Economics plays a role in personal finance. -Describe the role that economics plays in your personal financial plan. Also, the use of credit plays a role in a personal financial plan. Describe the advantages and disadvantages of credit and explain how you will use it as part of your financial plan. Specifically address the following required elements:
– Explain the role the government plays in personal finance (focus on regulations, laws, economic policy, etc.).- Money is created and regulated by government. People work and make their own money and create a profit which is then taxed by the government. Personal finance and government regulations are very closely linked. The government passes laws to regulate the economy hoping that everyone will prosper. The U.S. government relies on tax mostly income taxes. The income tax is the most relevant for personal financial planning, as everyone has some sort of income over a lifetime.
Both State and Federal income tax plays a large role in our personal finances. The average American pays around 28% of their annual income in taxes. Government controls economic policies that control or influence taxes, interest rates and inflation which all effect finances. Government regulates or supervises financial institutions like banks, and holds them to certain requirements, trying to maintain the integrity of the financial system. The economy and government rely on one another, which in the end always plays a role in our personal finances.
– Explain the role of government assistance in personal finance (describe what type of assistance is available). There are many government assistance programs available in the United States that can contribute to personal finances. These are some examples: -Medicaid: Medical benefits to low income people that have no insurance. -Medicare: Health insurance for individuals over 65 years of age. -Social Security: Retirement benefits paid to retired workers who earned enough social security credits. -Welfare: State regulated programs with assistance in daycare, job training, medical, and expenses. -SSI: Provides basic needs to the disabled.
-Food Stamps: Provides benefits to low income people to purchase food. -Public Housing Assistance Program: Provides assistance for decent and safe rental housing for low income. -Stafford Student Loans: Loans for undergraduate and graduate students. -LIHEAP(Low Income Home Energy Assistance Program) – Assistance with paying for utilities for low income.
– Explain the impact of the tax system on personal finance (how do various taxes impact you on a personal level, related to your financial plan). -The taxes that currently affect my financial plan the most are the amount of taxes deducted from my paycheck on a yearly basis and property taxes. My husband and I were bumped into a new tax bracket a few years ago and purchased a more expensive house which means higher property taxes. The budget had to be readjusted to compensate for this increase. My financial plan for the retirement needs to factor in that one of our retirement funds involves deferred taxes.
– Discuss the use of credit- The use of credit is valuable, especially good credit. Having the ability to use credit and borrow allows one to buy things we could not otherwise afford at the time. As important as credit can be it can also be equally as dangerous. Many people abuse the use of credit and spend far beyond their means.
– Explain the cost of credit- If your credit balance is not paid off at the end of every month then the cost of credit is the interest that is accrued as well as possibly late payment fees.