The Personal Management Merit Badge: Your Ultimate Guide In 2024

Personal management is notorious for being one of the most difficult badges for any Scout to earn. With numerous in-depth knowledge requirements, as well as additional long-term projects, earning this badge won’t be a simple feat. Luckily, I’ve decided to write for you a complete guide on earning your personal management merit badge!

In spite of its difficulty, personal management was one of my favorite merit badges as a Scout. After completing the badge, for the first time in my life, I felt prepared to succeed financially in the real world! Take the time to thoroughly understand this badge, and it’ll pay you back dividends later in life (you’ll get that one later 😀 ).

In addition to completing this merit badge as a Scout, I also earned my university degree in economics. However, I am by no means your financial advisor, this article is for entertainment purposes only, and you shouldn’t take my advice at face value (mandatory disclaimer). That said, I do have a solid understanding of the material. Mastery of your finances is key to a fulfilling life, and I want to get you started along on that journey!

Before we get started, if you have other Eagle-required merit badges to earn, I’d recommend checking out my Difficulty Ranking Guide to Every Eagle-required Badge. There, you’ll also find the links to my other merit badge guides, as well as a description and summary of each badge’s requirements. I’m certain this resource will be helpful to Scouts on their road to Eagle!

Also, remember that ScoutSmarts should just serve as your starting point for merit badge research. In school, we’re taught not to plagiarize, and the same is true for Scouting worksheets. Answer these questions in your own words, do further research, and I promise you’ll gain much more from every merit badge you earn!

In both parts of my guide to the personal management merit badge, I hope to teach you the skills and knowledge you’ll need, not only to earn this difficult badge but also to understand your finances and better master your money. 

Without further ado, let’s briefly look over requirements one through five of the personal management merit badge. This badge will take at least a few months to complete, so understand what you’re getting into. Take the time to note knowledge requirements versus projects which you’ll need to work on over time. Now let’s get into it!

What Are The Personal Management Merit Badge Requirements?

