Personal Finance PDF

Contents Section 1 Controlling Your Spending 5 Chapter 1 Developing Thrifty Habits 8 Chapter 2 Balancing Wants and Needs 14 Chapter 3 Keeping Financial Records 20 Chapter 4 Common Financial Mistakes 26 Section2 Banking Basics 33 Chapter 1 Choosing a Bank 36 Chapter 2 Checking...

Contents Section 1 Controlling Your Spending 5 Chapter 1 Developing Thrifty Habits 8 Chapter 2 Balancing Wants and Needs 14 Chapter 3 Keeping Financial Records 20 Chapter 4 Common Financial Mistakes 26 Section2 Banking Basics 33 Chapter 1 Choosing a Bank 36 Chapter 2 Checking Accounts and Check Registers 42 Chapter 3 Monthly Bank Statements 48 Chapter 4 Savings Accounts 54 Section 3 Buy Now, Pay Later 61 Chapter 1 Dangers of Debt 64 Chapter 2 Using Credit Cards 70 Chapter3 Borrowing Money 76 Chapter 4 Installment Purchases 82 Copyright © 2012 by Saddleback Educational Publishing All rights reserved. No part of this book may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, scanning, or by any information storage and retrieval system, without the written permission of the publisher. SADDLEBACI< EDUCATIONALPUBLISHINGand any associated logos are trademarks and/or registered trademarks of Saddleback Educational Publishing. Section4 Improving Your Budgeting Skills 89 Chapter 1 Your Goal: A Balanced Budget 92 Chapter 2 Keeping a Personal Expense Record 98 Chapter 3 Typical Budget Adjustments 104 ISBN-13:978-1-61651-659-8 ISBN-10:1-61651-659-3 eBook: 978-1-61247-347-5 Chapter 4 Handling Unexpected Expenses 110 Printed in Guangzhou, China NOR/1017/CA21701264 2221 20 19 18 4 56 7 8 Word List 116 Index 118 Controlling YourSpending Controlling Spending is hard for many people. Some people make bad spending choices over and over. Then, they never seem to have enough money for the things they need. Other people try to be careful. But they don't understand some basic ideas about smart spending. You can take control of your spending by correcting your bad habits and learning This wasn't the first time Erin had come home to a situation like this. Cassie was wasteful, in Erin's view. She didn't worry about what things cost. And she never planned how to spend what she earned. Last summer, she'd even bought a new car without giving it much thought. Keeping up with the 0 0 0 payments on that car was hard for Cassie. She also had some It All AddsUp! credit card bills to pay. More Erin was glad to get home! She'd had classes all morning and then and more, she struggled to worked an eight-hour shift at the store. Now, she was ready to relax. pay her share of the rent and She'd have the apartment all to herself. Her roommate, Cassie, was utilities. Erin worried that soon, working tonight. Cassie wouldn't have enough But when Erin walked into the apartment, she immediately tensed money. And then Erin would up. The TVwas blaring in the living room, and the lights were on all get stuck paying more than her through the apartment. A nearly full can of soda was sitting on the share! kitchen counter. Next to it was an open container of takeout food from Erin didn't consider herself a financial genius. But she had the deli. "Cassie ... " Erin muttered common sense about spending money. She knew that it was easy to to herself, as she tossed the form bad habits. She also knew that little things add up. And she knew container into the wastebasket. that she co,uldn't have everything she wanted. She wished Cassie knew some of these things too. 7 Making Simple Changes CHAPTER Clearly, having thrifty habits 1 saves money. Making even DevelopingThrifty Habits simple changes, !ike turning off the lights, can add up to big savings. And once you get started, it becomes easy to think of new ways to save. But resisting the temptation to spend can be very hard. In today's world, we're hit over and over again with clever and attractive marketing schemes. They're designed to convince us to spend our money on things we don't need and maybe can't even afford. How many advertisements, or ads, have you seen lately that suggest you go into debt to A habit is something you do all the time without really thinking about purchase something? it. Some habits are good, but others are bad. Sometimes, your friends Do you have any bad habits when it comes to money? Do you waste money? If so, how much do you think you could save by correcting your bad spending habits? Let's say that on average, you spend $3 a day drinking energy drinks or soda. To be thrifty, water instead. In five days, Thrifty you'd have an extra $15. And in Carefuland smartwith money. 