Budgeting

Essential Questions Why is it important to balance a checking

account? What are the consequences of having (or not

having) a budget? What is the right way to budget?

Financial Institutions

Purposes

Types of Financial Institutions

Commercial Banks (ex. Wells Fargo) Savings and Loan Associations Credit Unions (ex. America First Credit Union) Internet Banks (ex. Ally Bank)

Mutual Fund Companies Brokerage Firms

Why we have them To not carry as much cash Security

o FDIC: Federal Deposit Insurance Corporationo NCUA: National Credit Union Administration

Credit/Loans Investment returns Convenience Spending Plan Tool- helps track where the money

goes

Services Offered Money Transfers Credit Cards Debit Cards Loans ATMs Stored Value Cards Online Banking Direct Deposit

Basics of a Checking Account

Comparison Shopping Not all checking accounts are created equal. Things to consider:

o Services• Location of ATMs• Banking hours• Minimum balance required• Minimum transactions or limits• Interest-bearing accounts?

o Costs• Non-primary bank ATM transactions• Per-check fees• In-branch transaction fees• Overdraft protection• Printing of checks

Opening an Account Need proof of who you are

Minimum balance

Slide 1 – Opening a Checking Account

Lesson Reference: Basic Banking Services, Activity 4 – Handout 1

OPENING A CHECKING ACCOUNT

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Slide 2 - Commonly Accepted Forms of ID Lesson Reference: Basic Banking Services, Activity 4 – Handout 2

Primary ID*

• Photo Driver’s License issued

within the U.S. or Canada

• State Non-Driver Photo ID

• Photo Learner’s Permit

• Government Photo ID

• U.S. Passport

• Non-U.S. Passport

• Resident Registration Card

• Mexican Consular ID (Matricula Consular)

* Financial institutions' ID requirements may differ; check with the institution first before applying for an account.

COMMONLY ACCEPTED FORMS OF ID

• Naturalization Certificate

• Employee Photo ID (from a recognizable employer)

• Photo Trade License (barber, plumber, electrician, etc.)

• Student Photo ID (college/trade school)

• Medicare Card (must be 65 or older)

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Slide 3 - Commonly Accepted Forms of ID Lesson Reference: Basic Banking Services, Activity 4 – Handout 2

Secondary ID*

• Pay Stub

• Car Registration

• Mortgage Statement

• Letter of Introduction from Bank, Embassy, or well-known Employer

• Welfare Card

• Supplemental Health Insurance Card

* Financial institutions' ID requirements may differ; check with the institution first before applying for an account.

COMMONLY ACCEPTED FORMS OF ID

• Foreign Driver’s License

• State/Local Gun Permit

• Utility Bill (Name and address of individual account should be listed)

• Current Bank Statement

• National Credit Card

• Bank-issued Debit or Check Card

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THE PATRIOT ACT

Congress passed the PATRIOT Act in response to the terrorist attacks of September 11, 2001. Financial institutions are now required to collect certain information when a new account is opened.

Slide 4 – The PATRIOT Act

Lesson Reference: Basic Banking Services, Activity 4 – Overhead 1

1. The customer must provide identification that includes name, date of birth, address, and identification number.

2. The institution must maintain a copy of the information used to verify the person’s identity.

3. The institution must determine whether the applicant appears on the lists of known or suspected terrorists or terrorist organizations.

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Slide 5 – Signature Authorization Card

Lesson Reference: Basic Banking Services, Activity 4 – Handout 3

SIGNATURE AUTHORIZATION CARD

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Terms to Know Bank statement Cancelled Check Endorsement Fee Interest Minimum Balance Overdraft Protection Transaction Limits

Terms to Know Bank statement- monthly record of all account activity Cancelled Check- a check that has been stamped to show it

has been deposited (or cashed) and taken out of another’s account

Endorsement- signing a check for deposit Fee- charges for certain bank services Interest- money paid to savers Minimum Balance- requirement to keep a certain amount in

an account Overdraft Protection- an agreement to transfer funds from

another account to a checking account to cover insufficient funds

Transaction Limits- maximum number of transactions allowed before incurring a fee

How it Works You must put a minimum balance in to open an

account Services offered depend on the financial

institution Allows you to access your money at any time

using checks, debit card, or ATM

Debit Card Plastic card that looks like a credit card Electronically connected to a bank account Money is automatically taken from the bank

account when purchases are made Requires a PIN (personal identification

number)o Confirms the user is authorized to access the

account

Debit Card  Account Number—Links all purchases

made with the card to a designated bank account

Expiration Date— The debit card is valid and may be used until this date

Cardholder’s Name— The cardholder’s full name is written out and displayed.

Magnetic Strip— When the debit card is swiped, the magnetic strip automatically withdraws funds from the cardholder’s account.