1. Do the following:
   • 1a) Choose an item that your family might want to purchase that is considered a major expense.
   • 1b) Write a plan that tells how your family would save money for the purchase identified in requirement 1a.
     • 1b I) Discuss the plan with your merit badge counselor
     • 1b II) Discuss the plan with your family
     • 1b III) Discuss how other family needs must be considered in this plan.
   • 1c) Develop a written shopping strategy for the purchase identified in requirement 1a.
     • 1c I) Determine the quality of the item or service (using consumer publications or rating systems).
     • 1c II) Comparison shop for the item. Find out where you can buy the item for the best price. (Provide prices from at least two different price sources.) Call around; study ads. Look for a sale or discount coupon. Consider alternatives. Can you buy the item used? Should you wait for a sale?
2. Do the following:
   • 2a) Prepare a budget reflecting your expected income (allowance, gifts, wages), expenses, and savings for a period of 13 consecutive weeks.
     • 2a I) If expenses exceed budget income, determine steps to balance your budget.
     • 2a II) If income exceeds budget expenses, state how you would use the excess money (new goal, savings).
     • 2a III) Track and record your actual income, expenses, and savings for 13 consecutive weeks (the same 13-week period for which you budgeted). (You may use the forms provided in this pamphlet, devise your own, or use a computer-generated version.) When complete, present the records showing the results to your merit badge counselor.
     • 2a IV) Compare your budget with your actual income and expenses to understand when your budget worked and when it did not work. With your merit badge counselor, discuss what you might do differently the next time.
3. Discuss with your merit badge counselor FIVE of the following concepts:
   • 3a) The emotions you feel when you receive money.
   • 3b) Your understanding of how the amount of money you have with you affects your spending habits.
   • 3c) Your thoughts when you buy something new and your thoughts about the same item three months later. Explain the concept of buyer’s remorse.
   • 3d) How hunger affects you when shopping for food items (snacks, groceries).
   • 3e) Your experience of an item you have purchased after seeing or hearing advertisements for it. Did the item work as well as advertised?
   • 3f) Your understanding of what happens when you put money into a savings account.
   • 3g) Charitable giving. Explain its purpose and your thoughts about it.
   • 3h) What you can do to better manage your money.
4. Explain the following to your merit badge counselor:
   • 4a) The differences between saving and investing, including reasons for using one over the other.
   • 4b) The concepts of return on investment and risk and how they are related.
   • 4c) The concepts of simple interest and compound interest.
   • 4d) The concept of diversification in investing.
   • 4e) Why it is important to save and invest for retirement.
5. Explain to your merit badge counselor what the following investments are and how each works:
   • 5a) Common stocks
   • 5b) Mutual funds
   • 5c) Life insurance
   • 5d) A certificate of deposit (CD)
   • 5e) A savings account
   • 5f) A U.S. savings bond
6. Explain to your counselor why people might purchase the following types of insurance and how they work:
   • 6a) Automobile
   • 6b) Health
   • 6c) Homeowner’s/renter’s
   • 6d) Whole life and term life
7. Explain to your merit badge counselor the following:
   • 7a) What a loan is, what interest is, and how the annual percentage rate (APR) measures the true cost of a loan.
   • 7b) The different ways to borrow money.
   • 7c) The differences between a charge card, debit card, and credit card. What are the costs and pitfalls of using these financial tools? Explain why it is unwise to make only the minimum payment on your credit card.
   • 7d) Credit reports and how personal responsibility can affect your credit report.
   • 7e) Ways to eliminate debt.
8. Demonstrate to your merit badge counselor your understanding of time management by doing the following:
   • 8a) Write a “to do” list of tasks or activities, such as homework assignments, chores, and personal projects, that must be done in the coming week. List these in order of importance to you.
   • 8b) Make a seven-day calendar or schedule. Put in your set activities, such as school classes, sports practices or games, jobs or chores, and/or Scout or church or club meetings, then plan when you will do all the tasks from your “to do” list between your set activities.
   • 8c) Follow the one-week schedule you planned. Keep a daily diary or journal during each of the seven days of this week’s activities, writing down when you completed each of the tasks on your “to do” list compared to when you scheduled them.
   • 8d) With your merit badge counselor, review your “to do” list, one-week schedule, and diary/journal to understand when your schedule worked and when it did not work. Discuss what you might do differently the next time.
9. Prepare a written project plan demonstrating the steps below, including the desired outcome. This is a project on paper, not a real-life project. Examples could include planning a camping trip, developing a community service project or a school or religious event, or creating an annual patrol plan with additional activities not already included in the troop annual plan. Discuss your completed project plan with your merit badge counselor.
   • 9a) Define the project. What is your goal?
   • 9b) Develop a timeline for your project that shows the steps you must take from beginning to completion.
   • 9c) Describe your project.
   • 9d) Develop a list of resources. Identify how these resources will help you achieve your goal.
   • 9e) Develop a budget for your project.
10. Do the following:
    • 10a) Choose a career you might want to enter after high school or college graduation. Discuss with your counselor the needed qualifications, education, skills, and experience.
    • 10b) Explain to your counselor what the associated costs might be to pursue this career, such as tuition, school or training supplies, and room and board. Explain how you could prepare for these costs and how you might make up for any shortfall.

Understand what you’ll need to do to finish the first half of this badge? Basically, requirements 1 and 2 are personal projects that will take some time, while 3-5 are knowledge-based. I’ll provide a bit of guidance on the projects, but will mainly be able to help you with the knowledge requirements.

Just stick with it, and you’ll have earned this super-important badge in no time!

Personal Management Requirement 1: Home Purchases

1a) Choose an item that your family might want to purchase that is considered a major expense.

Depending on your level of wealth, you may consider large and small expenses differently than others. Generally, a major expense can be thought of as a cost either greater than 10% of a parent’s monthly income, or some sort of debt that would need to be paid back over time.

