Set Goals for a Budget Set Goals for a Budget and Financial Planand Financial Plan

Unit 2Unit 2

Personal FinancePersonal Finance

Your PaycheckYour Paycheck

Employee’s Withholding Allowance Employee’s Withholding Allowance CertificateCertificate

FORM W-4—FORM W-4—must be filled out must be filled out when you start a job. when you start a job.

Used to figure out how much Used to figure out how much money will be withheld in federal money will be withheld in federal taxes from each of your paychecks taxes from each of your paychecks by declaring how many by declaring how many withholding withholding allowances allowances you have.you have.

What are Withholding What are Withholding Allowances?Allowances?

You claim You claim oneone allowance for yourself allowance for yourself—unless someone else will list you as —unless someone else will list you as a “dependent” on tax returns a “dependent” on tax returns (parents)(parents)

You can claim an allowance for You can claim an allowance for spouses and dependent children, if spouses and dependent children, if not claimed elsewhere.not claimed elsewhere.

The more withholding allowances you The more withholding allowances you can claim, the less federal tax you can claim, the less federal tax you will have to pay.will have to pay.

It is It is YOUR RESPONSIBILITYYOUR RESPONSIBILITY to submit to submit correct information.correct information.

Your employer won’t check it over for you.Your employer won’t check it over for you. WARNING!—don’t make false claims on WARNING!—don’t make false claims on

your W-4 form in hopes of reducing your W-4 form in hopes of reducing your federal taxes! That’s a felony your federal taxes! That’s a felony offense!offense!

There are 41 states that have state income There are 41 states that have state income taxes. If you live in one of those states, you taxes. If you live in one of those states, you may need to fill out a may need to fill out a State Withholding State Withholding Allowance Certificate Allowance Certificate as well.as well.

No state income taxes in—AK, FL, NV, NH, No state income taxes in—AK, FL, NV, NH, SD, TN, TX, WA, and WYSD, TN, TX, WA, and WY

Sales TaxSales Tax Largest source of revenue for state & local governments.Largest source of revenue for state & local governments. TWO TYPES:TWO TYPES: GENERAL—GENERAL—sales tax covers most items soldsales tax covers most items sold SPECIALSPECIAL—sales tax levied on specific items such as—sales tax levied on specific items such as

GASGAS CIGARETTESCIGARETTES LIQUORLIQUOR ENTERTAINMENTENTERTAINMENT

Varies from STATE to STATEVaries from STATE to STATECurrent Missouri State Sales TaxCurrent Missouri State Sales Tax == 4.225%4.225%County & City TaxesCounty & City Taxes = = ??????????Total for St. JosephTotal for St. Joseph = = 7.???7.???

Counties and cities can add additional amounts by a Counties and cities can add additional amounts by a majority vote of the peoplemajority vote of the people to be used locally. to be used locally.

Sales Tax (continued)Sales Tax (continued)

Sales Taxes are Sales Taxes are REGRESSIVEREGRESSIVE because because people with less income have to people with less income have to spend a spend a LARGERLARGER part of what they part of what they earn on taxed necessities than those earn on taxed necessities than those with higher incomes.with higher incomes.

Income TaxIncome Tax Second largest source of revenueSecond largest source of revenue INCOME IS:INCOME IS: Any money you Any money you

receive from an outside source.receive from an outside source. Salary, including tipsSalary, including tips InterestInterest Cash giftsCash gifts InheritancesInheritances Prizes or awards, gambling winningsPrizes or awards, gambling winnings

Officially established as part of the 16th Officially established as part of the 16th amendment to the constitution on amendment to the constitution on February 13, 1913.February 13, 1913.

Determined by Two ThingsDetermined by Two Things

INCOMEINCOME—the more you make, the —the more you make, the HIGHERHIGHER the percentage of tax you pay. This makes the percentage of tax you pay. This makes it a it a PROGRESSIVEPROGRESSIVE tax. tax.

