Financial Decisions and Planning

Slide 3 * Needs are things you must have. * Examples: food, clothing, shelter * Wants are things people desire. * Examples: new cars, vacations, luxury items * Financial resources are used to acquire goods and services.

Slide 4 * 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

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, Net Worth Total assets$4,652.56Assets minus liabilities 3, Total liabilities and net worth $4, Net Worth

Slide 8 * Decision-Making Process 1. Define the need. 2. List options for meeting the need. 3. Compare the options. 1. 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. 4-1 Resources and Choices

* Should be forward-looking * Consider the opportunity cost * When in doubt do not make the purchase * DO NOT MAKE SNAP DECISIONS * Be Realistic * Read all the financial agreements * Learn from your mistakes!

Slide 10 * 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 11 * Step 1: Estimate income * Step 2: Plan savings * Step 3: Estimate expenses * Variable expenses * Fixed expenses * Charitable giving * Step 4: Balance the 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 14 * Financial planning is a process of looking at your current financial situation and thinking about your future. * A financial plan has personal and financial goals along with steps and a timeline. * Review and update your financial plan periodically. 4-3 Personal Financial Planning

Slide 15 * Step 1: Gather financial information * Step 2: Analyze information * Step 3: Set goals * Personal and financial * Step 4: Develop a timeline and benchmarks * Step 5: Implement and evaluate the plan

Slide 16 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 Get a job that provides enough income to make monthly payments 2 years

Slide 18 * Financial planners * Financial experts * Newspapers and magazines * Seminars and workshops * Financial websites 4-3 Personal Financial Planning

Slide 19 * 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. 4-3 Personal Financial Planning