To complete this requirement, you’ll need to create a budget for a major expense your family is considering taking on. Here are a few purchases that are considered major expenses for most all families:

• A second car
• Air-condition systems
• A vacation and flight 
• A new computer
• College tuition
• A new washing machine and dryer
• A newly-released TV

To use as an example for this requirement, let’s pretend that your family is considering buying a new TV. First, you will need to estimate the ballpark cost of the TV. Then you’ll be setting aside a budget for how much you think you’ll need to spend in order to buy the TV that you want.

1b) Write a plan that tells how your family would save money for the purchase identified in requirement 1a.
— 1b I) Discuss the plan with your merit badge counselor
— 1b II) Discuss the plan with your family
— 1b III) Discuss how other family needs must be considered in this plan.

Let’s say you want a certain Sony TV that costs $750. To set aside $750 to buy this TV, you could either save $250 every month for three months or $75 every month for 10 months. The question you should be asking yourself is, ‘how much money do we have leftover after all of our necessities are paid for?’ This is where having a plan will come in handy!

A budget is essentially a plan to track how much money your family makes in a month, versus how much money they spend. The goal is to spend less than you make and then set aside the extra money for additional expenses like that TV or to save. Watch the video (2:01) below for a quick walkthrough on budgeting.

Alongside a budgeting strategy, you should also develop a shopping strategy. Is that new TV really your best option given the money that you’ll be spending? I always try to look for online reviews before buying an expensive product. If you’re shopping on Amazon, be sure to check out the star ratings and purchaser feedback to aid in your decision.

1c) Develop a written shopping strategy for the purchase identified in requirement 1a.
— 1c I) Determine the quality of the item or service (using consumer publications or rating systems).
— 1c II) Comparison shop for the item. Find out where you can buy the item for the best price. (Provide prices from at least two different price sources.) Call around; study ads. Look for a sale or discount coupon. Consider alternatives. Can you buy the item used? Should you wait for a sale?

Not all stores price their items the same. Comparison shopping is when you look for different places to buy so that you can find the right price. This is best done online, or by calling stores. Sometimes, you can even buy something that’s cheaper that will be just as good. By considering your alternatives, you’ll ensure you get the best value from your purchase.

If I were to do this for the TV example, this would be my step-by-step shopping strategy:

1. Determine quality: Go to Amazon and look at the Sony TV’s ratings and customer feedback.
2. Consider alternatives: Scroll down to check out the ‘Customers who viewed this item also viewed’ section to see other top TVs that are similar to the Sony TV.
3. Comparison shop: Take the top three TVs with 4+ star ratings and search for them as an eBay and general Google search to see if there are any lower prices available.
4. Make an informed decision: Given each model’s lowest available price, I’d buy the TV that provides the greatest benefits relative to its cost.

Asking how much money you have left after paying for necessities is crucial. If you have plenty of money left over after paying your base cost of living, you can put more of it into savings for the TV. If you don’t have any money left over, this where budgeting will come in handy. Recognize where you’re spending money every month, then see if you can reduce those costs!

Personal Management Requirement 2: Budgeting

2a) Prepare a budget reflecting your expected income (allowance, gifts, wages), expenses, and savings for a period of 13 consecutive weeks.
— 2a I) If expenses exceed budget income, determine steps to balance your budget.
— 2a II) If income exceeds budget expenses, state how you would use the excess money (new goal, savings).
— 2a III) Track and record your actual income, expenses, and savings for 13 consecutive weeks (the same 13-week period for which you budgeted). (You may use the forms provided in the merit badge pamphlet, devise your own, or use a computer-generated version.) When complete, present the records showing the results to your merit badge counselor.
— 2a IV) Compare your budget with your actual income and expenses to understand when your budget worked and when it did not work. With your merit badge counselor, discuss what you might do differently the next time.

We touched on budgeting a little earlier. Now, requirement 2 asks you to prepare a budget reflecting your expected income, expenses, and savings over 13 consecutive weeks. This is the longest part of the personal management merit badge and will differ enormously between Scouts.

I’d love to include a section on this, but because everyone’s situation is different, I probably wouldn’t be able to provide information that’s especially helpful to you. I’d recommend you speak to your parents and see how they manage your household’s budget. Here’s a great video (3:23) explaining how you can create your own budget from home:

Pro tip: You can use this as an opportunity to ask for an allowance, or even an allowance increase if you’re already given one. That’s what I did, and it was a huge success!

