Chapter © 2010 South-Western, Cengage Learning Budgets and Financial Records Budgeting and Planning Legal Agreements and Record Keeping 8

© 2010 South-Western, Cengage Learning SLIDE 2 Chapter 8 Learning Target: Explain the purpose/benefits of understanding and utilizing financial planning. Create a personal budget.

© 2010 South-Western, Cengage Learning SLIDE 3 Chapter 8 Financial Planning Basics Helps us…. Plan Budget Keeping good records A financial plan is a set of goals for spending, saving, and investing the money your receive.

© 2010 South-Western, Cengage Learning What is a Budget? A list (typed or written) of what you will or expect to spend your money on A tool utilized to help individuals stay out of financial trouble Something everyone should create, monitor and update for themselves on a monthly basis

© 2010 South-Western, Cengage Learning What does a Budget compare? INCOME EXPENSES (Fixed – Variable) Giving us a “MONTHLY TOTAL”

© 2010 South-Western, Cengage Learning SLIDE 6 Chapter 8 Monthly Budget Fixed expenses are costs that do not change from month to month. Variable expenses are costs that vary in amount and type, depending on the choices you make.

© 2010 South-Western, Cengage Learning SLIDE 7 Chapter 8 Getting Started Income = money coming “IN” Gross Income Net Income Disposable income $ you don’t have “earmarked” Money Going “OUT” Expenses = money going “OUT” Bills or Financial Obligations

© 2010 South-Western, Cengage Learning SLIDE 8 Chapter 8 Preparing a Budget A budget is a spending and saving plan based on your expected income and expenses. PROS Helps you plan Helps you save money Less Stress Keeps you organized CONS Takes Time

© 2010 South-Western, Cengage Learning SLIDE 9 Chapter 8 Steps in Preparing a Budget 1.Estimate your income. 2.Estimate your expenses. 3.Decide how much to save. 4.Select your budgeting tool. 5.Balance your budget.

© 2010 South-Western, Cengage Learning SLIDE 10 Chapter 8 Evan Anderson—Budget for September IncomeExpenses Part-time job$320Daily lunches$ 80 Allowance20Supplies20 Birthday gift40Clothes40 Total Income$380Entertainment140 Total expenses$280 Savings Credit union account$100 Total expenses plus savings $380 Simple Budget The budget balances.

© 2010 South-Western, Cengage Learning SLIDE 11 Chapter 8 Anisa Newkirk January 1, 20— AssetsLiabilities Checking account$500Loan on car$1,800 Savings account800Loan from parents100 Car value3,000Total liabilities$1,900 Personal property5,000Net Worth Total assets$9,300Assets minus liabilities$7,400 Total liabilities and net worth$9,300 Net Worth Statement These two numbers must be the same.

© 2010 South-Western, Cengage Learning SLIDE 12 Chapter 8 Personal Records Good personal records makes budgeting and long- range planning easier. Your records also make it easier to prepare income tax returns, credit applications, and other financial forms. You should keep five types of personal records: Income and expenses records Net worth statement Personal property inventory Tax records Other miscellaneous documents

© 2010 South-Western, Cengage Learning SLIDE 13 Chapter 8 Income and Expenses Records Examples of income records W-2 forms Statements from banks Statements from investment companies Examples of income records Receipts listing charitable contributions Medical bills Receipts for work-related expenses

© 2010 South-Western, Cengage Learning SLIDE 14 Chapter 8 Net Worth Statement A net worth statement shows a person’s net worth based on his or her assets and liabilities. Assets are items of value that a person owns. Money or debts you owe to others are called liabilities. When you subtract your liabilities from your assets, the difference is known as net worth. Assets – Liabilities = Net worth

© 2010 South-Western, Cengage Learning SLIDE 15 Chapter 8 Personal Property Inventory A personal property inventory is a list of the valuable items you own, along with their purchase prices and approximate current values. Vehicle Camper/Boat Bike Clothing Furniture Appliances Lawnmower Tools Keepsakes

© 2010 South-Western, Cengage Learning SLIDE 16 Chapter 8 Personal Property Inventory Anisa Newkirk: January 2, 20— Item Year Purchased Purchase Price Approximate Current Value Sphinx XTL DVD Player with big-screen TV2008$ 3,200$1,300 Bedroom furniture (bed, dresser, lamp, clock)20062,0001,200 Clothing, jewelry , MBD motor bike20051,8001,000 CD collection, CD burner, digital camera, scanner20062,0001,000 $12,000$5,000 (continued)

© 2010 South-Western, Cengage Learning SLIDE 17 Chapter 8 Tax Records All taxpayers should keep copies of their tax records for at least three years after they file their tax return. Tax records Tax Return itself W-2 forms Any receipts verifying income and expenses that was listed on the tax return. NOTE - Keep your tax records in a safe place in case of an audit.

© 2010 South-Western, Cengage Learning SLIDE 18 Chapter 8 Other Miscellaneous Documents Lists of credit card numbers Car titles Insurance policies Birth certificates Marriage certificates Passports

© 2010 South-Western, Cengage Learning SLIDE 19 Chapter 8 Personal Record Keeping As you begin to accumulate financial records and legal documents, you should have a good filing system. A filing system allows you to: Organize Store Retrieve

© 2010 South-Western, Cengage Learning SLIDE 20 Chapter 8 Paper Filing System Folders Labels File cabinet

© 2010 South-Western, Cengage Learning SLIDE 21 Chapter 8 Electronic Record Keeping The advantages of computerized systems include the following: Ease of updating information Ease of record storage and retrieval Speed of making new computations and comparisons

© 2010 South-Western, Cengage Learning SLIDE 22 Chapter 8 Software Programs Many software programs can help you keep better records. A spreadsheet is a computer program that organizes data in columns and rows and can perform calculations using the data. A database is a computer program that organizes data for easy search and retrieval.