2. Money Management Strategy
Chapter 5
What money management techniques can you employ to achieve your future financial goals?

3. 5 Money Management Strategy
Chapter 5
Organizing and maintaining a personal financial plan are essential to budgeting for future financial goals.

4. personal financial statement net worth assets wealth liquid assets
Money Management Strategy
Chapter 5
money management
safe-deposit box
personal financial statement
net worth
assets
wealth
liquid assets
real estate
market value
liabilities
insolvency
cash flow
income
take-home pay
discretionary income
surplus
deficit
budget
budget variance

5. Money Management Strategy
Chapter 5

6. Explain the benefits of keeping financial records and documents.
Money Management Strategy
Chapter 5
Section 1
Organizing Financial Records
Discuss the relationship between opportunity costs and money management.
Explain the benefits of keeping financial records and documents.
Describe a system to maintain personal financial documents.

7. Opportunity Costs and Money Management
Money Management Strategy
Chapter 5
Section 1
Organizing Financial Records
Opportunity Costs and Money Management
How do your spending options fit:
Your
Goal of Effective Money Management
Your
Current Financial Situation
Your
Values
money management
day-to-day financial activities necessary to get the most from one’s money

8. Organization of Financial Documents
Money Management Strategy
Chapter 5
Section 1
Organizing Financial Records
Organization of Financial Documents
Financial Documents
Automobile Titles
Pay Stubs
Birth Certificates
Bank Statements
Marriage License
Broker Reports
Credit Card Statements
Tax Forms

9. Organization of Financial Documents
Money Management Strategy
Chapter 5
Section 1
Organizing Financial Records
Organization of Financial Documents
What can an organized system do for you?
Determine your current financial status.
Pay your bills on time.
Complete required tax reports.
Plan for the future.
Make sound financial decisions related to investments.

10. Organization of Financial Documents
Money Management Strategy
Chapter 5
Section 1
Organizing Financial Records
Organization of Financial Documents
Storing Your Financial Documents
Home Files
Safe-Deposit Box
Home Computer
safe-deposit box
a small, secure storage compartment that can be rented in a bank (see example on next slide)

11. Safe Deposit Box

12. 5 Money Management Strategy Section 1 Organizing Financial Records
Chapter 5
Section 1
Organizing Financial Records
How are the roles of maintaining financial records and managing opportunity costs in a sound financial plan similar and different?
Managing opportunity costs and maintaining financial records are both critical to a sound financial plan. Making sound financial decisions to get the most out of your money is an important step. In order to make and track these decisions you need to maintain financial records to keep track of your money and determine your financial position.

13. Describe a personal balance sheet and cash flow statement.
Money Management Strategy
Chapter 5
Section 2
Personal Financial Statements
Describe a personal balance sheet and cash flow statement.
Develop a personal balance sheet and cash flow statement.

14. Personal Balance Sheet (see example on page 127, 147)
Money Management Strategy
Chapter 5
Section 2
Personal Financial Statements
Personal Balance Sheet (see example on page 127, 147)
Personal financial statements can help you:
Determine what you own and what you owe
Measure your progress toward your financial goals
Track your financial activities
Organize information required to file your tax return or apply for credit
personal financial statement
a statement that gives information about current financial position and presents a summary of income and spending

15. Personal Balance Sheet
Money Management Strategy
Chapter 5
Section 2
Personal Financial Statements
Personal Balance Sheet
Your personal balance sheet includes your net worth.
personal balance sheet
a financial statement that shows what one owns and debts that one owes
net worth
the difference between the amount you own and the debts you owe

16. Personal Balance Sheet
Money Management Strategy
Chapter 5
Section 2
Personal Financial Statements
Personal Balance Sheet
Your assets are an indication of your wealth.
assets
owned items of value, such as cash, real estate, personal possessions, and investments
wealth
property that has a money value or an exchangeable value

17. Personal Balance Sheet
Money Management Strategy
Chapter 5
Section 2
Personal Financial Statements
Personal Balance Sheet
Liquid Assets
Real Estate
Categories of Wealth
Personal Possessions
Investment Assets
liquid assets
cash and items that can be quickly converted to cash
real estate
land and any structures that are on it, such as a house or any other building

18. Personal Balance Sheet
Money Management Strategy
Chapter 5
Section 2
Personal Financial Statements
Personal Balance Sheet
What is market value?
market value
the price at which property would sell

19. Personal Balance Sheet
Money Management Strategy
Chapter 5
Section 2
Personal Financial Statements
Personal Balance Sheet
Types of Liabilities
Current Liabilities
Long-Term Liabilities
Insurance premiums
Current taxes
Utility bills
Medical bills
Home improvement loans
Vehicles
College tuition
Mortgage Loans
liabilities
debts that one owes