STATUSSTATUS——Married, Head of Household Married, Head of Household or or SingleSingle

Withheld from your paycheck as a Withheld from your paycheck as a DEDUCTION.DEDUCTION.

When you begin employment you fill out a When you begin employment you fill out a W-4 W-4 DECLARATION DECLARATION stating your stating your MARITALMARITAL and and DEPENDANT DEPENDANT status. This tells employers status. This tells employers how much to how much to DEDUCTDEDUCT from your paycheck. from your paycheck.

Social Security TaxSocial Security Tax

Provides benefits to help people financially when no longer Provides benefits to help people financially when no longer employed.employed.

Funded by Federal Insurance Contributions Act of Funded by Federal Insurance Contributions Act of 1935 1935 (FICA) (FICA) co-sponsored by you and employer with a co-sponsored by you and employer with a 50/50 50/50 match.match.

When do you receive benefits?When do you receive benefits? Anywhere from 62-70 yearsAnywhere from 62-70 yearsOthers who can receive benefits?Others who can receive benefits? Disabled Disabled before age 64before age 64 Children Children under 18 when you retireunder 18 when you retire Your family Your family if you die before you retireif you die before you retireOther benefits:Other benefits: MedicareMedicare provides for medical & hospital expenses provides for medical & hospital expenses

for for LOW INCOME LOW INCOME and and RETIRED RETIRED personspersons

Income Tax and the IRSIncome Tax and the IRS Income taxes are collected by Income taxes are collected by EMPLOYERSEMPLOYERS and reported and reported

to the IRS to the IRS quarterly.quarterly. Between Between January 1January 1 and and February 1February 1 your employer must your employer must

provide you with a provide you with a W-2 FormW-2 Form stating the total income and stating the total income and taxes withheld during the previous year.taxes withheld during the previous year.

It is your responsibility to file It is your responsibility to file federal and state tax federal and state tax returns returns by by April 15April 15 of each year to avoid of each year to avoid penalties and penalties and interest interest if:if: 1.1. You have unearned income (interest, dividends) of You have unearned income (interest, dividends) of

over $750.over $750. 2.2. You have earned income of over ____________.You have earned income of over ____________. 3.3. You want a You want a refund.refund.

Most returns are filed Most returns are filed electronically electronically because refunds are because refunds are automatically deposited to your bank automatically deposited to your bank within days but it within days but it can be can be mailed.mailed.

Three Forms You May UseThree Forms You May Use

1040EZ—1040EZ—Income less than $50,000Income less than $50,0001040A—1040A—Don’t “itemize” deductionsDon’t “itemize” deductions1040—1040—Special deductions and or Special deductions and or

filingsfilings

Legal Contracts/Negotiable Legal Contracts/Negotiable Instruments/WarrantiesInstruments/Warranties

ConsumerConsumer:: A person, business, government A person, business, government that buys goods and services.that buys goods and services.

Why are consumers important to businesses?Why are consumers important to businesses? The lead to either success or failure of the The lead to either success or failure of the

businessbusiness Therefore the businesses spend a great deal of Therefore the businesses spend a great deal of

money on advertising to attract and maintain money on advertising to attract and maintain customers.customers.

Opportunity CostOpportunity Cost—the cost of giving something —the cost of giving something up in favor of purchasing another product/service.up in favor of purchasing another product/service.

What is a Contract?What is a Contract? Contract—Contract—legally enforceable agreement between legally enforceable agreement between

two or more partiestwo or more parties Express contract—Express contract—the parties have stated the terms the parties have stated the terms

of their agreement in words. It may be oral or written.of their agreement in words. It may be oral or written. Credit plansCredit plans MortgagesMortgages Rental agreementsRental agreements

Implied contract—Implied contract—agree to certain things e.g., agree to certain things e.g., obeying traffic laws when you ride a bikeobeying traffic laws when you ride a bike

Elements of an Enforceable ContractElements of an Enforceable Contract AgreementAgreement ConsiderationConsideration Contractual CapacityContractual Capacity LegalityLegality

Consumer ResponsibilitiesConsumer Responsibilities Fill in all blank spacesFill in all blank spaces Write all terms clearly.Write all terms clearly. Enter dates, amounts, and other numbers Enter dates, amounts, and other numbers

correctly and clearly.correctly and clearly. Be sure the seller has supplied all relevant Be sure the seller has supplied all relevant

information, including rate of interest, total information, including rate of interest, total finance charges, cash payment price, etc.finance charges, cash payment price, etc.

