Chapter 16

Money Management and Financial Planning

Personal Financial Statements

Money Management– Day-to-day financial activities associated with

using limited income to satisfy your unlimited needs and wants

Wise Money Manager

Planning for saving and spending Set goals Use the 5 S’s Live within your income

Personal Balance Sheet

Record of assets and liabilities for a point in time– Assets

• Things that you own– Money, furniture, cars, etc.

– Liabilities• Things that you owe

– Credit card balances, car loan, etc.

Net Worth

ASSETS – LIABILITIES– Only a net worth if your assets are more than

your liabilities– Your value of what you own is more than what

you owe.

Cash Flow

Statement– Reports net wages and other income along with

spending for a period of time• Cash inflows – money available to spend from

income

• Cash outflows – money you spend for living expenses and such

Personal Financial Statements

Budget –A plan for dividing up your

income among spending and saving

Budgeting Activities

Live within your income Achieve your financial goals Buy wisely Avoid credit problems Plan for financial emergencies Develop good financial management skills

Warm-Up

Name four of your own financial goals.– Use complete sentences

The Budget Process

Set Financial Goals Plan Budget Categories Maintain Financial Records Evaluate your Budget

– Lets look at a sample budget

Fixed Expenses

Amounts you have already committed to spend.–Example: rent, property taxes,

mortgage, insurance

Variable Expenses

Amounts you can choose to spend or not to spend–Example: clothes, CD’s,

eating out, movies

Warm-Up

Make a list of items you buy regularly. How might you start spending less on these items?

Budget Worksheet Categories

Savings Food Clothing Household (rent, mortgage, taxes,

insurance) Transportation

Budget Worksheet Categories

Health and personal care Recreation and education Gifts and contributions

Successful Budgets

Realistic Flexible Evaluated regularly Well planned and clearly communicated Simple format

Financial Plan

Summary of your financial condition– Sets a direction for your future financial

activities

Warm-Up

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Advantages to a Financial Plan

Financial uncertainties will be reduced Gain control over your financial activities Household members will know more about

financial situations Earning, spending, protecting, and saving

your resources will be more systematic

Steps for financial planning

Analyze your current financial condition Develop financial goals Create your financial plan Implement the plan Revise your financial plan

Financial Records

Should be kept in a personal financial filing system that is:–organized

–complete

–easy to find

Insurance to consider

Disability Income Insurance– Pays a portion of income if you become temporarily

or permanently disabled• Employer paid• Social Security Disability

Unemployment Income Insurance– Pays a portion of income if you become unemployed

• Employer pd – but only a minimum amount• Buy insurance policy from private companies

Sources of income during retirement

Social Security Pensions Retirement Accounts Annuities

– Amount from an insurance policy paid to the depositor

Your Financial Self

Knowing your financial self is important so you can control your spending to reach your financial goals.

Luxury Goods

Goods that have special qualities that make them more expensive than alternative goods.–Ex: sports car, Tommy jeans

6.3 Budget Worksheet

A planning document on which your record your expected and actual income and spending over a short time.

5 Steps to Create

Create a worksheetEstimate your incomeEstimate saving/expenseRecord actual income/expenseCalculate the difference

Why People Don’t Do Budgets

Get too specificDon’t predict correct flexible

expensesToo much miscellaneousTakes too much time

6.4 Create Budget

Completed budget worksheets tell you how to divide your income among spending and saving to reach your goals.

Prepare Several Worksheets

To see how different choices would work out

You can choose what you want most.

2 Uses of Income

ExpensesSavings

Achieve Long-Term Goals

Include your goals at the top of your budget.

This will help you stick to your budget to reach your goals.

Family Budget

Work togetherTrade-offs must be madeCompromiseYour spending effects

others.

Warm-Up

What are the main purposes of a budget?– Answer in a minimum of 3 complete sentences.

Warm-Up

Why do you think most people don’t budget? (minimum of three sentences)

Warm-Up

Why is it important to discuss your budget with all members of the family.

(minimum of three sentences)