Teen Financial Essentials: Cash Course Compilation

Founding Father Benjamin Franklin once wrote in this world nothing can be said to be certain except death and no no no no no don't say it please don't say it please don't say it taxes no you said it look taxes are not fun but they're an unavoidable part of life from grain in ancient Egypt to dollars in the United States governments have collected forms of payments throughout history to fund public projects like roads sewage systems and militaries tax amounts are often based on what a person earns buys and owns so the more you know the better prepared you'll be when you earn when you buy and when you own okay fine what kind of taxes do I pay well when you get a job you'll notice your take-home pay or net income is less than what you actually make that's because a percentage of your money will be withheld from your paycheck to pay for income and payroll taxes federal income tax is only paid by the employee to the government who then pays for things like roads infrastructure and the military it's a progressive tax this means the rate used to calculate how much you owe increases as your income in gets higher some states and even cities also take income taxes on top of the federal amount on the other hand Peril tax is generally paid by both the employee and employer to the government which then pays for social security benefits and Medicare programs perril tax is 15.3% of your gross income where each party pays half or 7.65% sales tax is another common tax that you'll pay on most goods and services in Most states this tax is added on the state and local levels to pay for things like police transportation parks and education a portion of the sales tax usually goes to the state to the county and to the city is that why I had to pay $18.25 for this sweet artwork even though the tag said it was $100 yep that extra $8.25 is a sales tag and in this case an 8.25% sales tax but sales tax isn't paid on everything rules vary from place to place but most of the time medications and Basic Foods found at grocery stores aren't subject to sales tax who hold on I bought this rotisserie chicken and I had to pay a tax on it Ah that's because it's considered a prepared food whereas if you bought a frozen rotisserie chicken it would not be taxed what it can get complicated I know but it's just the start when it comes to taxes if you someday own a home or some land you may have to pay property tax then if you made a profit investing there's a capital gains tax own a business you may have to pay a franchise tax on the net worth of its capital really and buying some soda with that chicken it might require an excise tax you kidding me oh and that vacation you're on there there's probably an added travel tax oh come on okay I get it I get it taxes are everywhere but is there a way to reduce the taxes I pay fortunately there is when it's time to do your taxes you can claim things like charitable giving mortgage interest and health care costs to reduce your taxable income these are called deductions on the other hand credits like the child credit when you have kids you can claim as dependent are subtracted from the amount of tax is owed so now that you know a bit more about taxes it's time to take action one once you've got a job keep a record of all the income you earn you'll need this information when you file your annual tax return with the Internal Revenue Service aka the IRS they're responsible for carrying out the Internal Revenue code enacted by Congress and collecting federal taxes not paying your taxes is called tax evasion and it's a federal crime you could end up paying a fine or even face jail time two know what taxes you are responsible for paying budget for them and pay them on time the deadline is called tax day and is usually on April 15th if you miss this due date you might have to pay more money three get involved all government employees and everything the government does is paid for with your tax dollars it's your responsibility to know how your money is being spent and make sure it's not being wasted when taxes go up make sure you understand why after all you'll be paying for it contact your representative school board or city council members if you feel funds are being mismanaged taxes are an unavoidable and frustrating fact of life but the more you know the less likely you'll be surprised on tax day payday or shopping day whoa are you wearing a limited edition organic free-range black t-shirt from Leo Vuitton why yes thanks for noticing isn't that like $500 each wow where' you get the money oh I used the free money that I received from my student loan your student loan wait wait wait that money isn't free you have to pay it back with interest is called a loan for a reason student loans are a kind of debt are you sure yes look it's great to be excited about starting adulthood and going to college but you should be very careful about jumping right into a ton of debt if you're going to take out a student loan though you better learn about what you're getting into because you could be paying it back for decades there are two types of student loans private and federal private student loans come from private Banks while federal student loans are funded by the US Government oh AKA taxpayers since federal student loans typically have lower fixed interest rates and more repayment options they tend to be more popular than private student loans in fact about 92% of all student debt is from federal student loans most federal student loan debt comes from direct subsidized loans direct unsubsidized loans and direct Plus Loans all three are available to undergraduate students who need financial assistance however only unsubsidized and Plus Loans are available to graduate and professional students Plus Loans are also open to parents of undergraduate students who need assistance covering any cost not covered by subsidized or unsubsidized loans subsidized meaning meaning the loans interest is paid by the US Department of Education while you're still enrolled in school nice and unsubsidized loans