Chapter 4 Financial Decisions and Planning Copyright 2007 Thomson South-Western

Meeting Wants and Needs Basic needs Other needs Wants An expensive car is a product that fills customers’ wants. PR Newswire PORSCHE CARS NORTH AMERICA, INC. 4-1 Resources and Choices Slide 2

Financial Resources Financial resources are money or other assets used to acquire goods and services Many people do not have enough resources to meet all their needs and wants People must decide how to use their scarce resources 4-1 Resources and Choices Slide 3

Personal Income and Expense Statement 4-1 Resources and Choices Slide 4

Personal Balance Sheet 4-1 Resources and Choices Slide 5

Making Financial Choices Buying decisions play an important part in managing your money A trade-off involves giving up a particular benefit or item to get another that you think is more desirable Opportunity cost is the benefit or item you give up (do not buy) 4-1 Resources and Choices Slide 6

Decision-Making Process Define the need or problem List options available Compare the options Make a decision Take action to apply the decision Reevaluate your choices after some time has passed 4-1 Resources and Choices Slide 7

Building Communications Skills Reading Vocabulary Reading is a basic communications skill Your vocabulary is the words you know and understand how to use Improving your vocabulary will help you better understand the material you read 4-1 Resources and Choices Slide 8

Purpose of Budgeting Budget A spending and saving plan Based on expected income and expenses Allows you to compare financial resources with financial needs A budget can be created using a spreadsheet. 4-2 Budgeting Slide 9

Building a Budget Estimate income Plan savings Estimate expenses Variable expenses Fixed expenses Eating at a fancy restaurant is entertainment, a variable expense. Balance the budget 4-2 Budgeting Slide 10

Personal Budget 4-2 Budgeting Slide 11

Budget Analysis Income, savings, and expenses will not be exactly as budgeted Differences between planned and actual amounts are called variances Favorable variances Unfavorable variances Looking at variances can help you budget better in the future 4-2 Budgeting Slide 12

Budget Variances Report 4-2 Budgeting Slide 13

Recordkeeping Methods Keeping good records will help you prepare better budgets Manual records Computerized records You can keep financial records on a handheld computer using programs such as Microsoft® Money. 4-2 Budgeting Slide 14

Technology Corner Internet Research The Internet can be used to research and compare products and prices Search engines allow you to search using keywords Search results provide links to Web pages Enter a word or term and click Search. Search 4-2 Budgeting Slide 15

Success Skills Dealing With Conflict Conflicts will occur sooner or later When faced with a conflict Take a time out to consider the situation State the problem briefly to show that you understand it Suggest talking later if the other person is angry Focus on the problem and be objective Be willing to compromise to reach a resolution 4-2 Budgeting Slide 16

Financial Planning A financial plan contains Personal goals Financial goals Steps to take for achieving goals A timeline for achieving goals 4-3 Personal Financial Planning Slide 17

One Goal in a Financial Plan 4-3 Personal Financial Planning Slide 18

Financial Planning Process Gather information  Personal income and expense statements Personal balance sheet Personal budget Current bank account statements Investment account statements Financial contracts Other documents related to your finances Checkbooks Insurance policies Current paycheck stub Tax returns Will Trusts 4-3 Personal Financial Planning Slide 19

Financial Planning Process Analyze information Review income and expenses Review your balance sheet Consider changing goals or spending habits Set goals Personal goals Financial goals 4-3 Personal Financial Planning Slide 20

Financial Planning Process Develop a timeline Consider how soon you want to achieve each goal Consider steps must you take to achieve each goal Implement and evaluate the plan Work toward achieving goals Review and adjust the plan at least once a year 4-3 Personal Financial Planning Slide 21

Focus on... Phishing Is a type of Internet scam You are asked by e-mail to provide personal information such as a bank account number Your data may be used to commit identity theft or other crimes To protect yourself, do not send personal data in reply to e-mails that appear to be from a bank or business 4-3 Personal Financial Planning Slide 22

Ethics A financial planner Financial Planners and Commission Earnings A financial planner Provides financial advice to individuals May also buy and sell products on commission Financial planners are unethical if they buy or sell products just to earn a commission Choose a financial planner you can trust to deal fairly 4-3 Personal Financial Planning Slide 23