00 PersonalAccounting FinancialAccounting

Financial Accounting
Module 0: Personal Accounting

Module Learning Outcomes
Discuss the importance of accounting principles in your personal life
0.1: Use your knowledge of accounting to garner resources to fund your educati
on
0.2: Use your knowledge of accounting to create a healthy financial picture for y
ou and your family
0.3: Use your knowledge of accounting to finance your retirement and leave a le
gacy for your loved ones
Financing Your Education
Learning Outcomes: Financing Your Education
0.1: Use your knowledge of accounting to garner resources to fund your education
0.1.1: Demonstrate an understanding of financial aid options

0.1.2: Recognize the pros and cons of working while studying
0.1.3: Identify other potential sources of income available while attending school full or part
time
Financial Aid
• Common federal financial aid can be

broken into four categories:
• Grants
• Scholarships
• Work-Study Jobs
• Student Loans
• To access Federal financial aid, you must

first fill out a Free Application for Federal
Student Aid, or FAFSA.
Video: Financial Aid
Filing for Financial Aid
• October 1, 2021: First date you can file your FAFSA for the 2022–2023 school year
• Late spring, 2021: The 2020–2021 school year ends, but the 2020–2021 FAFSA is still
available until June 30
• Fall 2021: School year begins; financial aid awarded based on your 2021–2022 FAFSA, but
it’s also time to file your 2022–2023 FAFSA
• Late spring 2022: School year ends—the last possible chance to access FAFSA is June 30,
2022
Working While Studying
• Benefits of Working in College

• Reducing Debt
• Employer Benefits
• Time Management
• Financial Management
• Work Experience
• Networking
Other Sources of Income
• Government Listings
• special aid programs or additional aid eligibility
for serving in the military or for being the spouse
or child of a veteran
• education awards for community service with
AmeriCorps
• educational and training vouchers for current and
former foster care youth
• scholarships and loan repayment programs
through various institutions
• Scholarship Opportunities
• Your College's Financial Aid Office
• Savings Account
• Tax Benefits
Financing the Present
Learning Outcomes: Financing the Present
0.2: Use your knowledge of accounting to create a healthy financial picture for you
and your family
0.2.1: Create and follow a family budget
0.2.2: Identify proper ways to use and manage credit
0.2.3: Articulate how to buy a home and other major purchases
0.2.4: Apply accounting principles to properly minimize and file taxes
Budgeting Personal Finances
When budgeting, remember that

saving money (or paying off debt)
is just as important as not running
out of money.
Budgeting can be tricky, as you

have to pay attention to your
money—which isn’t the most
enjoyable task.
However, if you don’t look at your

actual spend, you can’t know where
your money is going.
Budgeting Strategies
• Allocate funds to separate accounts

• First account for fixed expenses, like rent and car payment.
• Then have another section for discretionary spending, like eating out and entertainment.
• Follow the 50/30/20 rule:
• 50% (or less) goes to necessities such as housing, student loans, and utilities. These are expenses you
have to pay every month.
• 30% (or less) goes to nice-to-haves, such as entertainment, hobbies, and travel.
• 20% (or more, if possible) goes toward savings and paying down debt.
Credit
• Establishing and building up good credit over time is an important element of sound
financial health.
• Common ways to establish credit:
• Apply for a credit card
• Apply for a car loan
• Establish renting history
• Be wary of credit card usage—credit card debt can negatively affect your credit score.
• Credit scores are generally classified as:
• Very poor: 300–579
• Fair: 580–669
• Good: 670–739
• Very good: 740–799
• Exceptional: 800–850
Raising Your Credit Score
Buying a Car
• Benefits of Buying New

• better interest rates
• dealer incentives
• latest innovations
• Benefits of Buying Used
• avoiding depreciation: a new car loses
~30% of its value as soon as it’s
purchased
• typically less expensive than new car
Buying a House
A traditional home mortgage is usually 80%

of the value of the home, with a 20% down
payment, although there are some assistance
programs
• A House as a Liability
• insurance
• repairs and maintenance
• monthly payment
• A House as an Asset
• equity
• renting out for passive income
Taxes
Taxes are what we pay for civilized society.

