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Managing Your Money

Managing Your Money. Personal Finance. What is disposable income? Disposable income is money you have left to spend or save after all required deductions have been taken out of your gross pay. (Taxes, Social S ecurity, M edicare, retirement plan contributions, etc.)

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Managing Your Money

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  1. Managing Your Money Personal Finance

  2. What is disposable income? • Disposable income is money you have left to spend or save after all required deductions have been taken out of your gross pay. (Taxes, Social Security, Medicare, retirement plan contributions, etc.) • Your disposable income is the amount of your paycheck and is called net pay Disposable Income

  3. A budget is a plan for spending your money • What are the three parts of a budget? • Income, Expenses and Savings • Income includes all money coming in • Expenses consist of fixed and variable expenses • Savings should be listed as a fixed expense • A budget must have a timeframe Budget

  4. What are fixed and variable expenses? • Fixed expenses are ones that are relatively constant each month, such as house payment, rent payment or car payment • Variable expenses are ones that are likely to change or can be changed in the short term, such as groceries, entertainment, recreation and credit card purchases Expenses

  5. What does “Pay yourself first” mean? • Pay yourself first means putting money aside into a savings account. • The money in a savings account may be used for emergencies or to invest for future income. Savings

  6. What is net worth? • Net worth (Statement of Financial Position) is a measure of wealth. • Assets – liabilities = Net Worth • Statement of Financial Position • Add current value of assets (cash or tangible items you own) • Deduct any money you owe (debts) • The difference is your Net Worth Net Worth

  7. John and Marsha’s Budget (Monthly Spending Plan)

  8. John and Marsha’s Budget #2

  9. John and Marsha’s Budget #3

  10. Monthly loan payment (mortgage) • Includes principal (amount borrowed) and interest (cost of borrowing) • John and Marsha have saved $10,000 for a down payment • The house costs $150,000 • Find the monthly loan payment for a loan of $140,000 at 6% from the table • The monthly loan payment is $840.00 Monthly Loan Payment

  11. The monthly loan payment is $90 more than the rent they are paying • Their homeowners insurance and property taxes are $210, an increase of $195 • Their utilities will go up by $65 • They will go back to saving $400 (saving $100) • They will save $250 on their state and federal taxes Can John and Marsha afford the house?

  12. Rule of thumb is mortgage, taxes and insurance should be 28% or less of monthly gross income • Marsha and John’s monthly gross income is $5,400 • 25% of $5,400 is $1,512 • John and Marsha have monthly loan payment of $840 + taxes and insurance of $210 = $1,050 Percent of Income spent on mortgage, taxes and insurance

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