1. CHAPTER 4 Financial Decisions and Planning
4-1 Resources and Choices
4-2 Basics of Budgeting
4-3 Personal Financial Planning

2. 4-1 Resources and Choices
Learning Objectives
4-1.1 Describe needs and wants, and explain how financial resources help fulfill needs and wants.
4-1.2 Prepare a personal cash flow statement and a personal net worth statement.
4-1.3 Apply a decision-making process to personal financial choices.
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3. What Are Needs and Wants?
Things needed for survival, such as food, water, clothing, shelter, and medical care
Wants
Things people desire for reasons beyond survival and basic comfort
Resources Limit Choices
Financial resources: Money or other items of value that are used to acquire goods and services
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4. How Are Income and Wealth Measured?
Personal Cash Flow Statement
Cash inflows: Income from your job, investments, and other sources
Cash outflows: Expenses, or items for which you must spend money
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5. Personal Cash Flow Statement
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6. How Are Income and Wealth Measured? (continued)
Personal Net Worth Statement
Assets: Money and items of value that you own
Liabilities: Debts that you owe
Net worth: The difference between your assets and liabilities
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7. Personal Net Worth Statement
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8. How Can You Make Good Financial Choices?
Decision-Making Process
Define the problem or goal
Gather information
Compare choices
Make a decision
Take action
Re-evaluate your choice
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9. How Can You Make Good Financial Choices? (continued)
Decision-Making Process (continued)
Trade-off: Giving up one option in exchange for another
Opportunity cost: The value of your next best option—what you are giving up
Financial Strategies
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10. 4-2 Basics of Budgeting Learning Objectives
4-2.1 Identify the purpose of a personal budget and prepare one.
4-2.2 Describe recordkeeping methods used in the budgeting process.
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11. What Is Budgeting? Budget Steps in Preparing a Budget
A spending and saving plan based on expected income and expenses
Steps in Preparing a Budget
Estimate income
Plan savings
Estimate expenses
Balance the budget
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12. Personal Budget
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13. What Is Budgeting? (continued)
Steps in Preparing a Budget (continued)
Fixed expenses: Costs that do not change each month
Variable expenses: Costs that can go up and down each month
Charitable giving: The act of donating money or time to a cause in which you believe
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14. What Is Budgeting? (continued)
Preparing a Budget Analysis
Variances: The differences between planned amounts and actual amounts
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15. Budget Variances
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16. What Are Recordkeeping Methods?
Manual Records
Information recorded in hard-copy format using pen and paper
Electronic Records
Soft-copy formats of your financial information stored on your computer
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17. What Are Recordkeeping Methods? (continued)
Electronic Records (continued)
Spreadsheet software: A computer program that allows you to insert numbers and formulas to compute amounts and then easily change them later as needed
Encryption: The process of converting data to a coded form
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18. Excel Spreadsheet
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19. 4-3 Personal Financial Planning
Learning Objectives Explain the purpose and steps of financial planning List reliable sources of financial advice Describe ways you can protect your financial resources.
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20. What Is Financial Planning?
A set of personal and financial goals, along with steps and a timeline for reaching them
Step 1 Gather Information
Step 2 Analyze Information
Step 3 Set Goals
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21. What Is Financial Planning? (continued)
Step 3 Set Goals (continued)
Personal goals: Things you want to achieve in your life
Financial goals: Plans for how you will pay for your personal goals
Short-term goals: Things you expect to achieve within one week to one year
Intermediate goals: Things you wish to achieve in the next two to five years
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22. What Is Financial Planning? (continued)
Step 3 Set Goals (continued)
Long-term goals: Things you want to achieve more than five years from now
Step 4 Develop a Timeline and Benchmarks
Timeline: A visual display of how long it will take to achieve each phase of a plan
Benchmarks: Standards against which progress is measured
Step 5 Implement and Evaluate the Plan
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23. Financial Plan (One Goal)
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24. Where Can You Get Good Financial Advice?
Financial Planners
Financial planner: A professional consultant who provides financial advice
Newspapers and Magazines
Seminars and Workshops
Financial Planning Websites
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25. How Can You Protect Financial Resources?
Phishing
A common Internet scam that uses messages to deceive you
Identity theft
The use of your personal information by someone else without permission to commit fraud or other crimes
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