2. Personal Financial Planning2
Personal Financial Planning

3. Personal Financial Landscape
2.1
Personal Financial Landscape

4. Objectives Identify steps to develop a budget based on personal goals
Explain how to create personal financial statements
Discuss the benefits of creating a good recordkeeping system for financial documents
Describe how money management software can assist in financial planning

5. Key Terms life span nature of financial planning budget spreadsheet
income
expense
fixed expense
variable expense
discretionary expense
pay yourself first
wealth
emergency fund
charity

6. Key Terms social responsibility data analysis discretionary income
cash flow statement
net worth
asset
liability
net worth statement
liquidity
record keeping
legal document
money management software

7. Essential Question
Why is it important to create and maintain a budget?

8. Budgets A life span is the time between birth and death
The nature of financial planning is the development of a strategy to meet a person’s financial needs over the course of his or her lifetime
Developing a financial plan begins with creating a budget

9. Budgets (Continued)
A budget is a plan for the use of money over time based on goals, expenses, and expected income
Budgets help us make the most of our money and avoid financial problems

10. Budgets (Continued)
A spreadsheet is a software program that formats data in columns and rows and can perform calculations
Spreadsheets can help us to calculate and analyze our financial information

11. Budgets (Continued) Step 1: Establish Financial Goals
Short-term goals may take days, weeks, or months to achieve
Medium-term goals may take one to three years to achieve
Long-term goals may take several years to achieve

12. Budgets (Continued)

13. Budgets (Continued) Step 2: Estimate and Total Your Income
Determine your budget period depending on when you receive most of your income
Income is any form of money received
allowance
paycheck
gifts
gains from an investment

14. Budgets (Continued) Step 3: Estimate and Total Your Expenses
An expense is the cost of goods and services purchased
Expenses are generally fixed or variable

15. Budgets (Continued)
A fixed expense is a set amount that must be paid each budget period
rent
mortgage payments
insurance premiums
loan payments

16. Budgets (Continued)
A variable expense is a cost that changes both in the amount and time it must be paid
food
clothing
entertainment

17. Budgets (Continued)
Variable expenses may be necessary or discretionary
A discretionary expense is an amount spent for an item that a person could do without
Food is a necessary item, but an expensive restaurant dinner is a discretionary expense

18. Budgets (Continued)

19. Budgets (Continued) Budgeting for savings
Pay yourself first is a personal financial strategy that can help you save money
Wealth means an abundance of money and other assets
An emergency fund is an amount of money that can be easily accessed in case of a job layoff, illness, or unexpected expense
Include savings as fixed expense in your budget

20. Budgets (Continued) Charitable giving as an expense
A charity usually refers to an organization that aids those in need, such as the homeless or victims of natural disasters
A charitable contribution is a donation of money, gifts, or personal time

21. Budgets (Continued) Benefits of charitable giving
Tax deduction if it meets standards set by the IRS
Social responsibility is behaving with sensitivity to social, environmental, and economic issues
Philanthropy is giving money, goods, or services to meet the needs of others and supporting organizations and causes that are important to an individual

22. Budgets (Continued) Step 4: Analyze Estimated Income and Expenses
Data analysis is the process of studying data with the goal of discovering new information that can help with making decisions
Analyze your estimated income and expenses in order to evaluate your budget

23. Budgets (Continued)
Do your total estimated expenses equal your total estimated income?
Do you have money left over?
Do you need to find ways to increase income?
Do you need to find ways to reduce spending?

24. Budgets (Continued) Step 5: Analyze Actual Income and Expenses
A variance is the difference between the budgeted amount and the actual amount
Compare your actual income and expenses in your budget to find the variance
Adjust your budget to reflect actual income and spending

25. Budgets (Continued)
Goodheart-Willcox Publisher

26. Budgets (Continued)
Discretionary income is the money that remains after a person has paid all expenses
Also known as disposable income
Discretionary income can be saved, invested, and/or spent
A budget will change with significant life events

27. Budgets (Continued)

28. Personal Financial Statements
A cash flow statement is a summary of the amount of money received and the amount paid for goods and services during a specific period
Prepared at the end of the budget period
Shows real income and spending, not what was planned

29. Personal Financial Statements (Continued)

30. Personal Financial Statements (Continued)
Use an income and expense log (personal spending diary) to record actual amounts of
Income is called cash inflow
Expenses are called cash outflow
At the end of the budget period, you can prepare the next month’s budget more quickly and accurately

31. Personal Financial Statements (Continued)

32. Personal Financial Statements (Continued)
Net worth is the difference between what is owned and what is owed
An asset is an item of value that is owned
cash
stocks and bonds
real estate
personal possessions
A liability is a current or future financial obligation

33. Personal Financial Statements (Continued)

34. Personal Financial Statements (Continued)
Assets are divided into two categories on a net worth statement
Current assets include cash and savings that can be converted to cash quickly and easily
Also called liquid assets
Liquidity is the ease with which an asset can be converted into cash without losing value
Fixed assets include investments for long-term goals, homes, autos, personal possessions, and durable goods

35. Personal Financial Statements (Continued)
Assets tend to change in value from year to year
Assets should be listed at their current or market value at the time the statement is made

36. Personal Financial Statements (Continued)
Liabilities are divided into two categories on a net worth statement
Current liabilities are items due soon, usually within the year
Long-term liabilities include obligations to be paid over a long period of time

37. Personal Financial Statements (Continued)
Total Assets – Total Liabilities = Net Worth
If you own more than you owe, you have a positive net worth
If you owe more than you own, you have a negative net worth and need to reduce expenses and/or increase income

38. Recordkeeping
Recordkeeping is the process of setting up an organized system for important documents
Important part of money management
System should be simple, convenient, and secure