8 encourage your bad spending Thebusinessof advertising and sellingproductsand services. habits. Do you ever feel you must buy things to keep up with your friends? If so, you're feeling peer pressure. Giving you could start drinking tap a year, you'd be $1,095 richer! Marketing _J Scheme in to peer pressure can be very A planor system,sometimes· involvinga secretor trick. expensive. _J 9 Learningto Be Frugal Tipsfor SavingMoney It isn't easy to resist peer Some wasteful habits are easy to change. Others are more difficult to pressure. Most people want to correct and may take time and effort. do what everyone else does or Read the following money-saving tips. Which of these suggestions would help you become more thrifty? to have what everyone else has. You need to convince yourself ➔ Turn off lights, TVs, and radios whenever you leave home. ➔ Avoid buying snack foods from vending machines. Pack your own that it's important to be frugal. Some people tighten their snacks and carry them with you. spending to save money for something special, such as college tuition. Others develop ➔ Stop spending money on candy and junk food. ➔ Walk or ride a bike instead of paying for gas or bus fare. ➔ Don't smoke. And if you already do, give it up. ➔ Pack your o.wn lunch for school or work instead of buying it. ➔ When you shop, take just enough cash to buy the things you need. thrifty habits to avoid going into debt. They also know it's important to have money available for both emergencies and unexpected opportunities. Leave your checkbook and debit and credit cards at home. Think of reasons that could convince you to save money and to stop buying things you don't need. What could you go without in your life? Frugal Carefulwith morieyto the point of goingwithoutthings. _J 11 r TipsforResisting PeerPressure • Choose friendswhoinfluence youin goodways,notbadways. Truefriendswill respectyourvaluesanddecisions. • Avoidactivities thatinvolvethingsyoudon'twantto do.Think in advanceaboutwhatmightbe involved,and decidewhether youwantto participate. • Makedecisions thatfit yourvalues,andfollowthrough with them.Don'tmakedecisionsor changeyourmindbasedon other people'svaluesandexpectations. • Consider thepossible consequences ofyour of behavior. Could yougetin trouble?Couldyouget hurt or harmyourhealth? AverageLivingExpenses Ofcourse,therearesomethingsin life we haveto payfor, suchas food,housing,clothing,andtransportation.Thesecostsareoften calledlivinq expenses. Theaverageperson'slivingexpensestotal $32,650a year.Here'sthe breakdownof expenses: • Practice waysto say"no."Tellthe truth or makeup an excuse for not gettinginvolvedin something. 1 Food:$6,372 2 3 4 _J 12 Housing: $16,895 Clothing:$1,725 Transportation:$7,658 _J 13 But first, you should make sure you have enough money to pay for your needs. Your needs are your necessary expenses. CHAPTER 2 BalancingWantsand Needs They include things you can't do without, such as food, water, shelter, and electricity. The things you need must be your priorities. Everybody needs to eat. But do you need to eat at a restaurant? Probably not. You may like and want to do that. But to save money, you could prepare your own food and eat at home. Priorities Thingsof greatestimportance. _J [FACT] Entertainment Costs Setting Priorities When you purchase things such as movie tickets and restaurant meals, you're spending money on things you want. It's fine to buy things you want, of course-if you can afford them. 14 TheaverageAmerican spends5.5%of his or her yearlyincomeon entertainment.Thatcomesto about$2,693peryear, on average.Thesecosts includegoingto movies, concerts,ball games,and otherevents.Theyalsoincludemonthlyutilities, suchas cableor satellitetelevision.And for manyAmericans,a growingentertainmentexpenseis serviceplansfor cell phones,videogames,and othertechnologicaldevices.Somepeoplespend$1,000 a year aloneon thesekindsof serviceplans. _J 15 If you don't buy it, nothing IdentifyingWantsversusNeeds Can you tell the difference between wants and needs? Doingso is important if you want to manage your money wisely. Trythese two suggestions for identifying wants versus needs: 1. 