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Money in the Real World

Other Factors That Change a Budget

You always have to leave a little room in your budget for unexpected expenses. These are things that you have to pay for but perhaps you weren’t ready for when you made your budget. You can plan for some of these expenses by knowing what they are ahead of time. Here are some examples:

Taxes

boy playing Any time you pay for an item at a store, you have to pay tax on it. This money goes to the government to pay for roads, buildings, and even new classrooms in your school. The amount of tax you have to pay will depend on where you live and what the tax rate is at the moment. You can ask your parents or teacher about that for now.

Example

You go to the store and find a really cool pinwheel you want to buy. It costs $1 and taxes are 8% where you are. That means for every $1 you spend, you have to pay $.08 in tax.

$1 + $.08 = $1.08

That is how much money you will really owe when you go to pay for the item.

Interest

If you ever put money into a savings account, your money will earn interest. This is extra money that the bank adds to what you put in. If you ever take out a loan (borrow money from a bank), you will have to pay interest back to the bank. That means if you borrow $500, you may pay $550 in total because of interest.

Example

Let’s pretend you put $20 in your savings account. Your savings account has a 1% interest rate for the year. That means every $1 you put into the account will be $1.01 at the end of the year.

$20 x $1.01 = $20.20

You will have an extra $.20 in your account because of the interest you earn.

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