interest is not which means the interest will continue to build up while you're in school adding to to the total amount you'll have to start paying off after you graduate youve given the option accept subsidized money first so a subsidized loan is Freer money for everybody nope you have to qualify for subsidized loans by showing Financial need on the other hand unsubsidized loans and Plus Loans are available to anyone who applies student loans can be good debt if you use them to acquire skills necessary for your desired career however it's important to be reasonable and responsible about the amount you borrow is there evidence that shows your chosen college major will lead to a career you want how much does your future job pay is it enough to help you pay off the debt you're getting into to study for that job this should influence where you choose to go to school and how much money you should borrow so I really have to pay the money back yes you do unlike other kinds of loans student loans can not be cleared under standard bankruptcy this means you're responsible for the debt forever that's true even if you don't finish school or can't find a job and because student loans increase your debt to income ratio it can make borrowing money for things like a car or house difficult in the future so once you've filled out your free application for federal student aid also known as bafsa it's time to think about your options first consider whether you actually need a student loan and how much you need explore other kinds of financial aid like scholarships work study and grants many of which won't require you to take on debt or consider Community College as a first step before transferring to a university maybe you could even work save and take classes as you can afford them second whether you take a private or Federal Loan be sure you're clear on the loans terms and conditions and understand your legal obligation to pay it back third keep copies of all the paperwork Rel related to your student loans and keep track of how much money you borrow it can add up fast be sure to calculate the payments into your personal budget if you're having trouble making payments contact your loan provider they may be able to put your loan into deferment or forbearance which temporarily reduces or pauses payment if you show that you have a need for those accommodations last make your payments on time and for the full amount required by your plan a loan will be considered delinquent if payments are not received and it can even go into default which can have some major consequences because College tuition is much higher than it used to be the need for student loans has significantly increased as a result more than half of students graduate with debt taking an average of 21 years to pay off so choose your next PATH wisely and invest in education that is going to give you a lifelong return and not years of debt hi I really need to return my Leo Vuitton t-shirt [Music] have you ever noticed how some people always seem to be broke even though they have a good job no way why is it that so many millionaire athletes go bankrupt as soon as they retire the truth is there are a lot of ways to make money but not everyone uses the money they make wisely they spend too much on things they don't really need then when times get tough or they want to achieve a big goal like buying a house or retiring early they realize they don't have enough money left if you want to make sure you're being smart with your money you need at least one very important thing a [Music] budget so what is a budget a budget is a plan that will help you keep track of how much money you make how much you spend what you spend it on and how much you save we'll look at one month as an example let's say that when you combine your allowance and the money you earn from your part-time job you make $2,000 per month that total is called your income so what kind of budget should I use to make sure I'm being smart with my income there's a known rule from professionals it's called the 503020 rule that means you can spend 50% of your income on your needs 30% on your wants and put 20% away in your savings so what exactly would my budget look like if I wanted to follow the 50 3020 rule for most people spending is easy and saving is hard so the first thing to do is set aside the money you should be saving according to the rule that means 20% of your $2,000 income or $400 will go straight into your savings every month don't dip into your savings until you really really need to eventually this is the money that will be there for you in an emergency or to put towards something expensive some people even start saving for their retirement so that they can travel and have fun when they're done working don't be afraid to think long term okay now that your savings is put away safe and sound you can look at the the rest of your budget 50% of your $2,000 income or $11,000 a month is what you should keep handy for your needs things that are absolutely necessary when you're older this will be things like house payments groceries medical bills and stuff like that right now your needs maybe clothes lunch money sports equipment or maybe a car one day finally you can spend 30% of your income or $600 a month on your wants in other words things that you enjoy but aren't as essential this will be the money you spend on going out with friends or shopping your wants may be important to you but they're not as important as your needs or savings so if your budget is ever out of balance and you need to reduce your spending this is the category you should look at first some of your wants may seem small but they really add up like if you spend just $3 at the vending machine every day it doesn't seem like much but at the end of the year that's about $1,000 you could have saved for something awesome instead so do you think you're ready to make your own budget just follow a few simple steps number one figure out your income that's how much money I make every month if you make money in a couple different ways be sure to add it all together so that