2. will probably happen. Even Disconnected if your old bedspread is Shut offor discontinued. completelyworn out, you don't have to replace it. You could go without. This means the bedspread is a want. But what about paying your electric bill? If you fail to make the payment, _J Think about why you want to buy an item. Tryto come up with at least three good reasons for making the purchase. If you can't, the item is probably something you want, not something you need. Askyourself "What will happen if I don't buy this item?" For instance, suppose you're thinking about buying a new bedspread. your servicewill be disconnected. Youwon't have electricity anymore, which would be a huge problem. This means paying the electric bill is a need. ShoppingChecklist ThePleasureof Purchasing Beforeyou head to the mall,think about whatyou wantto buyand whyyou wantto buyit. Askyourself these questions: Whydo we liketo shop? There'sa chemicalin our brains calleddopamine. It's calledthe "feelgood" chemical,because it's relatedto pleasure.When dopamineis released into our bodies,wefeelgood. Andwhen something makesus feelgood,we usuallywantto do it again and again. Seeingan item we want in the store excitesthe brain.Themore we want the item,the moreexcitedthe braingets. Buyingthe item satisfiesthat want, and the brain releases dopamine.Themorewe buy,the moreshoppingbringsus pleasure. o Whyam I going shopping?DoI just wantto shop around,or do I reallyneed something? □ IfI need something,whydo I think I need it? CanI provethat I need it? □ IfI just wantto shop around,can I actuallydo that? CanI look withoutbuying? o HaveI paid all of mybills?DoI haveother needs to payforor to save for? □ IfI plan to buy,am I willingto go to severalstores and lookfor the best price? _J _J 17 Which items did you identify as wants?How much did Sam spend Sometimes, what you want and what you need are the same. For example, if you've outgrown or worn out your winter coat, you want on these items? Of the expenses on Sam's list, these items are wants: DVDand game and need to replace it. You can still try to save money, though. You might shop for a coat at a discount clothing outlet, or you might look rentals, new soccer ball, energy drinks, ice-cream sundae. As it turns for a bargain at a local thrift store. out, they aee up to $55, which is exactly how much more Sam needs to pay his rent. ComingUp Short Sam hasn't learned to tell the difference between wants and needs. And now, his rent is due! He's $55 short, which means he's spent too much on wants. Read the following list of Sam's expenses this week. Which items are wants, not needs? r ASimplePlan A simpleplanfor managingyourmoneyis to split yourearnings threeways: 1. 50%forneeds:expenses that mustbe paid,includingpayments on debts. DVDOVvt4, 2. video game 11.9 Electricity Phone 45.90 25.90 New soccer ball 33.98 Energy drinks Groceries serious·consequences. a fundto coverunexpected expenses. 3. 20% forsavings: 5.09 26.50 Laundry 6.00 Ice cream sundae 3.96 Transportation 30% forwants:expenses that couldbe put offwithoutany 20% Savings 35.20 30% 50% Wants Needs _J 18 19 Typesof FinancialRecords CHAPTER 3 Keeping Financial Records It's easy to spend money. But it ExpenseReport can be hard to keep track of how An expense report is a detailed list of everything you spend. People much you spend. who travel for their jobs often keep expense reports to show costs of In keeping track of your transportation, meals, hotels, and so on. spending; don't rely on your If you'd like to track your spending habits, try keeping an expense memory alone. Financial advisors report. Becoming aware of your spending habits will help you to suggest keeping good financial identify waste. records. What Are Financial Records? Afmancial record is any documentthat verifiesthe amount of money you earn, spend, or save. All the documents discussed in the following section are types of financial records. 