into your
account.
Balance: Recalculate new balance after transaction has been made
Writing Checks
•
•
•
•
Use ink
Write legibly
No spaces after writing
Sign per signature card
Writing/Endorsing Checks
•
•
•
•
•
•
•
•
•
•
•
•
Postdate – check written with a date that will occur in
the future. Banks do not hold postdated checks.
Writing to Cash or a payee
Write dollar amount in words with cents as fraction
Include number dollar amount
Sign
Memo line
Mistakes = new check
Write VOID across all old, unused checks
Endorse – authorization of deposit of check
Sign back of check per signature card
Include account number
Do not go below line
Special Endorsements
•
•
•
Endorse here
For Deposit only
Special Endorsement – Pay to the order of (business),
then sign (signature of payee)
Checking Account Activity
Making a Deposit
•
To make a deposit you need a deposit slip
•
Printed with your name, acct #. Or find blank at bank
•
Amount of cash, checks, subtotal, less cash, total
•
Submit all cash, endorsed checks with slip
•
Receive receipt of transaction
•
Notify bank with any discrepancies
Checking Account Activity
•
•
•
•
•
•
•
•
•
•
Reconciling
Reconciling – matching your records with bank records
Compare entries in your register or spreadsheet with
statement or online account
Outstanding checks – have yet to appear on
statement because they have not been endorsed
Outstanding deposits – have yet to be shown due to
time lag
Compare ending balances
Check your math!!
Check your inputs!!
Check for fees/charges
Check type of payment
Call bank to confirm