Say that you’d like to start paying for some of your own expenses with money that you’ve budgeted. Then, ask if you could have a reasonable allowance for all the chores you regularly do. Be persuasive and have a mature conversation.

If your parents are anything like mine, they’ll jump at the opportunity for you to become more responsible with money!

Personal Management Requirement 3: Money Habits

Discuss with your merit badge counselor FIVE of the following concepts:
3a) The emotions you feel when you receive money.
3b) Your understanding of how the amount of money you have with you affects your spending habits.
3c) Your thoughts when you buy something new and your thoughts about the same item three months later. Explain the concept of buyer’s remorse.
3d) How hunger affects you when shopping for food items (snacks, groceries).
3e) Your experience of an item you have purchased after seeing or hearing advertisements for it. Did the item work as well as advertised?
3f) Your understanding of what happens when you put money into a savings account.
3g) Charitable giving. Explain its purpose and your thoughts about it.
3h) What you can do to better manage your money.

Below, I’ve included answers to the 5 underlined requirements in the section below. I think these topics will likely be the most relevant to you right now in your life. If you’re interested in any of the other concepts though, I’d highly recommend doing your own research!

3a) The emotions you feel when you receive money.

Money is typically seen as glamorous and exciting. Large amounts of money can make people act irrationally and take on unnecessary risks. When receiving money, you’ll likely feel a rush of joy and excitement in anticipation of what that money can buy for you.

Personally, I’d recommend you be careful when experiencing these feelings. The way that I like to think of it is that money, itself, won’t make you happy. However, money can buy you options and freedom. If you detach yourself from the emotional side of money, you’ll be able to control your finances and not let your finances control you.

3b) Your understanding of how the amount of money you have with you affects your spending habits.

Fact: People spend more if they’re using credit cards than if they’re using debit cards. People also spend more if they’re using debit cards than if they’re using cash. If you’re trying not to spend money, don’t carry credit cards and try to use cash if you absolutely need to buy something.

A cool psychological trick I learned is to carry large bills instead of smaller forms of cash. You’re less likely to spend a $50 or $100 bill than you are to spend five $10 or $20 bills. However, the best way to not spend money is to not bring it with you in the first place.

3c) Your thoughts when you buy something new and your thoughts about the same item three months later. Explain the concept of buyer’s remorse.

Oftentimes, when we buy something new we aren’t thinking about the future. Usually, you’re elated when first opening that new toy or gadget. However, three months down the road, you might not even use it anymore. Buyer’s remorse is when you look back and think to yourself that you probably shouldn’t have bought what you did.

A good way to look at your spending is to ask yourself if the purchase will matter at all in three months’ time. If your life will be better in three months, and you’ll continue to use whatever you buy, you should get it. If it’s some sort of new fad that you probably won’t care about later on, maybe you should consider saving your money.

3d) How hunger affects you when shopping for food items (snacks, groceries).

While hungry, you’re much more likely to overspend. I’m sure you know the feeling of walking into a restaurant on an empty stomach and ordering way too much food because you think you’ll need it. We tend to purchase more when we’re hungry. In fact, while hungry, it’s not only food items that you’ll be more likely to impulsively buy.

Studies have also shown that people are more likely to hastily buy every kind of item while hungry. Therefore, you should always try to shop on a full stomach, or at least know that your purchasing decisions may not be the most rational when hungry. 

3h) What you can do to better manage your money.

To better manage your money, you’ll first need to form a budget. This means knowing how much you’re spending versus how much is coming in as income. Once you have a budget in place, look for purchases you’re often spending a lot of money on, that you don’t get much benefit from. That would be a great place to start cutting back some unnecessary expenses.

Once your expenses are below your income, start saving and investing that extra money. Look for safe investments that can give you a strong rate of return. The money you invest will compound over time, so be sure to constantly be contributing to this account. Putting away a bit of money each month will build up your safety net and provide you with greater peace of mind. 

