Money ManagementUnit B

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 Plan

• 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

Your Financial Goals

• 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?

Determine Your Cash Flow

• 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

Expenses

• Needs – things you must have. Simple forms.

• Wants – things you would like to have.

Organizing Expenses

• 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

Net Cash Flow

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

• 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

Evaluating Your Financial Progress

• 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

Using Your Budget

• http://www.kiplinger.com/tools/cashflow.html

• http://www.calculatorweb.com/calculators/budgetcalc/

• http://www.saveandinvest.org/web/groups/foundation/@foundation/documents/foundation/p118408.pdf go to page 11

• www.billmonk.com

Personal Statement Resources

Checks, ATM, prepaid cards

Daily Cash

Regular savings,

MMA

Savings

Credit Cards

Credit

Regular, Online,

Automatic, Phone, M.O.

Checking

Financial services for the short-term

Financial Services & Institutions

• Other• Investment

• Credit services

• Savings

CDs, Bonds

Cash & home loans

Tax prep, insurance

Mutual funds, advice

Financial services for the long term

Financial Services & Institutions

• 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

Basic Banking Concepts

• Commercial Banks – accept deposits, make loans• Privately owned• For profit• Most influential to economy• Highly regulated by the Fed & FDIC

• S&L – originally setup to provide mortgages to those who could not be approved by commercial banks

• 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

Banks, Savings & Loan Associations, Credit UnionsTypes of financial institutions

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

Payday Lenders and Check Cashing CompaniesTypes of financial institutions

• 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

What is a payday loan?Types of financial institutions

• 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

What are costs of payday loans?Types of financial institutions

• 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

Financial transactions – exchange of money between 2 or more businesses or individuals.

Types of Banking Transactions

• 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

Automated Clearing House – The Fed & NACHATypes of Banking Transactions

• 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

Online Banking & Account Protection

• 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

Federal Deposit Insurance Corp.

• 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

Basic Coverage LimitsFDIC

• 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?

Please research these topics and create your own notes.Types of Checking Accounts

• 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

Checks and Debit cardsChecking Account Tools

• 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

Debit CardsChecking Account Tools

• 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

How checks and debits are processedChecking Account Tools

• 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

Types of Checking Account FeesWhat Are All Those Fees?

• 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

http://money.usnews.com/money/personal-finance/articles/2012/08/10/10-annoying-bank-feesand-how-to-avoid-them

10 Annoying Bank Fees – How to Avoid Them

• Minimum deposit

• Signature card

• Starter checks

• Personalized checks (order/pay)

• Checkbook register/checkbook cover

• ATM card

What You Need, What You Get

• 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

Sample Check Register

• Use ink• Write legibly• No spaces after writing• Sign per signature card

Writing 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

Writing/Endorsing Checks

• Endorse here• For Deposit only• Special Endorsement – Pay to the order of (business), then sign (signature of payee)

Special Endorsements

• 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

Making a DepositChecking Account Activity

• 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

ReconcilingChecking Account Activity