20 Budget Document A written explanationor record.Manydocuments are usedto provideproofof something. A budget is a written plan for managing money. It should include how much you expect to earn and how much you expect to spend. Verify Preparing and sticking to a Toprovethat somethingis budget makes sense. It will help accurateor true. keep you out of debt and find _J new ways to save money. 21 Receipts ➔ Register: The register is your personal record of all the transactions Receiptsare records of purchases. You usually get a receipt when you buy something. This slip of paper shows when, where, and what you in your account. It lists deposits and withdrawals, checks, service paid for. track of how much money is in the account. That amount is called Always get a dated receipt when you charges, and so on. Recording these activities allows you to keep the balance. buy something, especially when you pay with cash. Also, keep your receipts well organized. Then, you'll be able to find a receipt easily when you need it. Receipts are needed or useful in these situations: ➔ To prove you paid a bill on time ➔ To return something you've purchased ➔ To prove that you loaned money to someone ➔ To track daily expenses or plan a budget BankRecords r Recordkeeping andthe IRS TheInternalRevenue Service(IRS)sometimes requirestaxpayersto providefinancialrecords. If the IRSeverquestions informationonyourtax return,you'll haveto providethe financialrecordsto backupwhat you'vereported.TheIRSsuggestsyou keepthe followingyearly financialrecordsfor sixyears: • Bankstatements Banking involves several kinds of financial records. If you have a bank • Depositslips andwithdrawalslips account, you should keep track of these records: • Cancelled checks(checksthat havebeenpaid) ➔ ➔ Deposit slips: These are records of your deposits, or times you put • Records of income(suchasW-2and1099forms) money into your account. Each deposit slip proves how much money • Receiptsof majoritemssoldfor cash(suchas carsor equipment) you added, along with when and where you made the deposit. Withdrawal slips: These are records of your withdrawals, or times • Receipts of majorexpenses(suchas housepaymentsand medicalbills) you took money out of your account. Each withdrawal slip proves • Receipts of moneyanditemsdonatedto churchesandcharities not only how much you took out but when and where. 22 _J 23 • TipsforOrganizing YourBillsandRecords SafeStorageof Financial Records • Keepall bills andfinancialrecordsin the same place,suchas a deskor file cabinet. • lockbox:Storingrecords in a lockedmetalboxwill protectthemfrombeing stolen.Lockboxesaren't usuallyfireproof,though. • Setup a recordkeepingsystemandthen useit. • Color-code materialsbasedon their importance.Forinstance, put bills that needimmediatepaymentin a red folder. • Keepitemsthat don't needimmediateattentionseparatefrom itemsthat do. • Filecabinet:Usinga file cabinetis greatwayto keep files organized.Somefile cabinetscanbe lockedfor security. Filecabinetsaren'tusuallyfireproof. • Payyourbills online as muchas possible.Printout receiptsor otherproofof havingmade payment. • Safe:Havinga safeis the bestwayto protectrecordsat home. Makesurethe safeis fireproof,however. • Keepa calendarfor paying bills. Writedownwhenyou makeeachpayment. • Safedepositbox:Havinga safedepositboxis the mostsecure wayto storefinancialrecords.Yourentthis kind of boxat your bank,usuallyfor a smallfeeeachyear. • Usea papershredderto get rid of documentsyoudon't needto keep. _J • _J ➔ Statement: The statement is the report about your account you receive from the bank each month. It shows all the transactions for the month, plus the current balance. You should always check the statement against the register and other financial records you keep. Make sure you and the bank agree on how much money you have. Transaction StoringFinancialRecords An act of doingbusiness.Fora bankaccount,transactionsinclude all of the actsof addingor takingout money. Be sure to keep your financial records in a safe place. Many times, these documents contain information you want to keep private. Also, _J 24 some financial records are difficult to replace, if lost or damaged. 