Personal Management Requirement 4: Saving, Investing, and Interest

Before I get into answering the requirements, I want to take a second to explain a concept called interest. Interest is a percentage of your initial amount of money that gets added back to the total at the end of each period (predetermined span of time). What this means is that, essentially, you’ll gain more money over time.

While the rate of interest on a $100 bill that you hide under your mattress is zero, by putting your money into a bank or investing it, you’ll gain a greater rate of interest. More interest means more money in the long run!

4a) The differences between saving and investing, including reasons for using one over the other.

Savings are stored within a bank account and carry an interest rate that is generally close to 1%. This means that if you have $1000 in a bank account with an annual compounding period, at the end of the year you’d have $1010 [$1000 (principal amount) + $10 (principal x .01) = $1010].

Investments, on the other hand, are assets that you purchase on the assumption that they’ll go up in value. Whether you’re buying a percentage of a company (stocks), gold, or a rare coin, if you have the intention of selling for a higher price later, you’re investing!

While the interest rate on investments can be incredibly high, there is much more risk involved. It is very rare that something can cause you to lose money stored in a savings account, but people frequently lose money while investing in the stock market or in other commodities. 

However, that does not mean that one is better than the other. You generally have more to gain from investing than you have to lose. However, the key is to keep a balanced portfolio of both savings and investments so that you can reap the rewards of investing without shouldering all of the risks.

4b) The concepts of return on investment and risk and how they are related.

Generally, a higher return on investment goes hand in hand with a higher risk. If you go to the casino and put $1000 on a hand of poker, your potential reward is very high, but you’ll also be risking a greater percentage of your money.

On the other hand, if you invest in something that is less risky, such as a little piece of every single stock within the market (an index fund), you may not see a very high return each year (around 3%), however, you’ll be less at risk of losing money.

Like I said earlier, you’ll want to balance higher risks with lower risks, with the ultimate objective being to limit losses and walk away with your goal amount of money.

Sometimes, it will pay off to take a higher risk with a smaller amount of money because the upside will be much greater. Other times, it won’t. I’d encourage anyone to do their due diligence to figure out an ideal investment strategy that works with their lifestyle.

A bit confused? Don’t worry — in the beginning, I was too. Building your financial intelligence will take years, so don’t worry if this doesn’t make too much sense right now.

4c) The concepts of simple interest and compound interest.

• Simple interest: Simple interest is the principal amount multiplied by the rate of interest and the number of periods.
  • What this means practically, is that if you were to take out a $50 loan with the rate of interest being 10% and there being 2 payback periods, the calculation would be as follows: $50x.1×2=$10.
  • You’d pay $5 twice, as interest. Essentially, on that loan, you would be paying $10 as added interest, as well as later paying the original $50 back.
• Compound interest: Compound interest, on the other hand, is interest paid on top of the interest that you’ve gained in the past.
  • For example, when investing, if you were to gain 4% interest on $100 in one year, you would have $104. If you were to gain 4% interest again in the second year on that $104, now you would have $108.16. 
  • With compound interest, you get interest on your interest!

Essentially, with compounding interest, you gained more money in the second year, even with the same rate of interest. That’s because interest is compounded on your previous interest, meaning that the $4 you got in your first year resulted in an additional $.16 in your second year.

This may not seem like a lot, but over time compound interest can be an enormous tool for growing your wealth. Check out this one-minute video on the benefits of compound interest vs simple interest:

4d) The concept of diversification in investing.

As I said earlier, some investments are riskier than others. However, riskier investments often have more potential upside. Diversification means buying a balanced portion of both of these types of investments so that your risk is distributed.

To be properly diversified, you’ll need to have many different investments in different sectors. The reason for this is so that if one basket of investments does poorly, the gains in other sectors will balance out your losses. Do you know the saying, “don’t put all your eggs in one basket”? This holds especially true when investing.

The ultimate goal of diversification is to own a great enough assortment of investments that your rate of return is fixed, even with the typical fluctuations that come from investing. Of course, humanity’s brightest minds have been working on this problem for the past 100 years, with practically none able to solve it, so good luck.