20. Personal Balance Sheet
Money Management Strategy
Chapter 5
Section 2
Personal Financial Statements
Personal Balance Sheet
What is insolvency?
insolvency
the inability to pay debts when they are due

21. Personal Balance Sheet
Money Management Strategy
Chapter 5
Section 2
Personal Financial Statements
Personal Balance Sheet
Reduce Expenses
How to Increase Your Net Worth
Reduce Spending and Debts
Increase Your Savings
Increase Your Investments

22. Create Your Own Personal Balance Statement
Put your name on worksheet
Fill in all categories
List your personal possession assets using your best guess as to the value
Use a zero in category if it is not applicable
Record Total Assets and Total Liabilities
Calculate Net Worth

23. Cash Flow Statement: (see example on page 131) Income Versus Expenses
Money Management Strategy
Chapter 5
Section 2
Personal Financial Statements
Cash Flow Statement: (see example on page 131) Income Versus Expenses
How to Create a Cash Flow Statement
Record all your sources of income.
Record all your expenses.
Calculate your net cash flow.
cash flow
the amount of cash that is available at any given time
income
cash inflow, including paychecks, allowances, and interest earned

24. Cash Flow Statement: Income Versus Expenses
Money Management Strategy
Chapter 5
Section 2
Personal Financial Statements
Cash Flow Statement: Income Versus Expenses
What is take-home pay?
take-home pay
amount of income left after taxes and other deductions are subtracted from gross pay

25. Cash Flow Statement: Income Versus Expenses
Money Management Strategy
Chapter 5
Section 2
Personal Financial Statements
Cash Flow Statement: Income Versus Expenses
What is discretionary income?
discretionary income
the money left over after paying for essentials such as rent, utilities, clothing, transportation, and medications

26. Cash Flow Statement: Income Versus Expenses
Money Management Strategy
Chapter 5
Section 2
Personal Financial Statements
Cash Flow Statement: Income Versus Expenses
What is a surplus?
surplus
extra money that you can spend or save

27. Your Financial Position
Money Management Strategy
Chapter 5
Section 2
Personal Financial Statements
Your Financial Position
If you end the month with a positive cash flow, you can invest the surplus.
If you end the month with a negative cash flow a deficit is created.
deficit
financial situation that occurs when more money is spent than received
In-Class Activity: Complete a Personal Balance Statement for yourself. Fill in all blank lines, using a zero if the category is not applicable.

28. Partner Activity: Evaluate Financial Statements
Work with a partner (or alone, if you prefer)
Be sure to write your name(s) on the worksheet
There are two statements
Balance Sheet
Monthly Cash Flow Statement
Find the mistakes in each statement
Items in the wrong category
Math mistakes
Missing categories
Incorrect use
Remember…these are MONTHLY statements
Correct the statements
Be sure to answer the questions at the bottom of the worksheet

29. 5 Money Management Strategy Section 2 Personal Financial Statements
Chapter 5
Section 2
Personal Financial Statements
How are a personal balance sheet and cash flow statement similar? How are they different? What role does each play in the development of a personal financial plan?
A cash flow statement and a personal balance sheet both list expenses/liabilities and provide a snapshot of your financial situation. However, a cash flow statement does not break down all of your liabilities. It focuses on your monthly payments. A personal balance sheet does not show your income only the balance in your accounts.

30. Identify the steps to create a personal budget.
Money Management Strategy
Chapter 5
Section 3
Budgeting for Financial Goals
Identify the steps to create a personal budget.
Discuss the advantages of increasing your savings.

31. Preparing a Budget (see example on page 136)
Money Management Strategy
Chapter 5
Section 3
Budgeting for Financial Goals
Preparing a Budget (see example on page 136)
If you want to be successful at financial planning, you must have a budget.
budget
a plan for spending and investing money

32. Steps to Developing a Budget
Money Management Strategy
Chapter 5
Section 3
Budgeting for Financial Goals
Preparing a Budget
Steps to Developing a Budget
See page 135
7. Review Spending and Saving Patterns
6. Record What You Spend
5. Budget for Variable Expenses
4. Budget for Fixed Expenses
3. Budget for Unexpected Expenses
2. Estimate Your Income
1. Set Your Financial Goals

33. The Monthly Budget: Month Ending October 31, 2015 (see page 136)
Directions: Fill in gray area with your "goal" and estimated expenses for the month. Change categories as needed.
Keep a record of income/expenses (save receipts). At end of month fill-in "Actual Amounts", calculate "Variances"
Financial Goal:
Budgeted Amounts
Actual Amounts
Variance
INCOME
Salary, Allowance, Interest
OUTFLOW
Unexpected Expenses & Savings
Emergency fund savings
Vacation savings
College savings
Investments
Total savings
Fixed Expenses
Automobile loan
Insurance Premiums
Cell Phone
PYF (Pay Yourself First)
Total fixed expenses
Variable Expenses
Food
Clothing
Gifts
Entertainment
Medical
Transportation
Personal items
Total variable expenses
TOTAL OUTFLOW

