Review: Incredible Income and Expecting Expenses

Incredible Income!

When learning the basics of personal finance you want to start with how the world works around you and how to earn money. In this class we looked at several key topics:

Goods and Services,

Wants and Needs and Prioritizing,

Consumers,

Decision Making,

Scarcity,

Human Capital,

Jobs and Careers,

Wages, Salaries and Commissions,

Gross Pay, Deductions and Net Pay,

and Taxes.

Goods, Services and Advertisements!

To understand the world of earning income you need to know the basics of every economy. This starts with the items and activities that people pay for:

Goods: Items that a person can purchase or sell for money.

Services: Activities that a person provides or pays to get for money.

Everything you can buy falls into these categories! This provides the basis for how people are able to make money. Often companies will create advertisements to persuade people to purchase from them.

Wants, Needs and Prioritizing!

Next, we looked at what drives the spending of individuals and families.

Wants: These are items or services we desire but would be okay if did not get.

This is what helps us to develop new goods and services. You will often see this with fads, things that are popular at the time. People spend billions of dollars every year on the things they want. There are also many things we have to purchase.

Needs: Items or services you must have in order to function or survive in your world.

Needs are yes, Wants are maybe or no. When we are shopping we need to consider what is a must and what is a maybe!

Prioritize: This is when we put tasks, chores and purchases in order of importance.

Consumers!

Here is more of the language of our economy.

Consumers: These are the people that purchase and use items and services.

Now there are several options when making a financial transaction.

Purchasing: When a person pays the price listed at the store to get the item or service.

Bargaining: When the buyer and seller debate and agree on the price and terms of the purchase.

Bartering: When the buyer and seller instead of making the purchase with cash trade goods or services instead.

Scary Scarcity!

Next, what drives the prices of items? Many things, but we talked specifically about scarcity.

Scarcity: When there is a low amount of an item available to consumers.

This causes us as consumer to have to think more about our spending decisions.

Decision Making: The process of considering the options you have before making a choice.

Hello to Human Capital!

After getting down the basics of the financial world we look at how you grow and how you make the money!

Human Capital: The knowledge, skills and abilities that help you to accomplish work.

Jobs and Careers!

You will likely build your human capital as you do chores and later as you work at a job.

Job: working for the purpose of making money.

Eventually, instead of simply working to pay the bills you will also want to find work that you are passionate about and want to do.

Career: This is a path of work with opportunities for growth.

When working you will get paid. This would be considered Income:

Income: The money that a person earns for working, collects from government assistance or from investments.

Ways of getting paid

When you get hired, you agree to get paid in a certain way. This will affect how much you actually have to spend.

Wage: The amount a person is paid based on the amount of time worked. Often workers are paid by the hour.

Salary: The amount a person is paid based on a contract. The contract determines the task, time period and pay.

Commission: The amount a person is paid is based on a percentage of what they earn or do. The more you sell the more you make.

Gross and Net Pay!

The way you are being paid will also affect how taxes are collect. Here is the basic process for all three.

Gross Pay: This is the amount of money earned before deductions have been taken out.

Deductions: Money that is taken out of your paycheck to pay for taxes, insurance and others.

Net Pay: This is the amount of money that you actually get to take home and spend.

If you have a salary and wage, often times they will take the taxes out before they give you, your paycheck. With a commission you might need to pay it later after you calculate how much you owe.

Taxes!

The last things we covered with incredible income was talking about the types of taxes and how they are used in the world around us!

Taxes: A required payment to the government to help provide public goods and services.

Sales Tax: An additional cost when buying goods and services.

Income Tax: Money that is deducted from your paycheck.

Property Tax: Taxes based off the value of your land and property.

This wrapped up what we learned in Incredible Income! After this, we looked into the world of spending!

Expecting Expenses!

For fun, we started this section by learning about coins and currency.

Coins: These are metal pieces that represent value that can be used to purchase goods and services.

Currency: The money used in a country for the exchange of goods and services.

Expenses!

Everyday we are spending money, whether we realize it or not! The old joke, "Is your refrigerator running? (Then you better go catch it!)," plays off the fact that your fridge is always running. The electricity to power it costs money. So we first start off by learning about expenses.

Expenses: The cost of goods and services.

Then we looked at how we plan our expenses.

Make a Plan Man! (or Woman!)

Our expenses add up! Financial education is key to having a healthy lifestyle of working with money. One of the greatest tools for bringing stability to your financial life is a budget:

Budgeting: Making a plan for the money you are earning, spending, saving and donating. It is best to have a plan for where every dollar will go.

What Categories Do You Use?

There are dozens of types of budgets out there. The right one is the one that works best for you! Here are some types of expenses that we look for when budgeting.

Fixed Expenses: These are expenses that are the same each month and often where you pay once and use it as much as you want. Example: Your rent or mortgage.

Variable Expenses: These are expenses that change each month and often where the more you get or use the more it cost. Example: Buying clothes or paying for groceries.

Occasional Expenses: These are expenses that don't happen each month and tend to be memorable events. Example: Birthday presents or Dentist appointment.

When we categorize an expenses we can be more strategic. For example, if you want buy a really nice pair of shoes you can spend less on eating out. You can control your spending amount with variable expenses!

Preparing for the Unprepared!

Now that we have learned about the types of expenses, we have two more categories to dive into. The first one is very simple.

Planned Spending: These are the cost that you expect to happen and put aside money for these costs.

The second category is the opposite and has a few more details!

Unplanned Spending: These are the cost that you don't know are going to happen and require savings or other means of paying. You can see this in Impulse Purchases, Urgent Needs and Emergencies.

Impulse Purchases: This is when you spend money on a good or service without prior planning or considerable thought.

Urgent Needs: This is when you spend money on something you must have or face issues for not having it. For example, you forgot to pack under ware on a vacation you go and buy a new pair.

Emergencies: This is when you spend money to prevent or fix problems that could lead to bodily harm or death. For example, if you were to break your leg, you would need to get medical help.

Now the best way to prepare for these unplanned expenses is to have an emergency fund.

Emergency Fund: This is a collection of several month's worth of income, that can be used for unplanned expenses or urgent needs.

When it comes to expenses it is so important to have a plan!

The last second that we covered really dealt with the topic of cards and debt.

What to use when spending?

For many people today they make purchases with plastic cards. Not all cards are the same though! Here are 3 major cards to know!

Gift Cards: These are cards that are preloaded with an amount of money that can be spent at the location that it is from.

Debit Cards: These are cards that access money from your bank account and let you spend it. When purchasing items you will usually need to use your secret pin number.

Credit Cards: These are cards that allow access to a limited amount of borrowed money from a bank or store. It is important to realize that when you sign the receipt you are actually signing a contract to pay it back.

When using credit cards you need to keep in mind who is the lender for the loan.

Loan: Money that has been borrowed and must be paid paid with interest.

Lender: This is the person that is loaning the money and plans to collect interest off of the borrowed money.

This is the basics of the world of spending money!