Debit Card Authorized Signature— Sign in the

signature box on the back of the debit card to authorize paymentso Should also write, “See ID” in the signature boxo Ensures the person using the card is authorized

to do so Verification Number—This three digit

code is located on the back of the card in the signature areao Help ensure the card is in the cardholder’s

possession when making purchases o Prevents unauthorized use

To Use A Debit Card Swipe it through the store machine or put

into an ATM Enter the PIN Complete transaction

Pros and Cons - Debit Cards

Convenient Small Can be used like

a credit card Allows a person

to carry less cash

Does not allow overspending

Can lose track of balance if transactions are not written down

Opens checking account up to credit fraud

Others can gain access to the account if the card is lost and PIN is known

Pros Cons

Writing Checks

Parts of a CheckPersonal Information

Date

Routing Number

Bank Name

Check Number

Account NumberCheck Number

Endorsement Line

Writing a Check

10/28/13

John Smith $100.00

One Hundred and 00/100

Halloween Costume

Your Name

Bouncing a Check Check written for an amount over the current

balance held in the accounto ‘Bounces’ due to insufficient funds, or not enough

money in the account to cover the check written A fee will be charged to the account holder Harm future opportunities for credit

Check 21 Check Clearing for the 21st Century Act

(Check 21)o When a check is written, the money is

automatically withdrawn from a bank accounto Makes “bouncing checks” difficult

Savings Accounts

Basically…. Kind of like a checking account, but with higher

interest rates.

Money cannot be taken out with a check or a debit card, but can be transferred into your checking account.

Really good to have!

Depositing money

Deposit Money Take it (money or checks) to the bank

Fill out a deposit slip

Get receipt

Types of Endorsements

Blank Endorsement

Receiver of the check signs his/her name

Anyone can cash or deposit the check after has been signed

Restrictive Endorsement

More secure than blank endorsement

Receiver writes “for deposit only” and account number above his/her signatureo Allows the check to

only be deposited

Special Endorsement

Receiver signs and writes “pay to the order of (fill in person’s name)”

Allows the check to be transferred to a second partyo Also known as a

two-party check

Deposit Slips

Check Registers/Reconciliation

Checking Account Register

Place to record all monetary transactions for a checking account

• Deposits, checks, ATM use, debit card purchases, additional bank fees

Used to keep a running balance of the account

Remember o Record every transaction!

Bank Statement

Reconciliation

Importance of Budgeting

What is a spending plan?

A tool used to record and track projected and actual income and expenses over a period of time.

Also called a budget.

Spending Plans

Are simply road maps the help people reach financial goals

Need to be flexible to change with various life stages

Are not difficult to establish but do take time and commitment.

**Recommended to track spending prior to creating a budget.

NOTE: There should not be any money left over in a budget. If there is, it should be put into the savings or charitable giving column.

Benefits of Spending Plans

A spending plan can help you: Put aside money for savings goals Prepare for regular expenses Prepare for unexpected expenses Control how you spend money Reduce stress and increase confidence Provide an excuse to calm excessive spending

Consequences of NOT Using a Spending Plan

No idea where money has been spent Bad spending habits are unidentified Unprepared for emergencies Strained relationships Lack of savings plan Wasted money Stress

Opportunity Cost of Spending Plans Consumers may feel like having a budget is

confining or restrictive, but it actually gives them more freedom and more options.

By paying attention to where money is spend, wiser choices can be made.

With more freedom, more options, wiser choices, more money can be spent on items of value.

Before creating a spending plan…

Track your spending.o Before making a budget, spend a couple of weeks

writing down every penny you spend.o This will help you have a better idea of where your dollar

amounts should be when making a budget.

Budget Breakdown

How do I make a spending plan?

1. Assess your personal financial situation (needs, values, life situation).

2. Set personal and financial goals.3. Create a budget for fixed and variable

expenses based on projected income. (Pay Yourself First)

4. Monitor current spending (saving, investing) patterns.

5. Compare your budget to what you actually spent.

6. Review financial progress and revise budget amounts.

More expenses than income?

Negative cash flow Negative cash flow typically results in debt. Part of being financially independent is spending

less than you earn.

To Reduce Negative Cash Flow:

Reduce Spending

• Doing comparison shopping• Using coupons• Avoiding impulse purchases• Buying items “on sale”• Carpooling, walking, or riding a bike• Eating at home• Eliminating/reducing impulse purchases – vending

machines, convenience stores, etc.• Shopping at thrift stores• Wearing hand-me-down clothes• Using “frequent shopper” cards

Increase Income

To Reduce Negative Cash Flow:

• After school/weekend job• Additional chores around the house• Yard work• Babysitting• Summer job• Dogwalking• Housesitting• Garage sale• Provide a service

Guidelines for a Budget

Housing & Utilities 30% Food & Household 20% Clothing & Personal 10% Transportation 10% Saving & Investing 10% Miscellaneous 20%

REMEMBER!!!

It is important to remember that budgets can and should change from time to time.

After following a budget for a month, re-evaluate it and make changes as necessary.

Large purchases

When adjusting a budget, consider future large purchases and consider saving up for that item and paying cash for it.

When a home or automobile is purchased, other budget categories, such as entertainment and clothes, may need to be cut back in order to compensate for the larger purchase.

Budgeting Tools

Envelope System

Envelope System

Each envelope is labeled for the category of spending.

Each pay period, a pre determined amount of money is placed in each envelope for each category.

Each time money is spent from an envelope, the transaction details (date, vendor, amount, etc.) is recorded on the outside of the envelope.

When the envelope is empty, spending ceases!

On Paper

Paper Tracking Always record transactions in a check register or

on the outside of the envelope for each category.

Computers

Computer Program

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Fee 5 00 679 23

110 04

153 22636 05

789 27110 04679 23

RECONCILE