Finance


Money Management | Budget | Saving vs Investing | Business Finance & Banking | Banking Services | Credit Reporting | Review

finance wordle

Money Management

The purpose of managing your money is to improve your ability to reach financial goals. Putting this plan in writing is the first step. A budget is a written account of your expected and actual income and expenses. Good record keeping, whether it is personal money or incomes and expenses in a business, is necessary to help maintain a budget.

What is your money style? Get out a piece of paper and something to write with and take the short quiz to find out what your money style is. Be prepared to discuss your money style.

Money style presentation
Click on the picture to view the presentation

Assignment: What is your money style?

Directions: After taking the money style quiz, be prepared to answer the questions found in itsLearning and discuss what your money style has to say about you. Place the definitions directly in the itsLearning textbox (do not attach a separate document).

Assignment: Budget & Finance Keywords

Directions: Define key words associated with money management. Place the definitions directly in the itsLearning textbox (do not attach a separate document).


Budget

sample budgetA budget allows you to meet your personal goals with a system of saving and wise spending. Having a plan for saving will help you to:


Where Americans spend their money

Where Americans spend their money depends on their age and income level. The percentage of money by category also changes every year depending on the strength and weakness of the US and world economies. The picture on the left shows spending for an average 25-34 year old. As you can see, the biggest budget categories are housing and transportation. Visit the CNNMoney website to see how the graph changes depending upon age and income level: http://money.cnn.com/interactive/news/economy/us-spending/. Everyone should include savings in their budget. Reasons for saving money include emergencies (it is a good rule of thumb to have 3 to 6 times your after tax pay in savings for emergencies), expensive purchases such as a house or car, recurring expenses such as real estate taxes and insurance, retirement, and special goals such as college or starting a business.

where Americans spend their moneyWhere Americans spend their money depends on their age and income level. The percentage of money by category also changes every year depending on the strength and weakness of the US and world economies. The picture to the left shows spending for an average 25-34 year old. As you can see, the biggest budget categories are housing and transportation. Visit the CNNMoney website to see how the graph changes depending upon age and income level: http://money.cnn.com/interactive/news/economy/us-spending/.


The budget process includes having a written budget. A written budget is a key part of successful money management. The process of creating and using a budget involve:

Any individual, family, or organization can use these steps to assist them in using available financial resources. A budget must be realistic and reflect current income and spending. It should be flexible and evaluating regularly. Every couple of months the budget should be reviewed to determine if it is still appropriate. The budget must be well planning and clearly communicated but to be successful, it must be followed.


income and expense record

budget process presentation
Click on the picture to view the presentation

Financial planning and monitoring is essential in business. Just like individuals and families, businesses must also have a budget. Budgets provide detailed plans for the financial needs of a business and have two main purposes:

sba logoThe Small Business Association (SBA) provides tools for planning budgets for new companies. There are four steps to preparing a budget:

  1. List each income and expense for the next year
  2. Gather information from business records
  3. Create a budget by calculating each type of income, expense, and the amount of income or loss
  4. Explain the budget to financial team

In business, there are three main types of budgets. The start-up budget which plans the income and expenses of a new business or expansion until the business becomes profitable. The operating budget plans for ongoing operation of a business for a specific period of time, such as a quarter or a fiscal year. The cash budget is an estimate of the actual money received and paid out for over time.

Assignment: Creating a Personal Budget

Directions: Calculate a budget using a spreadsheet program such as Microsoft Excel based on the typical spending average percentages for a 21 year with an annual net income of $35,000. Create 8 expense categories that correspond to the categories used in the Smith Household example (located in the lesson).


Savings vs. Investing

To save money means to put it aside, in a bank account for example, for buying something in the future or to have on hand in case of an emergency. When you save:

You invest money to make more money. Investing involves some risk, because you could lose your money instead of making more money. Types of Investments include:

A return on investment is the profit from, or increase in value, on the investment. Total return is the combination of an investment’s income and its increase or decrease in value. Risk is the chance you could lose part or all of the investment’s value.

Saving and Invest - Your Money at Work presentation
Click on the picture to read the presentation

Assignment: Financial Institutions Compare & Contrast

Directions: Download the Financial Institutions Compare and Contrast assignment from itsLearning. Compare and contrast types of financial institutions, both depository and non-depository including the functions and purpose.


Business Finance & Banking

Just like opening a business, a business must plan extensively before they expand. Planning must anticipate the costs of the expansion, the source of funds for the expansion, and the added revenue from the expansion. Financial records are used to record and analyze the performance of a business.

Types of financial records include

Financial Decision Making

Financial planning must begin from the moment you decide to start a business. Entrepreneurs and others thinking about starting a business should ask themselves the following questions:

Most new businesses fail because of poor financial planning. Once those questions are answered and the business has begun, ongoing operations still need to focus on the finances and budgeting. Every business activity costs money, if the costs of a business are to great it will fail. Expenses are the costs of operating a business. Revenue is the income a business receives over a set amount of time. Revenue – Expenses = Profit or Loss. Managers are responsible for the expenses for the portion of the business they control. The profitability of a company is linked to the number of employees and the wages they pay those employees. Ongoing operations require that employees be paid, supplies ordered, and buildings maintained.

Just like opening a business, a business must plan extensively before they expand. Planning must anticipate the costs of the expansion, the source of funds for the expansion, and the added revenue from the expansion.

The three most important elements of a company’s financial strength are its assets, liabilities, and owner’s equity. Two other key pieces of information are sales and profits. Managers who understand how to interpret these numbers can make educated plans. Assets are what the company owns. Liabilities are what the company owes others. Owner’s equity is the value of the owner’s investment in the company. You are already familiar with the balance sheet and the income statement.

