Personal Budget

What is the difference between fixed and flexible expenses? Provide examples of each. Also know the difference between compound and simple interest on savings account. What is the importance of savings? Is it okay to spend money now? Why?

You have a budget and on that budget there will be fixed expense and flexible expenses. A fixed expense is an expense that remains the same. For example a fixed expense would be your phone bill every month or your monthly mortgage. A flexible expense can very from budget to budget. An example would be buying your groceries every month or what you might have to fix on your car. Simple interest does not consider the effects of compounding. Simple interest calculates interest as the product of the original balance, the nominal interest rate, and the time period (in years). For compound interest it's calculated much like the simple interest, but instead of taking interest off the beginning product only it will gain interest off the interest it has already made. So to make it sound easier: Simple interest: $5,000 in a savings account with 6% interest every 6 months or 12% a year. By the end of the year you will have made $600 making your new balance $5,600. Because you have $5,000X12%. Compound interest: $5,000 in savings account with 6% interest every 6 months or 12% yearly. By the end of the year you will have $5,618. Because at 6 months you will gain the interest making your balance $5,300 at the end of the year you get interest on top of the interest = $5,000 x (1+12%/2)^2. Saving money is very important because you always want to have a back up. Just say your car breaks down and it's the transmission. That's an expensive fix possibly won't have the money right there and then if you haven't say put some of your money away previously. My advise to saving money is to just every month just put as much as you can away. Even if it's $200 a month. That will add up and especially with interest which we talked about earlier. Spending money is always fun and of course it's okay. It helps boost our economy, but you don't want to go on a shopping spree every time you get paid and spend all your money. My rule save a set amount of money every month if possible and use the rest for my self if I want to. It's always good to reward your self after all the hard work you put into just getting your money.  


Check out this article on saving money!
MSN Money Article