4e) Why it is important to save and invest for retirement.

In retirement, your income decreases substantially. Unless you want to survive off of ramen noodles and live in a cardboard box, you’ll want to save enough money to maintain your standard of living. 

Saving and investing over the course of your career is the only way that you’ll be able to retire comfortably. Interestingly enough, the value of money in the present is lower than the value of invested future money. By delaying gratification today, you’ll see greater rewards when it comes time to retire.

This is where compound interest comes into play. If you consistently invest money throughout your life before reaching retirement, the interest that you’ll gain from your investments will likely double or even triple the total amount of money you’ve saved over time.

Personal Management Requirement 5: Types of Investments

Explain to your merit badge counselor what the following investments are and how each works:

5a) Common stocks

Although there is a lot more nuance involved, common stocks essentially represent your ownership in a percentage of a company. While these used to be paper certificates, now almost all trading of common stocks are done digitally through online brokerage accounts.

How ito trade stocks: Individuals can buy or sell stocks at a trading price which is shown online. When individuals buy a stock (percentage ownership) of a company, they are hoping that the company grows and that their share gains value. 

If you think of buying a stock like you’re buying a percentage of the company, and the overall company doubles in size, then the share that you’ve purchased would also double in value!

After the stock doubles in value, if you don’t think the company will continue to grow, your goal will be to sell the share to someone else. This isn’t difficult, as there are countless buyers and sellers in the market. You will be able to sell the share at the trading price which is displayed online and often changing.

The trading price of a stock represents the value that you are able to buy or sell at. When selling the stock, the amount of money you receive will be equal to the trading price of the stock, minus taxes.

However, not all stocks will go up in value. If the company loses money, and the public believes that it won’t do well in the future, the trading price will decrease. If you own stock in a company whose trading price decreases, you have two options — you can either sell or hold the stock.

• If you sell: You will lose money, as the value you bought the stock for is higher than the value sold for. However, you might be able to avoid losing more money in the long run.
• If you hold: The stock may go back up in price and you could still potentially gain money. However, the price could also continue to decrease, meaning that when you eventually do sell the stock you might be losing even more money.

As you’ve probably already noticed, investing is tough! However, the upside is much greater than the downside, especially if you have time to let your stocks grow. If you choose to start investing, you should speak with your parents and be sure to have a strategy before spending any money.

5b) Mutual funds

Firstly, a “portfolio” is essentially a basket of investments like stocks, bonds, and other assets. Any investments within these baskets are called securities. If you invest money into multiple sources, you are owning a portfolio with different securities.

A mutual fund is essentially a giant portfolio managed by a professional investor who takes money from many different people and tries to invest in the right balance of securities for their client’s needs.

Mutual funds charge an annual fee for ownership, as your money will be actively managed by a team of investors. Any increases in the value of a mutual fund portfolio will be given back each year in the form of a distribution, which equals the fund’s total gains minus the fees.

The benefits of mutual funds lie in their diversification (see requirement 4.4). While you can lose a lot of money if you own a stock and it falls in value, since a mutual fund is a large portfolio, any sudden changes in the price of a stock within the mutual fund won’t have too significant an effect on your overall investment.

I’m going to be transparent in saying that I don’t personally like mutual funds. Studies have shown that index funds (unmanaged baskets of stocks that mirror the performance of markets/industries) have greater returns the mutual funds, without unnecessarily high fees.

I’d recommend you do your own due diligence, so if you’re interested in looking further into investing in indexes or mutual funds, this NerdWallet article is a good place to start!

5c) Life insurance

Like all other topics here, life insurance is a pretty complex subject. To put it simply though, life insurance will provide security to immediate family members who depend on the income of the deceased upon the insured person’s death. 

Having life insurance means that if you one day have a spouse and children, and somehow die unexpectedly, your life insurance will make sure that they’re taken care of financially.

Life insurance can be considered an investment, as it will allow you to spend most of your money in retirement with peace of mind that you’ll be able to pay for your funeral, as well as provide for your dependents even in death.

