WEALTH, CREDIT, AND BUDGETING

SOURCES OF INCOME Income from work-

wages (paid by hour or unit of production) or salary (paid weekly, monthly, yearly)

Income from wealth- things you own- bank accounts, property, possessions, investments, etc.

May rent property, earn interest, etc

FACTORS THAT INFLUENCE WEALTH ACCUMULATION Income- the more you

have, the more you are likely to save and invest

Expectations- if you feel good about the economy, you are more likely to spend more freely

Current Interest Rates- higher rates tend to promote more savings

Taxes- higher taxes on income and investment discourage people to save

CREDIT Ability of customers to buy

goods or services before paying for them based on an agreement to pay later

When you use a credit card, you are actually borrowing money from a bank

Charge accounts, credit cards, installment plans, car loans, home mortgages, etc

Must repay the principal (original amt borrowed) and interest (amt charged for borrowing the principal)

ADVANTAGES OF CREDIT Immediate

possession Flexibility Safety (if lost or

stolen) Emergency

Funds Adds to

Character references thru credit history

DISADVANTAGES OF CREDIT Overspending Higher costs – stores have to pay credit

card companies to use their services, increase prices to pay for it

Impulse Buying

WHEN OBTAINING CREDIT, LENDERS LOOK AT: Character- honesty,

willing to repay debts Capacity/Capability-

measure of your ability to repay debt- income, other financial obligations

Capital- what you own- money in the bank, tangible property- the more you own, the easier it is to repay debts

STEPS TO TAKE TO ESTABLISH CREDIT Open a savings

account- shows you are building capital

Get a phone in your name and pay the bills on time each month

Get a co-signer- someone with good credit rating that guarantees to pay off your loan if you cannot

BUDGETING Set financial goals-

determine income and expenditures, may set goals to increase income or decrease spending- be realistic

Estimate Income- list income sources- include job, gifts, interest earned, etc

Plan Expenditures- list all that you are likely to buy or pay for over the time period of your budget; list what you plan to save; rank importance of wants