—Oliver Wendell Holmes, Jr.
• Anyone who makes more than the standard deduction ($12,400 in 2020) must pay income
tax
• Student-Specific Tax Rules
• Scholarships are tax-exempt, unless the scholarship exceeds school costs (which include room and
board, books, etc.)
• Student-Specific Tax Credits
• The American opportunity tax credit: for their first four years of undergraduate school, students are
qualified to receive up to $2,500 in returns
• The lifetime learning tax credit: after their first four years, students can claim 20 percent of $10,000 of
qualifying educational expenses
Practice Question 1
Charity planned a trip and decided to sign up for her first credit card. After she received it in the
mail, she started to use it. She purchased an airplane ticket to New Orleans, booked a hotel and
rental car. While on the trip she used the credit card to purchase meals, souvenirs and local
music. When she returned she paid her credit card down to zero before the due date. If Charity
continues to operate this way with her credit card, what future financial status will she be
establishing?
A. Use her credit card to pay for unnecessary things.

B. Build a positive credit history and raise her credit score.
C. Overstretch her budget and get in debt.
D. Her present actions will not affect her financial future.
Financing the Future
Learning Outcomes: Financing the Future
0.3: Use your knowledge of accounting to finance your retirement and leave a
legacy for your loved ones
0.3.1: Describe common types of investments
0.3.2: Demonstrate an understanding of the time value of money
0.3.3: Identify various strategies to fund retirement
Investing
• Most commonly used types of

investments:
• Stocks: a share of ownership in a single
company
• Bonds: a loan to a company or
government entity
• Mutual Funds: a mix of investments
packaged together
• Rental Real Estate: you must purchase
and manage (or pay someone to
manage) property to then rent out
Present Value vs. Future Value
• The present value of an amount of money is essentially what a future amount of money is
worth today.
• For example, you promise to give your daughter $10,000 for college once she enrolls five
years from now. If your investment account grows at about 8% every year, you would need
to put $6,806 in your account today.
• The present value of $10,000 five years from now, discounted at 8%, with interest
compounded annually, is $6,806.
• The future value of $6,806 at 8% compounded annually is $10,000.
Retirement Accounts
• Company-Sponsored Retirement Plans

• Defined Contribution Plans: You contribute a percentage of your wages (typically 3–10%) into an
investment account you can’t access until you retire. Often, your employer will match all or a part of
your contribution.
• Defined Benefit Plans: These plans provide a certain benefit according to a formula. For instance, the
defined benefit (often called a pension) may be 60% of the employee’s highest salary paid out for life
after retirement, but only it the employee works for the company for 20 years.
• Individual Retirement Accounts
• IRAs are excluded from your taxable income for the year you make them, and the investments grow
without being subject to tax until you withdraw the funds.
• ROTH IRAs come out of taxed income, but grow tax-free and no tax is due when the funds are
withdrawn.
Life Insurance
• There are two basic types of life insurance—term and whole life.
• Term Insurance is the simplest form of life insurance. It pays only if death occurs during the term of
the policy, which is usually from one to 30 years. If you stop making the monthly payments, the policy
expires.
• Whole life pays a death benefit whenever you die—even if you live to 100. In these policies, both the
death benefit and the premium are level throughout the life of the policy.
Practice Question 2
The XYZ Company now has enough employees to establish an investment account with a
mutual fund company where employees can contribute toward their retirement and the company
will kick in an additional 5% on top of employee contributions. What is this type of company
sponsored retirement called?
A. Roth IRA
B. Defined Benefit Plan
C. IRA
D. Defined Contribution Plan
Quick Review
• How can you use accounting knowledge to garner resources to fund your education?
• What is your understanding of financial aid options?
• What are the pros and cons of working while studying?
• What other income sources are available while attending school full or part time?
• How do you create and follow a family budget?
• How do you use and manage credit properly?
• What are ways to buy a home and other major purchases?
• What accounting principles help you properly minimize and file taxes?
• What are common types of investments?
• What is time value of money?
• What are some of the various strategies to fund your retirement?

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Financial Accounting

Module 0: Personal Accounting

Discuss the importance of accounting principles in your personal life

0.1.1: Demonstrate an understanding of financial aid options

• Common federal financial aid can be

• To access Federal financial aid, you must

• Benefits of Working in College

When budgeting, remember that

Budgeting can be tricky, as you

However, if you don’t look at your

• Allocate funds to separate accounts

• Benefits of Buying New

A traditional home mortgage is usually 80%

Taxes are what we pay for civilized society.

A. Use her credit card to pay for unnecessary things.

• Most commonly used types of

• Company-Sponsored Retirement Plans

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