The student will explain personal money management choices in

terms of income, spending, credit, saving, and investing.

Income

Income includes things such as wages, tips, royalties, salaries, and commissions. Income is the amount you earn, which is not necessarily

equal to the amount you receive. This is because some expenses, such as taxes, health-care costs, 401(k) contributions, and so on, are

deducted from your check before you receive it.

Spending

There are two main types of expenses, fixed and variable.

Fixed expenses are expenses that you don't directly control and that you usually pay monthly or semiannually, such as a mortgage payment, rent, tuition, and books.

On the other hand, variable expenses are expenses that you have control over, such as food, fuel, entertainment, clothing, utilities bills (to a degree), and cable TV.

BudgetBudgeting involves understanding how much

money you earn and spend over a period of time.  When you create a budget, you are creating a plan

for spending and saving money.

Think of it as a way to keep from running out of money before you run out of the month.

Sample Budget

CreditCredit means that someone will lend you money and

give you time to pay it back, usually with interest. Credit allows you to buy now and pay later.

The use of a credit card is a loan from the issuer of the card. If the amount owed on a credit card is paid in full each month, there is no additional cost for using the credit card. However, if the borrower is unable or unwilling to pay the credit card bill

in full, there is an interest or finance charge on the unpaid balance. The effect of the finance charge is the increased cost of goods and services purchased with a charge card.

The Three C’s of CreditCapacity:Your ability to pay back a loanCollateral:Your assets used as a guide to determine your ability to repay the debtCharacter:Your reputation as a reliable andtrustworthy person

BENEFITS OF CREDIT CARDS

• Earlier consumption; use of goodswhile paying for them• Convenience• Use for emergencies• Establishment of a good credit history• Consolidation of debts• Identification

COSTS OF CREDIT CARDS• Costs more if unpaid balance is notpaid monthly• Ties up future income• Tempts one to overspend• Reduces comparison shopping if you onlyshop in stores extending credit• Decreases future buying power

Why Save?

http://ecedweb.unomaha.edu/lessons/saveK-2.pdf

The three reasons for saving are: to purchase a planned good or service in the future;to buy a good or service that people suddenly see and wantto deal with emergencies and unexpected events.

When you do not spend your income, you save it. You have several options when saving income. One option is to simply put it aside at home and not spend it. Another option is to deposit the money in a

savings account at the bank. When you place money in the bank you earn interest on it. Interest is what you receive for allowing the bank

to use your money. The bank pays interest because it wants to encourage people to put money in its accounts. If the bank did not pay interest to depositors, people would just keep their money in

their piggy banks. The more income you save, the more interest you can expect to receive.

Simple InterestDeposit Cycle

1

Beginning

Balance

2

Plus Deposit Amount

3

Equals Balance to Interest

Earned

(1+2)

4

Times the Rate of Interest

5

Equals Interest

Earned and Paid out *

6

Ending Balance

(*3)

1 0 10 10 30% 3 10

2 10 10 20 30% 6 20

3 20 10 30 30% 9 30

4 30 10 30%

5 10 30%

6 10 30%

Total N/A N/A N/A

* Since interest is paid out, it is not added to the balance.

Compound InterestDeposit Cycle

1

Beginning

Balance

2

Plus Deposit Amount

3

Equals Balance to Interest

Earned

(1+2)

4

Times the Rate of Interest

5

Equals Interest

Earned and Paid out *

6

Ending Balance

(3+5)

1 0 10 10 30% 3 13

2 13 10 23 30% 7 30

3 30 10 40 30% 12 52

4 52 10 30%

5 10 30%

6 10 30%

Total N/A N/A N/A

InvestingInvesting is how you make your money grow, or appreciate for long term financial goals. It is a way to help your money make more money or for saving your money for something

else in the future.

You can invest in real estate, stocks, mutual funds, or bonds!

Rule of 72 If you want to know how long it will take to double your money, take the number 72 and divide that number by the interest rate you are getting. So if you deposit $3,000 into an account with a 2% interest rate, 72 ÷ 2 is 36. So in 36 years you will have $6,000. If you have an interest rate of 12%, you will make $6,000 in six years. The higher the interest, the quicker it is.

Created by: Debra Harrington

Yeager Middle School, Douglasville, GA

References

• http://ecedweb.unomaha.edu/lessons/M&M6-8.pdf

• http://ecedweb.unomaha.edu/lessons/saveK-2.pdf

• http://ecedweb.unomaha.edu/lessons/buy9-12.pdf

• http://personalfinance.byu.edu/?q=node/283

• http://www.econedlink.org/lessons/index.php?lesson=EM157

• http://www.wdfi.org/ymm/kids/investing/rule_of_72.asp