Balance sheets are a summary of all assets, liabilities, and owner’s equity from a company.

Income statements are used to report the revenues & expenses as well as the net income or loss for a company. Revenues are all income received by a business during a time period. Expenses are costs associated with operations, purchase of material and equipment, payroll, and taxes. Net Income is when revenues are greater than expenses. Net Loss is when expenses are greater than revenues.

Payroll & Payroll Taxes

Payroll is the financial record of employee compensation, deductions, and net pay. Many companies employ payroll software and systems to manage their payrolls. Businesses pay employees on a weekly, bi-weekly, or monthly basis. A majority of the workers in the United States are hourly workers. In 1938 the federal minimum wage was 25 cents an hour, in 2009 minimum wage was raised to $7.25. What is minimum wage now?

Most companies provide their employees with a list of benefits, including:

Employers are required to pay federal and state taxes for their employees. Federal and state taxes include:

pay stubPayroll records are any form used by a business to keep track of each employee’s pay history. Payroll records generally include the following information from each employee:

When a business prepares payroll, they must keep accurate records of the taxes, insurance, and retirement savings that are withheld. These amounts are deducted from the employee's gross pay and a paycheck is written or a direct deposit made for the net pay. For example:

Net pay

Assignment: Doggie Daycare

Directions: A large part of a business’s operating expenses is made up of salaries and wages. Greg is planning to open the Doggie Daycare, a pet hotel. The shop will also offer pampering service. Much of the work will fall to him and his family, but he will also be hiring several other people. Some will work full-time and some part-time. Download the Doggie Daycare worksheet. Complete the table to determine his operating expenses for wages and salaries and submit your answers to the Doggie Daycare Answer Document in itsLearning.

Assignment: Business Math worksheet

Directions: Complete the math questions in itsLearning.


Banking Services

bankA commercial bank is a financial institution that provides services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of deposit. Banks have been around since the first currencies were minted, perhaps even before that, in some form or another.

Banks are businesses that operate for a profit. Banks offer their depositors a safe place to keep their money as well as an incentive in the form of paying interest. Banks then offer loans to customers at a higher rate of interest than they pay their depositors. The difference between the amount banks receive in interest from their customers and pay to their depositors is the net income a bank makes. Banks offer a variety of cash management services for their customers, whether an individual or another business:

Banking Trends

"Just five years ago, mobile banking seemed futuristic, the stuff of sci-fi; but today, it has emerged as a must have, and also potentially, as a way for small credit unions to compete with big banks." Robert McGarvey, 5 Mobile Banking Trends to Watch in 2014 By 2015, the number of users using mobile banking will outnumber online banking users. "Mobile users will exceed those of online users as mobile takes center stage as the primary interaction channel for banks and credit unions – making mobile the new battlefront for relevance to customers and driving a market share shift of customers based on mobile." Doug Brown, FIS. So why mobile instead of online banking? One word -- camera. The smartphone camera and the ability to take pictures to make deposits of checks is the game changer. Read the full mobile banking trends article at http://www.cutimes.com/2014/01/08/5-mobile-banking-trends-to-watch-in-2014?page=1.


Credit

John D. Rockefeller once said: "The most important thing for a young man is to establish a credit... a reputation, character." Our credit identity represents our financial character.

5 C’s of Credit:

Credit Report

Take a look at what a credit report looks like. Sample Credit Report

Businesses will request credit reports when you borrow money or fill out a credit card application. Banks will use a credit report to determine if you are a good credit risk to loan money for a house, automobile, business start up, or personal loan. Prospective employers will review your credit history to determine your ethical character and how well you handle money. Your credit history is something that you want to closely monitor and keep healthy. If you misuse your credit, it will take a long time to make it right. Your credit history stays with you forever!

Here is a true example. If I pull my own credit report (and I do from time to time just to see what is there and who is checking my credit), it will still show the very first apartment that I rented in Benton Harbor, Michigan right after I graduated from college in 1990 (yes, that was before you were born but it is still in my credit history).

You have access to your credit report through one of the reporting agencies:

You might not be very concerned with your credit history and associated credit score now, but you certainly will when you decide to buy your first brand new card or purchase a home. On another note, you might have a great credit score but when you get married, does your spouse have a great credit score? You should ask before you say "I Do."

Credit reports and credit scores
Click on the picture to read the presentation

Assignment: Credit Report Analysis

Directions: Review the credit report in itsLearning (a bigger view of the credit report is found in the resources section of this page) and answer the questions.


Review

Assignment: Budget & Finance Worksheet

Directions: Complete the worksheet in itsLearning.


Resources

If you are having problems viewing this page, opening videos, or accessing the URLs, the direct links are posted below. All assignments are submitted in itsLearning. If you have having problems, contact Mrs. Rush through the itsLearning email client.

What is your money style? Presentation: http://www.mrsrush.net/finance/moneystyle.pdf

The budget process presentation: http://www.mrsrush.net/finance/budget.pdf

Saving and Investing presentation: http://www.mrsrush.net/finance/saveinvest.pdf

Credit reports and credit scores presentation: http://www.mrsrush.net/finance/creport.pdf

Sample Credit Report: http://www.experian.com/credit_report_basics/pdf/samplecreditreport.pdf

Credit Report for Credit Report Analysis assignment: http://www.mrsrush.net/finance/credit_report.jpg

Doggie Daycare worksheet: http://www.mrsrush.net/finance/doggie.pdf

Transcript: http://mrsrush.net/finance/index.pdf


Transcript of this lesson