39. Recordkeeping (Continued)
Financial records to keep include:
bank account information
credit and charge account information
PINs and passwords

40. Recordkeeping (Continued)
Income records to keep include:
paycheck records
interest records
dividend records
cash gifts, tips, and bonus amounts

41. Recordkeeping (Continued)
Spending records to keep include:
bank statements
checkbook registers
receipts from purchases and bills paid
statements from credit accounts
receipts for big purchases

42. Recordkeeping (Continued)
A legal document is a paper that can be filed with a court officer or used to uphold an agreement in a court of law
marriage certificate
auto loan paperwork
mortgage
credit card agreement

43. Recordkeeping (Continued)
Documents to keep in a secure place include:
personal information
savings and investment information
tax records
estate planning documents
valuable property inventories

44. Money Management Software
Money management software is a computer program used to organize daily finances and keep track of income, spending, saving, debts, investments, and other financial data
It allows us to analyze data related to our finances

45. Money Management Software (Continued)
Money management software allows users to:
create budgets
evaluate spending patterns
track goals
use online banking services
manage investment accounts
prepare financial documents
prepare and file income tax returns

46. Section 2.1 Review
When establishing a budget, what types of expenses should be tracked?
A budget should track fixed expenses, variable expenses, and discretionary expenses.

47. Section 2.1 Review (Continued)
List examples of benefits of charitable giving.
One benefit of making charitable contributions is a tax deduction on an individual’s income tax return. Another benefit of charitable giving is the feeling of fulfilling social responsibility. Being socially responsible, or philanthropic, is also known to make individuals feel happier and relieve stress.

48. Section 2.1 Review (Continued)
List two examples of personal financial statements.
Cash flow statements and net worth statements are both examples of personal financial statements.

49. Section 2.1 Review (Continued)
Why should an individual create a record keeping system for personal documents?
Well-ordered records can help keep individuals within their budget and make adjustments as needed. It is helpful to keep money management records over a period of time so individuals can review their current financial situation, evaluate their progress, and plan for their future.

50. Section 2.1 Review (Continued)
What are some tasks that can be performed using money management software?
Computer programs can be used to organize daily finances and keep track of income, spending, saving, debts, investments, and other financial data.

51. Young Adult and Family Finances
2.2
Young Adult and Family Finances

52. Objectives
Identify financial tasks that young adults must learn to address
Analyze how the family life cycle influences financial decisions
List ways to avoid financial problems

53. Key Terms
family life cycle
personal financial crisis

54. Essential Question
What type of financial decisions will you have to make when you start living on your own?

55. On Your Own
Young adults who are newly independent will face many new financial responsibilities
Planning the use of income to cover expenses will take on new meaning and importance

56. On Your Own (Continued)
Independent young adults will need to assume financial tasks
managing household expenses
paying bills on time
saving and investing for your future
protecting against financial losses
computing and paying taxes

57. Family Life Cycle
The family life cycle consists of the stages a family passes through over its lifetime
The five stages of the family life cycle are:
beginning
expanding
developing
launching
aging

58. Family Life Cycle (Continued)
Variations in the life cycle are patterns that differ from typical families
The number of children and spacing between them can cause the cycle to vary from family to family
Some families skip, overlap, or repeat stages of the family life cycle

59. Family Life Cycle (Continued)
Singles and childless couples do not have expenses related to raising children, such as school and medical expenses
Both groups may spend more on travel, leisure, charitable causes, and other extras
Both groups often feel a greater responsibility to help their aging parents

60. Family Life Cycle (Continued)
Single-parent families
Females lead most with income typically less than male-led single families and two-parent families
Saving and planning for the future can be difficult as families struggle to meet current expenses
Government and community services and assistance can be very helpful for these families

61. Family Life Cycle (Continued)
Separated and divorced individuals face a unique set of financial concerns and may have the following expenses:
Legal fees and property settlement costs
Alimony and/or child support
A separate home, additional furnishings, and moving costs

62. Personal Financial Problems
A personal financial crisis is a major problem that changes a person’s or family’s lifestyle and future
job loss
divorce
death
disability
serious illness
natural disasters

63. Personal Financial Problems (Continued)
Handling financial problems
Start by discussing the problem with adult members of the household, including older children
Make sure that everyone understands the potential impact on their standard of living and what they can do to help
Make a list of financial and nonfinancial resources available

64. Personal Financial Problems (Continued)
Preventive measures help people and families avoid financial problems altogether
Emergency fund with 8 to 10 months’ income
Sound money management
Practical credit controls
Regular savings
Insurance protection
Reasonable caution in financial matters
Regular family money management discussions

65. Personal Financial Problems (Continued)
Avoid financial trouble by:
living within your means
controlling debt
taking responsibility for your financial choices
preparing to weather a financial crisis
getting the best education and continued training possible to find and keep work and advance on the job

66. Section 2.2 Review What are the stages of the family life cycle?
The five stages are beginning, expanding, developing, launching, and aging.
Name three family conditions that may change and affect financial planning.
Childless couples having children, elderly parents becoming dependents, or a parent losing a job are all examples of changes in family conditions that may affect financial planning.

67. Section 2.2 Review (Continued)
List examples of financial crisis that a person might face.
Examples of financial crisis a person might face are job loss, divorce, death, serious illness, and natural disasters.
How many months’ income should an emergency fund cover?
An emergency fund should equal 8 to 10 months’ income.

68. Section 2.2 Review (Continued)
List three ways to minimize the negative consequences of a personal financial crisis.
Preventive measures include sound money management, practical credit controls, regular savings, insurance protection, reasonable caution in financial matters, and regular family money management discussions.