Personal Finance and Money Management

Standard SS7E4 - The student will explain personal money management choices in terms of income, spending, credit, saving, and investing.

Finance - the way money is used and handled

Income–general term for the amount of money coming in to a person or business in a given period of time

Go to the website called Occupational Outlook Handbook:

Choose a job that you would like to do in the future. You can put the name of the job in the search bar, look it up in the A-Z list or look for jobs by occupational groups. List the job name and enter the median pay as the income on the worksheet. For example, the middle school teacher median pay is $53,400.

Income taxis a portion of your salary that the government collects to pay for services such as schools, police, and fire. The higher your salary the greater the percentage you pay. For this activity assume 18%. Multiply your monthly income by .18 and then subtract this amount from your monthly income. For example: monthly income $4,000 x .18 = 720. 4,000 – 720 = $3280

Grossincomeis the amount you earn before taxes and other payroll deductions.

Net incomeis your take-homepayafter taxes and other payroll deductions. Yournet income, the amount on your paycheck, is what's used to make your budget.

Budget – an estimate of all planned expenses

Expense – something spent or required to be spent

Savings – Income not used; money set aside. This can accumulate when income is higher than expenses. Sometimes called “paying yourself” when you plan to save.

Debt – money that is owed. This can accumulate when expenses are higher than income. You could think of this as negative numbers.

Where will you live? Homes and apartments are more expensive in some areas than they are in others. Use the website to get an idea of the cost of an apartment in any city in the United States. Put in the name of a city in the US where you would like to live and look up the cost of a one bedroom apartment. List your city and the apartment rental cost.

Look at the list of other budget items. Ask your parents what they pay for these items and then divide that by the number of people in your family to get an idea about how much each item would be for one. For example, my electric bill this month is $160.00 but two people use that power so I would estimate 80.00 for my electric use.

Estimate each item on the budget and then see if you have any money left. This budget assumes you have no debt; no student loans, car payments or credit cards to pay off.

Name ______

Job ______Salary ______

Divide salary by 12 to determine the gross monthly income ______Multiply your monthly income by .18 and then subtract this amount from your monthly income to get your net income or take-home pay. ______

City you chose: ______Monthly Rental cost: ______

Car expenses: gasoline ______

insurance ______

repairs and maintenance ______

Utilities: electricity ______

gas ______

water ______

cable ______

internet ______

Personal care: clothes ______

Hair cut______

Shampoo etc. ______

Entertainment: movies, concerts etc. ______

Food: groceries ______

Restaurants ______

Healthcare: insurance ______

doctor ______

dentist ______

Savings: ______

Go to the website “What’s up with Finance?” at

Complete the exercise called “It Costs What?” to learn about the cost of credit. There are two other games that you can also do if you have time.

More Time?

Car Buying

Investigate the cost of buying a car. Go to - Kelly Blue Book site for information about car buying. Under the tab called “research tools,” there are sections about comparing cars and calculating car payments. Use this information to decide on the type of car you might want and the monthly payment of this car. What can you afford?

Type of car ______model ______year ______

Monthly payment ______How many months? ______

Total amount paid ______

At the same website, in research tools, look at the section called “5 year cost to own.” Define the terms shown there:

Depreciation ______

Financing ______

Maintenance ______

Insurance ______

All of these factors, and others, contribute to the expense of owning a car. In many large cities mass transit is readily available eliminating the need for a personal car.

Savings

The earlier you start saving the more chance that money has to grow. The interest that the investment earns is compounded each year. Compound interestisinterestadded to theprincipalof a deposit so that the added interest also earns interest from then on. For example:

  1. If you save 2,000 dollars a year from age 19 to 26 that 16,000 dollars could be worth 2 million dollars by age 65 (12%interest) even if you never invest another dime.
  2. Starting later: If you don’t start saving until age 27 and you save 2,000 per year, every year until age 65, your investment of 76,000 dollars (12% interest) could be worth 1.5 million dollars.

What do these two examples illustrate? ______

How much did you include in your budget for savings? ______

Why is your savings account sometimes called “paying yourself?” ______

Vocabulary CheckupName ______

  1. _____ Finance
  2. _____ Net Income
  3. _____ Certificate of deposit (CD)
  4. _____ Income
  5. _____ Disposable income
  6. _____ Discretionary income
  7. _____ Debt
  8. _____ Mutual Funds
  9. _____ Opportunity cost
  10. _____ Gross Income
  11. _____ Annual percentage rate
  12. _____ Budget
  13. _____ Compounded interest
  14. _____ Interest
  15. _____ Expense
  16. _____ Savings
  17. _____ Stocks
  18. _____ Bonds

Finished? – Answer the Analyzing Economics questions on the bottom of each page of the Personal Finance Handbook on the back of this page. There are a total of 8 questions, 2 on each page.