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American Business, Entrepreneurship, Personal Management, and Salesmanship merit badges
Financial Facts and Wisdom
- A budget is a plan that lays out how you want to spend your money. A spending record tracks what you have spent. Both are valuable tools.
- If you decided to put $2,000 per year into a savings account from ages 18 to 25, by the time you turned 65 your account would be worth more than if you had deposited the same amount annually for 40 years from ages 25 to 65.
- In 2015 the Wall Street Journal reported on a study that showed people who had taken more math classes early in life were better off financially in later years.
- Don’t give up what you want most for what you want now. People understand that it is smart to save money and not so smart to get into debt, just as they know they need to exercise and eat well. Whether they do the right thing, however, is a matter of self-discipline.
- If you can’t afford it, then you shouldn’t buy it. Money borrowed is not free money.
Consumer Buying Guides – Consumer buying guides can be a handy tool for researching a product you are planning to purchase. These guides may provide anything from general details and purchasing tips to more specific information that will help you narrow your selection. For example, an article about new televisions might show a comparison of prices, screen size, audio features (such as surround sound), convenience features (such as picture-in-picture), and the types of connections that come with each TV.
As you read the guides, be sure to focus on the information that matters to you. If you only plan to plug in a DVD player and a game system, then having 10 HDMI inputs on a TV really isn’t necessary.
Cash Versus Credit
In general, avoid buying ordinary items, such as meals, clothes, and school supplies, on credit. Instead, limit credit purchases to special expenses such as a house, a car, or college tuition.
If a retailer offers a very low interest rate, should you charge a purchase rather than pay cash, or should you start saving for it? If the rate is lower than what you are earning on savings or investments, it might make sense to take advantage of the offer. But beware: some attractive deals are actually “teasers”; the interest rate will be low for a short time—often three to six months—and then it goes much higher until the loan has been repaid. Be cautious and read the fine print before you make a decision.
Resist impulse buying. It is best to save money for something you want rather than charge the cost to your credit card. In most cases, the item will still be available a few weeks or months later. And there are several advantages to waiting:
- You can avoid high interest charges.
- You will learn how to budget.
- The price might go down during the time it takes to save the money.
- You will have more time to find the best deal on the item. And you may discover by then that you really didn’t want it after all!
Credit cards, however, can be convenient. Sometimes it makes sense to charge everyday purchases rather than carry around a lot of cash, and returning an item is often easier if it was purchased with credit. Also, credit cards are helpful in emergencies.
When you do use a credit card, be sure to pay off the balance each month. Otherwise, high interest rates will be charged to your account, which can dramatically increase your expenses over time.
By the time you reach your late teens, you probably will have received numerous offers from credit card companies to apply for their cards. Just remember that you are personally responsible and legally obligated to pay back all amounts charged to your card.
Personal Budgets – The purpose of managing your money is to improve your ability to meet obligations and reach your financial goals. One of the best ways to learn how much you spend and earn over a period of time is to keep a budget, or a written account of your expected and actual income and expenses. Expenses include fixed expenses that are predictable obligations, such as an auto loan, insurance premiums, and utilities. Flexible expenses change each month.
Savings – How much should you set aside to pay yourself? That figure will be determined by your income and financial goals. In general, try to save at least 10 percent of your income.
How to Save Money
To save, you must first earn or receive income. Then, you can set a savings goal, such as a new bike, a computer, college tuition, or a birthday present for a friend or family member, and determine how much you need to set aside daily or weekly to reach that goal.
You might wonder what income sources you have available. The following are some income sources you might be able to include in your budget.
- Perhaps you receive a weekly or monthly allowance in return for doing certain chores around the house.
- Ask if you can increase your allowance by doing extra chores.
- Perhaps you could work part time at a grocery store, fast-food restaurant, movie theater, or golf course.
- You could start a business mowing lawns, caring for neighbors’ pets, repairing bikes, running errands for elderly neighbors, or providing computer instruction.
- You probably can sell items you no longer use (with your parent’s permission) that are still in good shape, such as an old bike, old computer games, old music CDs, collector cards, or athletic equipment.
- Save gifts of money that you receive for birthdays, Christmas, bar mitzvah, or other special occasions.
If you have a job or receive an allowance, you probably can predict what your income will be while you save for your goal. It might be more difficult to estimate your expenses, however. Because your budget clearly shows the choices you can make to reach financial goals, it can help you plan how to spend your money wisely. Any money left over at the end of a month can be added to savings or kept to spend the next month.
To increase the amount you save, think of expenses you can give up and other cost-saving measures. Another option is to change your goal. Perhaps you need more time to reach your goal or need to find a less-expensive option. For example, if you were saving for a new bike, maybe you could save for a less expensive one.
When you invest money, you have an entirely different objective: to make more money. A financial investment is something you put money into with the purpose of getting more money back. An investment also can be one of time and labor. For example, you might invest in a lawn mower with the goal of making enough money mowing lawns over the summer to earn a profit.
You also are an investment. You can invest in yourself through education, for example, or by learning new skills or trades. Education and self-improvement can help you earn more income. In fact, of all the types of investments available, investing in yourself is the best investment you can make. It can pay big dividends.
Unlike saving, investing involves some risk—that is, you are not guaranteed to earn more than the amount you invest. (The amount you invest is called principal.) In fact, there is a chance you could lose part or even all of the principal. Investing is used to achieve certain types of goals. People typically save for short-term goals such as a new car or a family vacation by putting their money in a savings account where they can retrieve all of the money plus a little interest. But people invest for long-term goals like college or retirement. They put their money in stocks, bonds, real estate, or other alternatives, which do not guarantee the principal invested or any earnings on the principal.
However, because of the greater risk, investors have a chance to earn higher returns (income or an increase in value) than they would from a savings account, especially over a long time. In general, higher potential returns often require accepting greater risk of loss, while a lower risk of loss often means lower potential returns.
The Rule of 72 – To find the number of years required to double an amount invested at a given interest rate, divide the compound return into 72. For example, if you are saving at a 6 percent interest rate, divide 72 by 6. The result: 12 years.
Exploring Career Possibilities – Your choice of career will play an important role in your financial future. You can do a number of things to explore potential careers. First, ask yourself what you do well, think about your values and your ambitions, and make a list. What are your hobbies? What do you enjoy doing? What are your best subjects in school? You are more likely to succeed in a career if it is a field in which you can use your talents and that you enjoy. For example, if you are good in mathematics and science, you might pursue a career in engineering or computer science. But do not be restricted by what you are good at doing. Instead, use these skills as a guide.
Find out the level of education you will need for the career that interests you. Does the occupation require technical education and training, or a bachelor’s degree or graduate school and training? What about internships? You will need to review your long-term goals and determine how much time you are willing to devote to training and education before actually earning a living even begins.
Consider your salary needs and earning potential. Money alone does not bring happiness, but it is an important factor. For some people, making money is their reward for working. You can decide whether making money or doing something that you enjoy is rewarding for you.
Choose a career that supports the way you would like to live, or at least one that supports your potential to achieve your goals.
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