Chapter 12 Money Management Strategies

Do Now  How do you organize your “stuff”?  Schoolwork?  Afterschool activities?  Personal Belongings?

Chapter 12 Overview  Explores the relationship between opportunity costs and money management.  Learn the benefits of keeping financial records  Develop a system to store financial records  Compile a Cash Flow Statement & a Balance Sheet  Create a sound budget

Review  What do we mean by opportunity costs ?  What is given up when we make one choice over another.  Examples  What does Money Management mean to you?

Textbook  Page 347 Read The BIG Idea Good money management will help you achieve your financial goals

Section 1—Opportunity Costs & Money Management Read page 349 aloud Money Management: Day-to-day financial activities necessary to get the most from your money. Do you buy something today or save to spend later? What are the trade offs you make when you spend now?

Organizing Your Financial Documents  How do you organize your school papers?  What are personal financial documents ?  Pay stubs  Bank statements  Credit card statements  Car titles  Social Security number  Birth and marriage certificates  Tax forms

Where should you keep your documents?  Fireproof file cabinet  Safe deposit box  On your computer

What types of documents can be kept at home?  Employment records  Budget & Balance sheet  Checkbook, Bank statement  Tax records  Receipts & warranties  House records  Improvement receipts  Insurance papers  Copy of Will  Copy of passport

Safe deposit box  Original documents  Birth and marriage certificates  Mortage papers  Loan agreements  Leases  Bonds & Stocks  CDs  Valuable collectibles  Fine Jewelry  Pictures of home and belongings

Computer  Passwords  Electronic banking records  Budget

Thursday Do Now 1. How are opportunity costs or tradeoffs and money management related? 2. Why is it important to keep and maintain financial records and documents? 3. What is an effective system for maintaining personal financial documents?

1. Money Management is getting the most out of your money. Make sound decisions regarding trade-offs, selecting the option that is financially beneficial.

2. Keeping and maintaining financial records helps you to plan and measure your financial progress, determine how much you will have now and in the future and decide how to save money.

3. 1. Include a home file for personal documents that are not hard to replace 2. A safe deposit box for important hard to replace documents 3. A home computer for budgets, transactions and resumes

Section 2 Personal Financial Statements page 361 Define the following Terms: 1. Personal Financial Statement 2. Personal Balance Sheet 3. Net Worth 4. Assets 5. Wealth 6. Liquid Assets 7. Real Estate 8. Long term asset 9. Short Term asset 10. Fixed expenses 11. Market Value 12. Liabilities 13. I nsolvency 14. Cash Flow 15. Income 16. Take home pay 17. Discretionary income 18. Deficit 19. Surplus 20. Budget 21. Budget Variance 22. Cash Flow Statement 23. Variable expenses

Personal Financial Statements Balance Sheets aka Net Worth Statement Shows what you own and owe Assets  Liquid  Real Estate  Personal Possessions,  Investments Liabilities  Current, Long term Net Worth Cash Flow Statement Income  Salary  Gifts  Income from investment Expenses  Fixed  Variable Total Cash Flow ++++

Textbook Page Example of a Personal Balance Sheet Activity: Complete a Personal Balance Sheet for Mike

Mike’s Info 1. Open Excel 2. Create a Personal Balance Sheet using the following informationfollowing information 3. Create a Cash Flow Statement

Wednesday  Textbook: page 359 Cash Flow  Complete:  Mike’s Cash Flow Statement  Suzy’s Cash Flow Statement  Amy’s Cash Flow Statement  Textbook, page 362  Review Key Concepts

Key Concepts  What is a personal balance sheet?  What is a cash flow statement?  How is a cash flow statement created? How is a personal balance sheet created?  What are the components of each?

Budget  Define Terms  Textbook page 363  What is a budget?  What do you budget for?  What makes a good budget?  What are some strategies that help you increase your savings?

Money Management Review  What is the difference between a fixed expense and a variable expense?  A fixed expense remains the same regardless of the activity.  A variable expense varies or changes depending on the activity. Ex. A credit card charge.

Where should you store and organize financial documents?  Financial documents should be stored in one of three places depending upon the item. 1. File Cabinet—easily accessible items, things that can be easily replaced, things you need to refer to 2. Computer-- 3. Safe Deposit Box—Items that would be hard to replace such as deeds to the house, wills, birth certificates.

Four types of Assets a Person Can Own  Liquid Assets such as cash, savings, and checking accounts  Personal Possessions such as cars, baseball card collections  Real Estate—homes and land  Investments such as stocks, bonds, retirement funds such as 401K contributions

Surplus vs. Deficit  Surplus—extra money that can be spent or saved depending on financial goals and values  Deficit—when a person spends more than she/he earns or receives

7 Steps to Preparing a Budget 1. Set Your financial goals 2. Estimate Your Income 3. Budget for the unexpected expenses and savings 4. Budget for Fixed expenses 5. Budget for Variable expenses 6. Record what you spend 7. Review spending and savings patterns