Budgeting

Presented  By  Mr.  Glennon  

Congratulations!

You  finally  have  a  job!  Time  to  buy  stuff!  

New TV!

How  about  that  choice  HDTV  Only  $2000.00…not  much  when  you  have  a  job…  

….right???  

Free money…?

You’re  a  liJle  short  on  cash  How  about  a  CREDIT  CARD?  

Buy  NOW…Pay  LATER!  

Not exactly free

Not  quite  free…but  sUll  a  great  deal!  You’ll  have  to  pay  later,  but  you  get  the  HDTV  

NOW!  

How it works

Put  $2000.00  on  the  card…  …pay  $2000.00  back  later.  

Right???  

Yeah…not so much

Pay  back  $2000.00  (If  you  

pay  the  ENTIRE  $2000.00  

back  when  the  first  bill  

comes)  

Put  $2000.00  on  the  card…  

interest

$2000.00  Principal  

%  

Interest  +  

=   What  you   PAY  

interest

$2000.00  IF  YOU  PAY  

10  %  Interest  

IT  OFF  +  

=  IMMEDIATELY!  

$2200.00  

interest

$2000.00  NO  BIG  DEAL  

10  %  Interest  

Only  $200.00  extra  +  

=  …and  I  sUll  get  the  TV  now!  

$2200.00  

NOPE! Meet  your  new  friend!  

COMPOUND    INTEREST  

This  is  Compound  Interest.    He  is  horrible  and  he  hates  you.  

2 kinds of

interest SIMPLE  INTEREST  

Pay  a  percent  of  what  you  borrow.    Usually  on  a  schedule  (10%  for  2  years)  

1  

2 kinds of

interest COMPOUND  INTEREST  

Pay  a  percent  of  what  you  borrow  but  MORE  interest  compounds  on  top  of  the  principal  AND  interest  you  owe.  

2  

example

The  amount  you  have  to  pay  back  is  $2200,  no  maJer  how  long  it  takes.  

Simple interest

$2000.00  

10  %  Interest  +  

=  $2200.00  

example The  amount  you  have  to  pay  back  is  recalculated  each  billing  period.    It  is  a  percent  of  the  amount  you  

borrowed  AND  the  original  amount  of  interest.  

Compound

interest

$2000.00  

10  %  Interest  +  

=  $2200.00  

+  2.5%  +  2.5%  

+  2.5%