Chapter 4 Financial Decisions and Planning

Slide 2 What Are Needs and Wants? 4-1 Resources and Choices Needs are things you must have. o Examples: food, clothing, shelter Financial resources are used to acquire goods and services. Wants are things people desire. o Examples: new cars, vacations, luxury items

Slide 3 How Are Income and Wealth Measured? 4-1 Resources and Choices Personal cash flow statement lists cash inflows and outflows. o Inflows = income o Outflows = expenses Personal net worth statement shows a person’s net worth based on assets and liabilities. o Assets = money or items of value o Liabilities = debts

Slide 4 How Is Wealth Measured? 4-1 Resources and Choices PERSONAL NET WORTH STATEMENT AssetsLiabilities Cash and checking account$ Car loan$1, Savings account500.00Credit card debt Savings bond300.00Total liabilities$1, Baseball card collection Computer, iPod, games Car, current value 3,000.00Net Worth Total assets$4,652.56Assets minus liabilities 3, Total liabilities and net worth $4, Net Worth

Slide 5 How Can You Make Good Financial Choices? 4-1 Resources and Choices Decision-Making Process 1.Define the need. 2.List options for meeting the need. 3.Compare the options. o Consider the opportunity cost—the value of your next best option. 4.Make a decision. 5.Take action based on your decision. 6.Reevaluate your choice.

Slide 6 Building Communications Skills Reading Vocabulary Try to learn the meaning of a word by seeing how it is used in a sentence. Divide a long word into parts. Look up a word in the dictionary. Look up a word in the glossary. Practice using new words in conversation or writing. 4-1 Resources and Choices

Slide 7 What Is the Purpose of Budgeting? A budget is a spending and saving plan. It is based on estimated income and expenses. Use spreadsheet software to prepare a budget. 4-2 Basics of Budgeting

Slide 8 How Do You Prepare a Budget? 4-2 Basics of Budgeting Step 1: Estimate income Step 2: Plan savings Step 3: Estimate expenses o Variable expenses o Fixed expenses o Charitable giving Step 4: Balance the budget

Slide 9 Personal Budget 4-2 Basics of Budgeting IncomeWeeklyMonthlyYearly Work (part-time)$30.00$120.00$1, Allowance for household chores Lunch money allowance Savings account interest Total income $55.50$222.00$2, Savings Deposit to savings account$ 5.50$ $ Expenses Gifts$ 5.00$ 20.00$ Clothes and shoes Loan payment to parents Lunches Entertainment/miscellaneous Total expenses$50.00$200.00$2, Total savings and expenses $55.50 $222.00$2,664.00

Slide 10 Focus On... Philanthropy Philanthropy is a form of charitable giving. It supports a societal cause. It often lasts for an extended period of time. It is the primary source of funding for the fine arts, performing arts, and most religious and humanitarian causes. 4-2 Basics of Budgeting

Slide 11 Success Skills Dealing With Conflict 4-2 Basics of Budgeting Stop and take a ten-second time out. o Ask “what is happening here?” o Listen rather than talk. Suggest that you continue your talk later. Focus on the problem, not the person. Be objective. Be willing to compromise when appropriate.

Slide 12 What Is Financial Planning? Financial planning is a process of looking at your current financial situation and thinking about your future. 4-3 Personal Financial Planning A financial plan has personal and financial goals along with steps and a timeline. Review and update your financial plan periodically.

Slide 13 What Is Financial Planning? Step 1: Gather financial information Step 2: Analyze information Step 3: Set goals o Personal and financial Step 4: Develop a timeline and benchmarks Step 5: Implement and evaluate the plan 4-3 Personal Financial Planning

Slide 14 Financial Plan (One Goal) 4-3 Personal Financial Planning FINANCIAL PLAN Net worth on April 1, 20--: $ Personal GoalFinancial GoalBenchmarksTimeline Live in my own house in the country. Buy a house in the country. 1.Save money for a down payment ($12,000) 5 years Set aside $200 per month Once per month Open a separate account for money saved April 8 (next week) Talk to a mortgage broker to get prepared Make an appointment for April 15 2.Get a job that provides enough income to make monthly payments 2 years

Slide 15 Where Can You Get Good Financial Advice? 4-3 Personal Financial Planning Financial planners Financial experts Newspapers and magazines Seminars and workshops Financial websites

Slide 16 How Can You Protect Financial Resources? 4-3 Personal Financial Planning Deal only with financial advisers you know and trust. Keep good records. Verify account balances regularly. Guard passwords. Be aware of phishing. Guard against identity theft.