COA 4131 1st Edition Lecture 5 Outline of Last Lecture I Financial decisions and taxes II Use of Credit III Investment and Taxes IV Children s Investments and Taxes V Tax Deferred Retirement Plans VI Estate and Gift Tax Transfers VII No State Income Tax In VIII Sales Tax IX No Sales Tax in X Best Place s Cost of Living Calculator Outline of Current Lecture I Cash Management Process II Cash Management and Foreign Currency III Interest IV Savings V Financial Statements Current Lecture A Cash Management Process a The routine and everyday administration of cash and near cash to take care of an individual s or family s needs i What you need to know to tae care of yourself and your family b Near cash i Debt and checking accounts c Three steps i Awareness 1 You get so much money per week a Parents give college students a weekly budget ii Analysis 1 Ask yourself what you are going to do with this money 2 Need more money during some months versus others iii Action 1 Move money around and figure out where it will go in the future a Open a checking account b Banking in person or online d Spending less money than you actually earn i This is not easy ii Ease of pulling out cash 1 ATM machines are open 24 7 iii Have to keep track of how much money you have at any given time B Cash Management and Foreign Currency a U S dollar United States b Euro majority of Europe c Pound Britain d Dollar Canada i Right now Canada Dollar is worth more than U S dollar 1 It fluctuates e Yen Japan f Real Brazil g World Economy i Yen Euro and U S dollar are the most important 1 If things happen to these there is a ripple effect around the globe C Interest a The cost of using money b Rate of interest determined by supply and demand c Expressed as a percentage and as an annual fee d Supply i The amount of money lenders are willing to lend e Demand i The amount of money borrowers are willing to pay ii You do not want to borrow as much as lender is willing to give you f Receiver of interest i Savings account ii Investments g Payer of interest i Borrowed money 1 Credit cards h Interest rates i Adjust ii Move together 1 When one part of the market adjusts interest rates the other parts respond i Tiered i Interest rate structure tied to a balance level D Savings a Savings i Amount kept in it is a matter of preference ii Your attitude about maintaining a minimum balance has to do with your risk of tolerance iii Fees 1 Be cautious 2 Can be expensive b Cash management includes i Keeping abreast of your expenditures through 1 Maintaining a balanced checkbook 2 Paying bills promptly and 3 Establishing an ongoing saving program c Large balances in low interest or non interest accounts don t earn interest d Cash is useful for small immediate needs and checks are useful for monthly bills or larger purchases e Saving rates i Many experts recommend a saving rate of 10 15 f Emergency fund i Three to six months maybe more of after tax income ii Basic liquidity ratio 1 Monetary assets over monthly expenses g Take a regular amount out of each paycheck and put it into savings h Making savings grow i Based on amount put in ii Interest rate iii Frequency that interest is compounded iv Policies regarding deposit and withdrawals v Normal rate or interest 1 State annual rate of interest vi Effective rate 1 Actual rate of interest including compounding E Financial Statements a Continuous compounding i Compounding of interest continuously during the day b Annual percentage yield i Amount of interest earned on a yearly basis expressed as a percentage
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