34. A budget variance can be a surplus or a deficit.
Money Management Strategy
Chapter 5
Section 3
Budgeting for Financial Goals
Preparing a Budget
A budget variance can be a surplus or a deficit.
budget variance
the difference between the budgeted amount and the actual amount spent

35. Characteristics of an Effective Budget
Money Management Strategy
Chapter 5
Section 3
Budgeting for Financial Goals
A Successful Budget
Characteristics of an Effective Budget
Carefully Planned
Easily Accessible
Practical
Flexible

36. Increasing Your Savings
Money Management Strategy
Chapter 5
Section 3
Budgeting for Financial Goals
Increasing Your Savings
Savings Strategies
Pay Yourself First
Use Payroll Savings
Spend Less

37. How much should you spend in each category?
Choose a Strategy:
Find Average spending percentages nationally (CPI)
Use a template
Track your spending and create percentages off what you already spend

38. Determining Reasonable Expense Levels
Consumer Price Index
Produced by the U.S. Dept of Labor
Measures the changes in prices for commonly purchased goods and services in the U.S.
Compare the CPI to your actual budget
Can indicate when you are spending too much/little on various items

39. Percentage Budgeting Simple and straightforward concept
Instead of allocating fixed-dollar amounts to every line item, you establish a target percentage for each expense category
This process shows you the inherent trade-offs in your spending decisions
Can show you where you need to consider cutting back and where you may be able to afford to spend a little more
Flexible…easily adustable
Live with parents, use housing % elsewhere
Not as interested in food, use for clothing

40. Additional Resources for Suggested Budget Percents:
See Shared FilesClaxton NewPersonal FinanceBudget Forensics Resources
Google “Budget Percentage Guidelines”

41. Budget Forensics Activity
Read “The Set Up”
Complete “The Investigation”
On page 2, Column 2, Calculate the Current Dollar Amount and % for each category
To get percent of Income: Divide money spent by income
Example: $700 spent on housing divided by $2500 income = 700/2500
= .28 or 28%
On page 2, Column 3, Calculate Recommended Dollar Amount and % for each category
To get dollar amount: multiply income by percent
Example $2500 income x .31 (31%) = $775
(To review formulas see bottom of worksheet)

42. Budget Forensics (continued)
Determine in which categories the family is overspending
i.e. Food = $ 2,500 x .15 (15%) = $375 (recommended)
The Pence’s current expenditures in food = $400
The Pence’s are spending $25 more than the recommended amount
Re-allocate the expenditures into an appropriate category to solve the Pence’s saving problem
i.e. The “extra” $25 the Pence’s were spending on “Food” could instead be added to the “Savings” category
Write a simple explanation for each of your changes
Complete the “Assessment Questions” on the next page

43. Think About It…What Will Your Future Budget Look Like
Think About It…What Will Your Future Budget Look Like? (Activity continued)
Create a budget proposal for your future self
Use your “Monthly Income” from the “My Life” assignment
Create and classify a list of expenses
Assign Percentages and dollar amounts to each category of your budget (use “tips” at bottom of worksheet)
REMEMBER: When you total your percentages column it should equal 100%, which is equal to 100% of your monthly income
When budget is complete, review and adjust as needed…fill in simple reason as to why it was adjusted
Rubric is attached…Total Points Available = 100

44. 5 Money Management Strategy Section 3 Budgeting for Financial Goals
Chapter 5
Section 3
Budgeting for Financial Goals
Explain why it is sometimes difficult for people to increase their savings. How will increasing the amount you put in savings affect your budget?
It is difficult to resist the temptation to spend any extra money each month. If you increase your savings you may need to adjust spending in another area such as your variable expenses.

45. Balance of Trade 5 Money Management Strategy
Chapter 5
Balance of Trade
What could a surplus in the balance of trade mean?
Balance of trade is determined by subtracting total imports from total exports over a period of time.
Strong Manufacturing Base
High Tariffs
Overseas Demand for U.S. Products
Less Disposable Income for Consumers

46. Money Management Strategy
Chapter 5

47. Money Management Strategy
Chapter 5

48. Answer: Question #10, page 146 $925 cost of trip parent’s contribution $675 $675/12 = $56.25 needed per month 8 hours x $10 per hour = $80 $80 income expenses (fixed and variable) $35 $ $21.25 additional will need to be saved EACH month

49. End of