Money Management and Financial Planning Chapter 16 Money Management and Financial Planning Chapter 16 Lesson Plans, Day 1 Warm-Up: have students complete the What K-W-L organizer (just the K-W) STUDENTS NEED TO BRING IN A POSTER BOARD BY Watch Theo’s holiday (about 25 minutes) Hand out chapter 16 study guide

Personal Financial Statements Money Management Day-to-day financial activities associated with using limited income to satisfy your unlimited needs and wants Ask students to think of things they have to pay for now on their own? Now ask students to think of things they will have to pay for after they graduate from high school or college and are not living with parents. Ask students if anyone actually tracks what they spend.

Wise Money Manager Planning for saving and spending Set goals Use the 5 S’s Live within your income Go through the characteristics of a wise money manager: Always PAY YOURSELF FIRST – Save!!!!! Plan your spending and savings – write it out or put it in a computer file Set financial goals so you can plan your spending and saving to achieve it – (give examples) When you are shopping (especially for bigger ticket items) go through the 5’s (ask students to recite and recall what the five s’s are: Specify, Search, Sift, Select, Study) Do not spend more than you make – or you will be in debt

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. You may want to create a personal balance sheet so you can see what items of value you have and what you owe. If you look at page 399 you can see an example of a personal balance sheet. Assets are the things that you own (things of value) and Liabilities are the things that you owe (debt/bills)

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. To determine your net worth you take your assets minus your liabilities – You want your assets to be more than your liabilities…if not, you might have a problem.

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 You may also want to create a cash flow statement to see where your money is going this will show your total wages and all your expenses. Look at page 401 for an example What are common inflows (income, interest) What are common outflows? (food, clothing, transportation, other living expenses) In groups of 4 to 5 have students do the Work as a Group on page 400 (one paper per group) – Give 10 minutes – Have students share their ideas with whole group When finished have students answer #3 page 401 (remind students that Assets – Liabilities = Net worth) Pass out the spending diary – students will record spending for one week and fill in the worksheet

Personal Financial Statements Budget A plan for dividing up your income among spending and saving Have students tell you some of their goals. Go thru the list and ask how long it would take to achieve each of the goals. Many of us have had frustration of setting a goal, but not achieving it. Often the failure is due to having a long term goal, but no short term steps to get there. Use the example of prom (in April want to save $100 on dress/ lose 10 lbs.) We can set financial goals just like other goals in our lives. It is easier to achieve financial goals when we have a budget set to achieve the goals.

Budgeting Activities Live within your income Achieve your financial goals Buy wisely Avoid credit problems Plan for financial emergencies Develop good financial management skills Living within your income means you do not spend more than you make…once you have financial goals (such as buying a car) then you can begin a budget to help you achieve your goal; buy wisely…use the 5 S’s; avoiding credit problems again means living within your income. If you use credit (credit cards, loans, etc) make sure you can pay them back. Credit cards should be paid in full every month. Everyone should have money saved for an emergency – for example your heater goes out in the middle of winter and you need a new one; if you have an emergency savings, then it is no big deal; if you do not then you may have a problem; Also what if you lose your job…if you do not have some emergency savings it may be difficult to pay the bills during the time you have no income; To develop good financial management skills, learn how to budget and stick with it. Know what triggers you to spend money and avoid those situations; Always know your balances in your bank accounts and credit accounts; check your credit once a year; Try not to be an impulsive buyer.

Warm-Up Name four of your own financial goals. Use complete sentences OR Use the Goals Packet for the warm-up

The Budget Process Set Financial Goals Plan Budget Categories Maintain Financial Records Evaluate your Budget Lets look at a sample budget You need to have some financial goals…you should have some now – what are they? What do I mean by budget categories? What could be some examples? (utilities, income, savings, car payment, college savings) How can you maintain financial records? Keep receipts and put information into a budget worksheet What does it mean to evaluate your budget? (look it over see if you are spending less than you are making; adjust categories) Show an example of a monthly budget. (see excel file)

Amounts you have already committed to spend. Fixed Expenses Amounts you have already committed to spend. Example: rent, property taxes, mortgage, insurance

Amounts you can choose to spend or not to spend 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? Note are in My documents: Intro to Business/Ch_16 slides (#13) Have students answer on a separate sheet of paper. Pass back any study guides collected

Budget Worksheet Categories Savings Food Clothing Household (rent, mortgage, taxes, insurance) Transportation Savings should always be first…Pay yourself first!!!! Other common categories are: food – this could include groceries and going out or you could put going out to eat as entertainment Transportation could also include car payments or gas for cars

Budget Worksheet Categories Health and personal care Recreation and education Gifts and contributions Any doctors visits or getting your hair cut would be considered health or personal care Recreation is also entertainment Anytime you give to charity

Successful Budgets Realistic Flexible Evaluated regularly Well planned and clearly communicated Simple format Budgets should reflect current income and planned spending When unexpected expenses arise, your spending plan should be able to adapt for these living costs. Every few months evaluate the budget to determine whether it is still appropriate – for example since gas prices have gone up you may need to adjust more expense for transportation and take it from another category… All family members should discuss financial goals, wants and needs and plans for spending – if you want to go to college and so does your little brother, mom and dad will need to talk with everyone in the family to help each of you reach these goals If the budget is too detailed and difficult to understand, family members may not be willing to use the spending plan.

Financial Plan Summary of your financial condition Sets a direction for your future financial activities This plan acknowledges your financial needs and sets a direction for your future financial activities This should be developed carefully and evaluated and updated frequently… Do the goals packet Have students come up with at least three goals for each category (follow the directions for the rest) When finished – hand out the financial goals poster assignment They will need to identify 6 financial goals (something they will need to spend money on) first they must write the six on their rubric and it must be approved (things like a certain job or have a lot of money are not financial goals – these will help reach the goals) some examples are: college, car, clothes, home, retirement, etc. They can use the computer to get pictures or magazines; if they use the computer they have to share. This will be due: Thursday, May 20th

Warm-Up # 6 page 417 Chapter 16 lesson plans day Have students answer the warm-up on a separate sheet of paper Pass back study guides

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 Systematic means more routine

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

Should be kept in a personal financial filing system that is: Financial Records Should be kept in a personal financial filing system that is: organized complete easy to find Do a practice budget together…(see sample Excel Spreadsheet) Hand out the Budget worksheet 1 – have students complete this and turn it in

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 Explain that both the disability and the unemployment insurance can be purchased from insurance companies; also explain that the provided payments will equal 60% or less of the salary an employee made before becoming disabled or unemployed

Sources of income during retirement Social Security Pensions Retirement Accounts Annuities Amount from an insurance policy paid to the depositor END OF NOTES Hand out Budget worksheet 1 – go through this as a class When finished (have students keep); give time for students to work on Financial Goals poster

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 worksheet Estimate your income Estimate saving/expense Record actual income/expense Calculate the difference

Why People Don’t Do Budgets Get too specific Don’t predict correct flexible expenses Too much miscellaneous Takes 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 Expenses Savings

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.

Trade-offs must be made Compromise Your spending effects others. Family Budget Work together Trade-offs must be made Compromise Your spending effects others.

Warm-Up What are the main purposes of a budget? Answer in a minimum of 3 complete sentences. Chapter 16 lesson plans, day 2

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)