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Earning and Spending

Earning and Spending. 2/3 of GDP is made up of consumer spending What are some things that you buy on a daily/weekly/monthly/yearly basis?. Wealth Accumulation. Four Factors Income : more $$ = more saving/investing Expectations : confidence in the market = more spending, fear = more saving

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Earning and Spending

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  1. Earning and Spending 2/3 of GDP is made up of consumer spending What are some things that you buy on a daily/weekly/monthly/yearly basis?

  2. Wealth Accumulation Four Factors Income: more $$ = more saving/investing Expectations: confidence in the market = more spending, fear = more saving Interest Rates: higher rate = incentive to save/invest Taxes: higher taxes on investment = disincentive

  3. How do we earn money? • Work • wage: hourly, by unit of production - more blue collar • salary: weekly/monthly/yearly - more white collar • Wealth • rent: selling use of your property • interest: selling use of your money

  4. Preparing a Budget • Set Financial Goals • Be REALISTIC!!!! • Be future oriented • Estimate Your Income • Only include guaranteed income • Plan Expenditures • Needs then Wants • Prioritize

  5. Jobs Research What types of jobs seem to pay the most? The least? Is a college education as necessary/worth the cost as it used to be?

  6. For the initial investment, the report adds up tuition, fees and the opportunity cost of not working. For return, the authors use the average lifetime wage difference between college grads and those with only a high-school degree. The associates degree has a higher rate of return than the bachelor's because of the lower cost (of course).

  7. What is the Value of a College Education??

  8. What is the Value of a College Education??

  9. What is the Value of a College Education??

  10. What is the Value of a College Education?? It really depends on what you plan to do… Barriers to Entry Does correlation imply causation?

  11. Considerations for Saving and Investing • Safety • all options carry different levels of risk • Usually: high return = high risk, low return = low risk • Rate of Return • APR = Annual Percentage Rate of interest on principal • Set rate vs. Variable rate • Inflation protected? • Compound Interest – RULE OF 72 • Liquidity • Ease of conversion to cash • Usually: high return = low liquidity, low return = high liquidity • Paper Millionaires

  12. RULE OF 72 • 72 /APR = Time it takes for principal to double • Einstein referred to compound interest as the 8th wonder of the world • How to get the most benefit: • Invest early, invest often • Commit to your goals • Try to follow 70-20-10 (PAY YOURSELF FIRST!) • Don’t Touch It!!!!

  13. Comparison Yrs 9 18 27 36 45 54 Get $1000 Every Year $9,000 $18,000 $27,000 $36,000 $45,000 $54,000 Invest $1000 at 8% $2,000 $4,000 $8,000 $16,000 $32,000 $64,000

  14. Types of Credit • Loans • College, business, car, consumer • Mortgage • Home loan • Charge Accounts • Macy’s, Kohls • Credit Cards • Get ready for some mail…

  15. Approval for Credit • Character • Past history – timely and honest • Capacity • Salary, wages • Capital • Assets They want paid back!!

  16. Credit Cards Disadvantages Higher Cost Impulse Buying Overspending Advantages • Immediacy • Emergency • Flexibility • Safety • Character Reference

  17. $2,000 @ 24% APR **Min. payment = $25 Balance at Balance at Beginning End of of PeriodPaymentInterestPeriod $ 2,000 $ 25 $ 40 $ 2,015 2,015 25 40 2,030 2,030 25 40 2,045 2,045 25 40 2,060 2,060 25 41 2,076 **Spent $125 for $-76 worth of progress

  18. $2,000 @ 24% APR + $1,000 @ 5% • Balance at Balance at • Beginning End of • of PeriodPaymentInterestPeriod • $ 2,076 $ ---- $ 42 $ 2,118 • + 1,000$ 50$ 4$ 954 • $ 3,076$ 3,072 • $ 2,118 $ ---- $ 43 $ 2,161 • $ 954$ 50$ 4 $ 908 • $ 3,072$ 3,069 • **Spent $100 for $7 worth of progress

  19. Credit – Perks and Risks Example… Me – 25 yrs. old.

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