you're working with your total monthly income number two divide your income into percentages following the 503020 rule so you can see exactly how much you should be spending on needs and wants and how much you should put away into your savings number three prioritize your spending think about things you already spend your money on and what category they fit into then decide what you need to do to get your spending and saving habits to match your new budget number four set some goals it's always easier to save up money when you have a goal in mind maybe it's a trip you want to go on or something nice you want to buy or maybe you just want to have peace of mind in case of an emergency figure out how much money you'll need for it and how long it will take to save that up knowing what your financial goals are is great motivation to stick to your budget all right now that you've got your budget and a plan to achieve your goals you can enjoy the confidence that comes from being more prepared for those surprise expenses that life might throw at you just remember a budget is not an end in itself it's a tool a way to help you use every dollar wisely it isn't about hoarding all the money you can get but saving it so you can be ready for the unexpected and enjoy life did you know 95% of us households put their money into accounts at Banks or credit unions these checking and savings accounts are supposed to make managing your money convenient protect it from theft and damage and prevent it from getting lost checking and savings what's the difference a checking account is a transactional account this means you can deposit money into it and withdraw cash from it gener without any limitations people use checking accounts to cover everyday expenses and purchases and to pay their bills a savings account is a deposit account this means you can put money into it but you're limited to the number of times you can take money out of it per month people use savings accounts to hold their emergency funds or to save money for Big Ticket items like a car or a vacation savings accounts pay you a small amount of Interest which means your money will continue to gradually grow even if you don't make any more deposits okay I get it now but but which account should I have well lots of people use checking and savings accounts together checking to manage their daily transactions and savings to store their money for a later date when you have both accounts you can transfer money between them with just a few clicks of a mouse or swipes on an app move money into your savings to save and then when you need it move money back to your checking say to cover an emergency expense all right that sounds easy enough but are there any other benefits yes for one no more paper checks on payday your paycheck can be directly deposited into your checking account or say you don't like carrying around a lot of cash when you open a checking account your bank will give you a debit card you'll also receive a box of personal checks which are bank-issued pieces of paper both debit cards and checks are directly tied to your checking account and you can shop with them just like cash to pay people and businesses for goods and services you can also use them to withdraw money and pay bills if you use a debit card the money will be withdrawn immediately from your account if you pay with the check the amount won't be withdrawn until after the pay cashes the check but watch out always be sure to have enough money in your account to cover the charges made with debit cards and checks if there are insufficient funds in your account the check or the charge will bounce and you'll be subject to a non-sufficient funds fee on the other hand if your bank covers your insufficient funds and processes the payment you will be charged an overdraft fee another awesome feature of some checking accounts is mobile check deposit this tool can take care of that pile of checks you got for your birthday in just a few minutes all you have to do is take pictures of them using the mobile check deposit feature in your banking app and voila your money is in your account without ever stepping into a bank that sounds convenient but I'm I'm broke uh is it free possibly well some accounts do have monthly maintenance fees this is a small amount charged by Banks to manage your accounts sometimes this fee can be avoided by maintaining a minimum balance minimum balance fees can also be avoided by maintaining required minimum balances in both your checking and savings accounts other fees like account and activity fees wire transfer fees ATM fees and search charges and stopped check fees can be avoided by understanding the rules and being responsible with your transactions these vary from bank to bank so be sure to ask about them when setting up your accounts now you know the basics of checking and savings accounts so it's time to take action step one shop around before you open your accounts determine if your bank has any minimum deposit amount requirements minimum balance requirements withdrawal limitations or anything else that might result in the fee you don't want any surprises then compare the interest rates on any savings accounts that are offered also be sure to check for account features that you want like online banking or mobile check deposit step two set up your accounts by filling out an application in person or online you'll need to provide basic information like your name mailing address phone number email date of birth and social security number a governmen issued ID like a driver's license and money for any initial deposits are also required step three keep a close eye on your accounts to avoid accidental overdraft fees and fraud you should always know how much money you have in your accounts and if you see any activity that you don't recognize contact your bank right away now that you're all set up with your new check-in and savings accounts it's time to stop storing every dollar in that piggy bank and start managing your money like a [Music] boss watch more at prer kids.com and parents don't forget to subscribe