Money Management Guide
By Madison Deane
Depository Institutions
Commercial banks, which are usually the largest depository institutions, offer numerous financial services. They are for profit and open to anyone who would like to utilize a depository institution. Commercial banks offer the widest variety of services to customers.
Credit unions are not for profit. They have member qualifications, members must share a "common bond." They offer many services but usually not as many as a bank. Credit unions are exempt from federal income tax, and are often able to pay higher interest rates and charge lower fees.
Taxes
Taxes are a way that members of a community provide for one another by helping fund the creation of roads, public schools, police and fire departments, military for national security, and much more. A community is a group of people with common interests and a concern for the common good. You are better off in a community than by yourself.
Some benefits of being part of a community are roads, libraries, military or national security, government assistance programs, public schools and universities, police and fire departments, recreation, political leaders and a government agency.
Statement of Financial Position
An asset is anything a person owns with monetary value. There are three types of assets. A tangible asset is personal property that was purchased to create a lifestyle or improve your life. A monetary asset is an asset that can be quickly and easily converted into cash. An investment asset is a financial asset purchased with the hope that it will generate income and appreciate in value to make it possible to sell at a higher price in the future. A liability is a debt or obligation owed to others, and net worth is a measure of financial wealth. Wealth indicates the monetary value of all possessions that a person or household owns, minus the total amounts owed to others.
Your assets minus your liabilities equals your net worth.
Income and Expense Statement
There are three components: income, expenses, and net gain or net loss. Income is money recieved. Income can be earned or unearned. Earned income is any money earned from working for pay, such as wages or salary before deductions, commissions/tips/bonuses, and tax refunds. Unearned income is income recieved from sources other than employment, such as interest earned, money from others, or recieved income from government assistance programs. Expense is money spent. Some expense categories are taxes, saving and investing, insurance, housing, transportation, and food.
Income and Expense Statements are important because they tell you where your money came from, and where it went. When you evaluate past financial decisions, you can make changes to increase net worth, reach goals, and improve financial well-being.
Spending Plan
There are five steps to develop a spending plan- track current income and expenses, personalize your spending plan, allocate money to each category, implement and control, and evaluate and make adjustments.
A spending plan is important because it helps to set and reach goals, increase net worth, manage your money in a positive manner, and analyze the opportunity costs of your trade offs to maximize financial well-being.