Understand all terms contained in the Understand all terms contained in the agreement. Do not sign it until you have agreement. Do not sign it until you have read it. Your signature acknowledges that read it. Your signature acknowledges that you have read and understood the you have read and understood the contract.contract.

Negotiable InstrumentsNegotiable Instruments

Unconditional written promise to pay a Unconditional written promise to pay a specified sum of money upon specified sum of money upon demand of the holder. demand of the holder.

ChecksChecksPromissory NotePromissory Note

What is a Warranty?What is a Warranty?

Express warranty—Express warranty—made orally or in made orally or in writing; they promise a specific quality writing; they promise a specific quality of performanceof performance

Implied warranty—Implied warranty—understood to understood to apply even though they are not apply even though they are not specifically statedspecifically stated

What to Look for in a BankWhat to Look for in a Bank

Low service charge for services providedLow service charge for services provided*Beware—some offer “free checking” but *Beware—some offer “free checking” but

have a minimum balance requirementhave a minimum balance requirementB.B. High interest rate on deposits/low High interest rate on deposits/low

interest rates on loans interest rates on loans

What Customer Services What Customer Services Available? Available?

Are Additional Fees Charged?Are Additional Fees Charged?Money order, cashier’s checksMoney order, cashier’s checks

ATM cards—Automated Teller Machine cardATM cards—Automated Teller Machine carda.a. Provides automated access to a Provides automated access to a

cardholder’s cardholder’s accountaccountb.b. Make sure to keep your PIN number a Make sure to keep your PIN number a

secretsecretDebit cards—Check cards, similar to an ATM card but it also allows Debit cards—Check cards, similar to an ATM card but it also allows point of sale transactions (purchases/withdrawals at other-than-point of sale transactions (purchases/withdrawals at other-than-bank facilities)bank facilities)

a.a. AdvantagesAdvantages1.1. ConvenientConvenient2.2. Eliminates need for cash/checksEliminates need for cash/checks3.3. Can be used out of townCan be used out of town

b.b. DisadvantagesDisadvantages1.1. Temptation to spend moreTemptation to spend more2.2. Easy to lose track of money spentEasy to lose track of money spent3.3. Easy to lose the card!Easy to lose the card!

Customer Services Available Customer Services Available (continued)(continued)

Safety deposit boxesSafety deposit boxes Bonds & stock servicesBonds & stock services Online banking—make payments, transfers of fundsOnline banking—make payments, transfers of funds

through the Internetthrough the Interneta.a. AdvantagesAdvantages

1.1. ConvenientConvenient2.2. FastFast3.3. Saves steps-postage, check-writing, etc.Saves steps-postage, check-writing, etc.

b.b. DisadvantagesDisadvantages1.1. Website must be secureWebsite must be secure2.2. Usually carries a fee after 90-day trial Usually carries a fee after 90-day trial

period period

Services Available Services Available (continued)(continued)

Automatic deposits/payments—set them up once, Automatic deposits/payments—set them up once, each month your payroll check and regular bills each month your payroll check and regular bills (utilities, car or house payment) can be (utilities, car or house payment) can be automatically withdrawn)automatically withdrawn)a.a. AdvantagesAdvantages

1.1. Fast and easyFast and easy2.2. Virtually eliminates missed paymentsVirtually eliminates missed payments

b.b. DisadvantagesDisadvantages1.1. You CAN forget to record a regular You CAN forget to record a regular

paymentpayment2.2. Changing banks can be difficultChanging banks can be difficult

Hours & convenience (close to home, drive-up Hours & convenience (close to home, drive-up windows, ATM, etc.)windows, ATM, etc.)