25 ShoppingMistakes CHAPTER 4 ➔ Buying things without first looking for better prices elsewhere. Common Financial Mistal<es ➔ Not using unit pricing to determine the best buys. ➔ Not checking or saving sales receipts. ➔ Failing to return or exchange unsatisfactory purchases. þÿ'” Buying unneeded things on impulse. ➔ Buying unneeded items because they're on sale. Being careless with money Impulse can cost you more than ➔ Driving a long distance you think. And over time, to save a small amount of purchasing mistakes can turn money. A strongdesireor suddenurge. _J into bad spending habits. Careless Notpayingattentionor showingconcern. Unitpricing Howmuch1 unit of somethingcosts.Forexample,milk is sold in severaldifferentsizesof containers:half-pint,pint, quart, halfgat!on,andgallon.Knowingthe unit priceof 1 cupof milk,as it's soldin all thesedifferentsizes,will helpyoudecidewhichsizeis the bestbuy.Usually,the largerthe sizeor quantity,the lowerthe unit price. _J 26 27 • þÿ'”Buying poorly made products just because they're low in price. WhatIsCompulsive Shopping? ➔ Buying things you can't afford to keep up with your friends. þÿ'”Carrying more cash than needed when shopping. ➔ Not being aware of the costs of using credit cards. - Asmanyas6 out of 100 Americansarecompulsive shoppers. Theseindividualsaredrivento buythingsandoftencan'tcontrol their behavior. Herearethe signsof compul- TipsforShopping at Warehouse Retailers siveshopping: Manypeoplesavemoneybyshoppingat warehouse retailers,suchasSam'sClubandCostco. Thesekinds of storesofferlowpricesfor buyingitemsJnbulk, or largequantities. Butbuyingin bulkdoesn'talwaysprovidethe bestdeal.Follow thesetips to spendwiselyat warehouseretailers: • Preferto shopalone • knowhowmuchitems usuallycost.Sometimes,grocerystores offerthe sameor lower pricesandlet youbuy in smalleramounts. • Strugglewith self-control whenshopping • Don'tbuymoreof somethingthanyou'll beableto use.In particular,don't buyitemsthat will go badbeforeyoucanuse them. • If you'resingleor havea smallhousehold,shopwith a friend. Splitup itemsboughtin bulk,andsplit the cost,aswell. • Payattentionto sales.Manyitemscanbe storedfor lateruse, so buythemin bulkwhilethey'reon sale. • Oftenshop.forunneeded items • Havetroublenotthinking aboutshoppingandbuying • Havefinancialproblems becauseof shopping • Haveproblemsat work, school,or homebecauseof shopping • Hideor don't useitemsthat havebeenpurchased • Feeldepressedor,upsetafter buyingsom.ething \f youor someoneyouknow maybe a compulsive shopper,talk to yourdoctoraboutgettinghelp. 29 Good Credit I PaymentMistakes ➔ Sending cash in the mail. ➔ Making only a small payment on a debt if you can afford to pay it off completely. ➔ Paying bills late or skipping payments. Ignoring the costly fines for skipped or late payments. þÿ'”Ignoring calls about skipped or late payments. 3ankingMistakes þÿ'” Not shopping around for the best services. Not keeping your bank þÿ'” register up to date. • Not reviewing your monthly bank statement and matching it up against your register. Failing to ask for a correction when the bank has made an error. Paying penalties for spending more money than is in the account or not keeping a required balance. Not double-checking your addition and subtraction in your bank register. Not keeping records of deposits and withdrawals. Not setting up a savings account and making regular, small deposits. Howto Handle Creditors Creditorsarebusinesses youowemoneyto, suchas banksandcreditcardcompanies.If you've missedpayments,you'll likelygetcalls fromthesebusinesses. Theyhavethe right to askwhenyouexpectto paythem. Don'tignorethesecalls!Instead,follow thesetips for talkingto creditors: 1. Makesurethe informationtheyprovide aboutwhatyouoweis correct. 2. Answerandreturnphonecalls. Refusingto talk to creditorswill only delayreachinga solution.Andyou'll get evenmorecalls! 3. Behonest.Admityourfinancialsituation, andsuggestworkingout a planfor payment. 4. Becalmandpolite.Don'tlet yourbad behaviormakethe creditornotwantto workwith you. 5. Followthroughon yourpromises.If you sayyou'llmakea paymentbut then can't,callthe creditorimmediatelyto explain. 6. Don'tacceptrudeor threateningtreatmentby a creditor.Askto speakto his or hermanager. _J 31