While the idea of needing to use your insurance isn’t too fun to think about, it’s an important part of future planning. Life insurance can be purchased in 2 ways: term or whole life insurance.

• Term insurance: Most often lasting 20 or 30 years, term insurance usually can cost around $200-$600 per year and is based on your age, the amount insured, as well as other risk factors. If you were to die within this time, your family would receive a sum of money between $250,000 and $500,000 depending on the policy you’ve chosen.
• Whole life insurance: This is much more expensive than term insurance, and must be paid each year for the entirety of your life. Average costs range anywhere from $2500-$8000 per year. The premium (annual amount paid), however, will remain the same even as you get older. 

5d) A certificate of deposit (CD)

CDs are one of the safest investments and involve depositing a lump sum into a bank or credit union that cannot be withdrawn for a long period of time. In exchange, you are guaranteed a high-interest rate that remains fixed for the entire period.

When buying a CD, there are two main things you need to keep in mind:

1. Interest rate: Interest rates could vary substantially between different CDs. As you won’t be able to move your money for a long time, you should put some time into finding the CD with the highest interest rate.
2. Term: This is the amount of time you’re required to keep your money in the CD. Typically, CDs with longer terms tend to have higher interest rates.

The typical interest rate on a CD is around 2%, while the term generally lasts from 1 to 5 years. 

While a CD may be a good investment for saving money to purchase a house or any other long-term expenses, if you might need money in the short term, a CD will likely not be a good investment option for you. Note that if you try to withdraw your money early, you will incur large penalties. Additionally, your rate of return (and risk) are typically higher when investing in stocks.

5e) A savings account

In most banks, you will have the option of depositing money into two accounts: your checking or savings account. However, be warned — some banks limit the number of withdrawals you can make from your savings account to around six times per month.

A savings account also has a higher interest rate than a checking account and will differ from bank to bank. However, note that a bank or credit union can change its interest rates at any time without notice.

You should always have a savings account, as you will be able to quickly access your money if the need arises. This means that your money is liquid (able to be quickly converted into cash). In requirement 4, because you cannot withdraw money from a CD before the end of the term without penalty, money invested there is considered illiquid.

My recommendation is to keep enough money for around 3 to 6 months worth of expenses in a high-interest savings account. Outside of this safety net, you should be investing most of your extra income into a balanced portfolio aimed at growing your total asset value through compound interest over the long term.

Protip: While most savings accounts offered at banks have interest rates below 1%, some online savings accounts are FDIC insured and have interest rates above 2%. These are fantastic rates that are very similar to the high interest you’d get from a CD. This website does a good job of tracking the best online savings account interest rates.

5f) A U.S. savings bond

There are different types of US savings bonds. Most offer a fixed rate of interest over a fixed period of time. A bond is essentially a loan that you’re giving to the government, with the government promising to pay back your money at a maturity date (length of the term after buying a bond) with interest.

US savings bonds are one of the safest types of investments and are endorsed by the federal government. However, they do not earn as much interest as you would typically receive when investing in the stock market.

Bonds are pretty similar to CDs, aside from the fact that CDs are offered by banks and credit unions, while bonds are offered by the federal government. Bonds are better than CDs when interest rates are low. However, CDs are better than bonds when banks are offering higher interest rates.

Investors are able to buy and sell bonds prior to the maturity date (Can’t do with CD’s). If interest rates rise, then a bond purchased prior to the increased interest rate would be worth less than a bond purchased afterward. Basically, you should only buy a bond if you think that the bank’s interest rates will decrease in the future.

(Click here to visit part 2 of my guide to the Personal Management merit badge!)

Conclusion

Wow, I didn’t remember this merit badge having so many requirements. 6 hours of typing and counting… Congratulations though, you’ve just finished half of the entire Eagle-required Personal Management merit badge!! 🙂

My computer is starting to lag because this article has gotten waaaaay too long, so be sure to check out part 2 of this article to find the answers for requirements 6-10. You can get to the next section by clicking here!