Services Available Services Available (continued)(continued)

Federally insured deposits (FDIC Federally insured deposits (FDIC insures each individual account up to insures each individual account up to $100,000)$100,000)

E.E. Community standing—reputationCommunity standing—reputation

Choosing the Right Account for Choosing the Right Account for YouYou

CHECKING ACCOUNTS—several typesCHECKING ACCOUNTS—several typesRegular Demand Deposit (‘upon demand’)Regular Demand Deposit (‘upon demand’)

a.a. No interest paidNo interest paidb.b. Usually a service fee, minimum balance, or Usually a service fee, minimum balance, or

per check per check charge (or combination)charge (or combination)c.c. Some banks offer free checks and/or ATM Some banks offer free checks and/or ATM

cards or cards or debit cardsdebit cardsBank Statements usually include a ‘copy’ of Bank Statements usually include a ‘copy’ of

your your canceled checkscanceled checksd.d. Overdrafts—charged by bank AND by the Overdrafts—charged by bank AND by the

store you store you wrote the ‘bad check’wrote the ‘bad check’1.1. Typical bank charge:Typical bank charge: $30.00$30.002.2. Typical store charge:Typical store charge: $25.00$25.003.3. A $5.00 check COULD cost you $60.00A $5.00 check COULD cost you $60.004.4. Stores may refuse future checksStores may refuse future checks5.5. Store may prosecute, >$500 = felony!Store may prosecute, >$500 = felony!

Types of Checking Accounts Types of Checking Accounts (continued)(continued)

Interest-bearing Checking (NOW) Interest-bearing Checking (NOW) AccountsAccounts

a.a. You must carry a minimum You must carry a minimum balance balance ($200-1,000)($200-1,000)

b.b. Interest rate and yield may vary Interest rate and yield may vary depending on economydepending on economy

c.c. Interest paid monthlyInterest paid monthly

Things to Remember AboutThings to Remember About Check-Writing Check-Writing

1.1. Don’t take a check that appears altered and don’t Don’t take a check that appears altered and don’t make any changes on checks written to you.make any changes on checks written to you. Could be stolen, could be forgedCould be stolen, could be forged

2.2. Don’t make out a check to “Cash” or “Bearer.”Don’t make out a check to “Cash” or “Bearer.” This allows anyone to cash it. Instead, write in the name of This allows anyone to cash it. Instead, write in the name of

the financial institution where you are cashing it.the financial institution where you are cashing it.

3.3. Destroy any blank checks left over after you close Destroy any blank checks left over after you close an account.an account. People could find and try to cash the checks.People could find and try to cash the checks.

4.4. Don’t sign a check until you’ve filled in the amount Don’t sign a check until you’ve filled in the amount and the name of the person or business you’re and the name of the person or business you’re paying.paying. If a signed blank check is lost or stolen, anyone can fill in If a signed blank check is lost or stolen, anyone can fill in

any amount and cash it.any amount and cash it.

Things to Remember AboutThings to Remember AboutCheck-WritingCheck-Writing

5.5. Don’t let merchants write your credit card number on your Don’t let merchants write your credit card number on your check.check. Several states have laws prohibiting this because it encourages Several states have laws prohibiting this because it encourages

credit card fraud.credit card fraud.6.6. Don’t be offended if tellers ask for identification or if they ask Don’t be offended if tellers ask for identification or if they ask

that you sign a check in their presence.that you sign a check in their presence. This is a security precaution that protects YOUR bank accountThis is a security precaution that protects YOUR bank account

7.7. If you have in income, save all your checking receipts and If you have in income, save all your checking receipts and statement in a file folder or box.statement in a file folder or box. You need to keep them for five to seven years for income tax You need to keep them for five to seven years for income tax

purposes.purposes.8.8. Don’t assume that funds are available just because outstanding Don’t assume that funds are available just because outstanding

checks have not cleared accounts.checks have not cleared accounts. Eventually those unprocessed check WILL clear.Eventually those unprocessed check WILL clear.