💯Math for Non-Math Majors Unit 6 – Money Management

What's This Unit About?

• Focuses on fundamental principles of personal finance and money management
• Covers essential topics such as budgeting, income and expenses, saving, credit, debt, and investing
• Aims to provide practical knowledge and skills for making informed financial decisions
• Emphasizes the importance of financial literacy in everyday life
• Explores real-world applications of mathematical concepts in the context of personal finance
  • Includes calculating interest rates, creating budgets, and analyzing investment returns
• Prepares students to navigate financial challenges and opportunities throughout their lives
• Encourages the development of responsible financial habits and long-term planning

Key Concepts and Terms

• Budget: A financial plan that outlines expected income and expenses over a specific period
• Income: Money earned from various sources such as employment, investments, or gifts
• Expenses: Costs incurred for goods, services, and financial obligations
• Fixed expenses: Costs that remain relatively constant each month (rent, insurance premiums)
• Variable expenses: Costs that fluctuate from month to month (groceries, entertainment)
• Savings: Money set aside for future use, emergencies, or long-term goals
• Emergency fund: Savings reserved for unexpected expenses or financial setbacks
• Credit: The ability to borrow money with the agreement to repay it later, often with interest
• Debt: Money owed to a lender, typically as a result of borrowing
• Interest: The cost of borrowing money, expressed as a percentage of the loan amount
• Investment: Allocating money with the expectation of generating income or profit
• Asset: A resource with economic value that an individual owns, such as property or stocks
• Liability: A financial obligation or debt owed to another party

Budgeting Basics

• A budget is a financial plan that helps manage income and expenses over a specific period
• Creating a budget involves identifying all sources of income and categorizing expenses
• Budgeting helps to ensure that expenses do not exceed income and allows for saving and investing
• The 50/30/20 rule is a popular budgeting guideline:
  • 50% of income allocated to needs (housing, food, utilities)
  • 30% allocated to wants (entertainment, dining out, hobbies)
  • 20% allocated to savings and debt repayment
• Tracking expenses is crucial for maintaining an accurate budget
  • Use budgeting apps, spreadsheets, or a simple notebook to record transactions
• Regularly reviewing and adjusting the budget helps to accommodate changes in income or expenses
• Setting financial goals, such as saving for a down payment or paying off debt, can guide budgeting decisions

Income and Expenses

• Income refers to money earned from various sources, including:
  • Employment (salary, wages, bonuses, commissions)
  • Investments (dividends, interest, rental income)
  • Government benefits (Social Security, unemployment)
• Expenses are costs incurred for goods, services, and financial obligations
• Fixed expenses remain relatively constant each month (rent, car payments, insurance premiums)
• Variable expenses fluctuate from month to month (groceries, utilities, entertainment)
• Discretionary expenses are non-essential costs that can be adjusted as needed (dining out, subscriptions)
• Tracking income and expenses is essential for creating and maintaining a budget
• Identifying areas where expenses can be reduced helps to increase savings and financial stability
• Increasing income, such as through a side hustle or negotiating a raise, can improve overall financial health

Saving Strategies

• Saving money is essential for building financial security and achieving long-term goals
• Pay yourself first by allocating a portion of income to savings before spending
• Automate savings by setting up automatic transfers from checking to savings accounts
• Establish an emergency fund to cover unexpected expenses, typically 3-6 months of living expenses
• Take advantage of employer-sponsored retirement plans, such as 401(k)s, especially if they offer a match
• Consider high-yield savings accounts or certificates of deposit (CDs) for higher interest rates
• Set specific, measurable, achievable, relevant, and time-bound (SMART) financial goals
• Reduce expenses where possible to increase the amount available for saving
  • Cut unnecessary subscriptions, eat out less, shop for better deals on insurance and utilities

Credit and Debt Management

• Credit allows individuals to borrow money with the agreement to repay it later, often with interest
• Responsible credit use involves borrowing only what can be repaid and making payments on time
• Credit scores, such as FICO, reflect an individual's creditworthiness and influence loan terms
  • Factors include payment history, credit utilization, length of credit history, and types of credit
• Debt is money owed to a lender, typically as a result of borrowing
• Common types of debt include credit card balances, student loans, mortgages, and car loans
• High-interest debt, such as credit card balances, should be prioritized for repayment
• The debt avalanche method involves paying off debts in order of highest to lowest interest rates
• The debt snowball method involves paying off debts from smallest to largest balance
• Avoiding unnecessary debt and making timely payments are crucial for maintaining financial health

Investment Fundamentals

• Investing involves allocating money with the expectation of generating income or profit
• Common investment vehicles include stocks, bonds, mutual funds, and real estate
• Stocks represent ownership in a company and offer the potential for capital appreciation and dividends
• Bonds are debt securities that provide a fixed income stream and are generally less risky than stocks
• Mutual funds pool money from multiple investors to purchase a diversified portfolio of securities
• Asset allocation refers to the distribution of investments across different asset classes (stocks, bonds, cash)
• Diversification helps to manage risk by spreading investments across various sectors and asset classes
• Risk tolerance is an individual's willingness to accept potential losses in pursuit of higher returns
• Time horizon, or the length of time an investor plans to hold an investment, influences risk tolerance
• Compound interest is the interest earned on both the initial principal and accumulated interest over time

Real-World Applications

• Creating and maintaining a personal budget to manage income and expenses effectively
• Setting financial goals, such as saving for a down payment on a house or planning for retirement
• Making informed decisions about credit use, such as comparing loan terms and avoiding high-interest debt
• Developing a debt repayment plan to eliminate outstanding balances and improve credit scores
• Establishing an emergency fund to cover unexpected expenses, such as car repairs or medical bills
• Investing in a diversified portfolio of stocks, bonds, and mutual funds to build long-term wealth
• Calculating compound interest to understand the growth potential of savings and investments over time
• Negotiating better terms on financial products, such as lower interest rates on loans or higher yields on savings accounts
• Analyzing the costs and benefits of major financial decisions, such as buying a home or pursuing higher education
• Seeking professional advice from financial planners, tax advisors, or investment managers when needed