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The document discusses basic financial concepts like income, expenses, budgeting, and saving. It explains the importance of saving, including for emergencies, financial security, and achieving goals. Strategies for building savings over time include setting goals, paying yourself first, budgeting, living below your means, establishing an emergency fund, and using tax-advantaged accounts. Benefits of financial literacy and consequences of high debt levels are also covered.

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Chloe Eisenheart
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18 views

ELE10 Notes

The document discusses basic financial concepts like income, expenses, budgeting, and saving. It explains the importance of saving, including for emergencies, financial security, and achieving goals. Strategies for building savings over time include setting goals, paying yourself first, budgeting, living below your means, establishing an emergency fund, and using tax-advantaged accounts. Benefits of financial literacy and consequences of high debt levels are also covered.

Uploaded by

Chloe Eisenheart
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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ELE10

BASIC FINANCIAL CONCEPTS 5. Opportunity for Investment


Income  Building savings over time creates opportunities for
 Money earned from various sources such as salary, investment, such as purchasing stocks, bonds, real estate,
wages, orinvestments. or starting a business.
 Investments have the potential to generate additional
Expenses income and grow wealth over the long term.
 Costs incurred for goods and services, including fixed
expenses (e.g., rent, utilities) and variable expenses (e.g., STRATEGIES FOR BUILDING SAVINGS OVERTIME
groceries, entertainment).
1. Set Clear Goals
Budgeting  Define specific savings goals, such as creating an
 The process of creating a plan for how to allocate income emergency fund, saving for a down payment on a house,
to cover expenses and achieve financial goals. or funding retirement.
 Having clear objectives motivates individuals to
Saving prioritize saving and track their progress.
 Setting aside a portion of income for future needs or
goals. 2. Pay Yourself First
 Treat savings as a non-negotiable expense by allocating a
Debt Management portion of income to savings before spending on other
 Strategies for managing and paying off debts expenses.
responsibly.  Automatic transfers or contributions to savings accounts
or retirement accounts ensure consistency in saving over
Financial literacy time.
 The ability to understand and effectively use various
financial skills, including personal financial 3. Budgeting and Expense Tracking
management, budgeting, and investing.  Create a budget to track income and expenses and
 When you are financially literate, you have the essential identify areas where spending can be reduced or
foundation of an intelligent relationship with money, and optimized.
it will serve you as a starting point to a lifelong journey  Eliminating unnecessary expenses and redirecting those
of learning about financial matters that are more funds towards savings increases the amount saved over
advanced. time.
 The earlier you start, the better off you will be
financially, because education is the key to success when 4. Live Below Your Means
it comes to money.  Adopt a frugal lifestyle and prioritize needs over wants.
 Limiting discretionary spending and avoiding lifestyle
IMPORTANCE OF SAVING AND STRATEGIES FOR inflation allow individuals to save more of their income
BUILDING SAVINGS OVER TIME and build savings faster.

1. Emergency Fund 5. Establish Emergency Fund


 Saving money provides a financial safety net for  Start by building an emergency fund equivalent to three
unexpected expenses or emergencies, such as medical to six months worth of living expenses.
bills, car repairs, or job loss.  Contribute regularly to the emergency fund until it
 Helps individuals avoid relying on high-interest debt or reaches the desired amount, providing a financial safety
depleting their savings. net for unexpected events.

2. Financial Security
 Saving money contributes to financial security by
providing a cushion against unforeseen circumstances 6. Utilize Tax-Advantaged Accounts
and enabling individuals to weather economic downturns  Take advantage of tax-advantaged savings vehicles, such
or personal setbacks more effectively. as employer-sponsored retirement plans (e.g., 401(k),
IRA), health savings accounts (HSA), or education
3. Achieving Goals savings accounts (e.g., 529 plan), to maximize savings
 Saving money is crucial for achieving various financial and tax benefits.
goals, such as buying a home, paying for education,
starting a business, or retiring comfortably. 7. Monitor and Adjust
 Setting specific savings targets and consistently  Regularly review savings goals, progress, and financial
putting money aside helps individuals progress towards their circumstances to ensure that savings strategies remain
goals over time aligned with objectives.
 Adjust savings contributions or investment strategies as
4. Reducing Financial Stress needed to stay on track towards achieving financial
 Having savings reduces financial stress and anxiety by goals.
providing a sense of stability and confidence in
managing financial challenges. BENEFITS OF FINANCIAL LITERACY
 Knowing that there are funds available for emergencies 1. Financial literacy can prevent devastating
or future expenses can alleviate worries about money. mistakes
 Floating rate loans may have different interest rates each 4. Limited Financial Flexibility
month, while traditional individual retirement account  High levels of debt limit financial flexibility and restrict
(IRA) contributions can’t be withdrawn until retirement. options for achieving other financial goals, such as
 Seemingly innocent financial decisions may have long- saving for retirement, buying a home, or starting a
term implications that cost individuals money or impact business.
life plans.  Debt repayment obligations may consume a significant
 Financial literacy helps individuals avoid making portion of income, leaving little room for discretionary
mistakes with their personal finances. spending or savings.

2. Financial literacy can prevent devastating mistakes 5. Potential for Default


 Floating rate loans may have different interest rates each  In extreme cases, individuals overwhelmed by debt may
month, while traditional individual retirement account face the risk of default, where they are unable to meet
(IRA) contributions can’t be withdrawn until retirement. their debt obligations.
 Seemingly innocent financial decisions may have long-  Defaulting on loans can lead to serious consequences,
term implications that cost individuals money or impact including damage to credit scores, legal action, wage
life plans. garnishment, and repossession of assets.
 Financial literacy helps individuals avoid making
mistakes with their personal finances.

3. Financial literacy can help individuals reach their goals


 By better understanding how to budget and save money,
individuals can create plans that set expectations, hold
them accountable to their finances, and set a course for
achieving seemingly unachievable goals.
 Though someone may not be able to afford a dream
today, they can always make a plan to better increase
their odds of making it happen.

4. Financial literacy invokes confidence


 Imagine making a life-changing decision without all the
information you need to make the best decision.
 By being armed with the appropriate knowledge about
finances, individuals can approach major life choices
with greater confidence realizing that they are less likely
to be surprised or negatively impacted by unforeseen
outcomes.
CONSEQUENCES OF CARRYING HIGH LEVELS OF
DEBT
1. Financial Strain
 High levels of debt can place significant financial strain
on individuals and families, as a large portion of income
may be dedicated to making debt payments.
 This can lead to difficulty covering basic living
expenses, contributing to stress and anxiety about
finances.

2. Interest Charges
 Carrying high levels of debt, especially on credit cards,
results in accruing interest charges that can compound
over time.
 High-interest rates mean that a significant portion of
monthly payments goes towards interest rather than
reducing the principal balance, prolonging the time it
takes to pay off the debt and increasing the total amount
paid.

3. Impact on Credit Score


 Failure to manage debt responsibly can negatively
impact anindividual's credit score.
 Late or missed payments, high credit card balances
relative to credit limits (high credit utilization), and a
history of delinquent accounts can lower credit scores,
making it more difficult to qualify for loans, obtain
favorable interest rates, or even secure housing or
employment.

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