1. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 1 16-1 16-1Personal Financial Statements 16-2 16-2Budgeting Techniques 16-3 16-3Taxes in Your Life 16-4 16-4Your Financial Future 16 C H A P T E R Money Management and Financial Planning

2. © 2012 Cengage Learning. All Rights Reserved. SLIDE 2 16-1 Personal Financial Statements Goal 1Explain the basics of money management. Goal 2Create a personal balance sheet. Goal 3Develop a personal cash flow statement.

3. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 3 KEY TERMS ●money management ●personal assets ●net worth ●cash flow statement

4. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 4 MONEY MANAGEMENT BASICS ●Refers to the day-to-day financial activities associated with using limited income to satisfy your unlimited needs and wants ●Involves getting the most for your money through careful planning, saving, and spending ●Involves making and using a plan for spending

5. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 5 SUCCESSFUL MONEY MANAGERS ●Set goals ●Make wise decisions ●Buy wisely ●Live within their income

6. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 6 Checkpoint ●What are some characteristics of a wise money manager? ●Wise money managers get the most from their limited incomes through careful planning, saving, and spending. ●They set goals, make wise decisions, buy wisely, and live within their incomes.

7. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 7 PERSONAL BALANCE SHEET ●Assets ●Liabilities ●Net Worth

8. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 8 Checkpoint ●What are three main categories of a personal balance sheet? ●Assets ●Liabilities ●Net worth or owner’s equity

9. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 9 PERSONAL CASH FLOW STATEMENT ●Cash inflows ●Cash outflows ●Compare inflows and outflows

10. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 10 Checkpoint ●What do cash outflows represent? ●Cash outflows represent amounts spent for food, clothing, transportation, and other living expenses.

11. © 2012 Cengage Learning. All Rights Reserved. SLIDE 11 16-2 Budgeting Techniques Goal 1Identify purposes of a budget. Goal 2Describe steps for preparing a budget. Goal 3Describe characteristics of successful budgeting.

12. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 12 KEY TERMS ●fixed expenses ●variable expenses ●allowance ●budget variance

13. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 13 BUDGET ACTIVITIES ●Live within your income ●Achieve your financial goals ●Buy wisely ●Avoid credit problems ●Plan for financial emergencies ●Develop good money management skills

14. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 14 Checkpoint ●What are the main purposes of a budget? ●The main purposes of a budget are to help you live within your income, achieve financial goals, buy wisely, avoid credit problems, plan for financial emergencies, and develop good money management skills.

15. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 15 THE BUDGET PROCESS ●Set financial goals ●Plan budget categories ●Maintain financial records ●Evaluate your budget BUDGET CATEGORIES ●Savings ●Food ●Clothing ●Household ●Transportation ●Health and personal care ●Recreation and education ●Gifts and contributions

16. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 16 SAMPLE FAMILY BUDGET FOR ONE MONTH

17. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 17 Checkpoint ●What are eight commonly used budget categories? ●Savings ●Food ●Clothing ●Household ●Transportation ●Health and personal care ●Recreation and education ●Gifts and contributions

18. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 18 CHARACTERISTICS OF AN EFFECTIVE BUDGET ●Must be realistic ●Should be flexible ●Should be evaluated regularly ●Must be well planned and clearly communicated ●Should have a simple format

19. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 19 BUDGETING FORMATS ●Software program ●Handwritten ●Checkbook ●Unwritten

20. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 20 SAMPLE INCOME AND EXPENSE RECORD

21. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 21 Checkpoint ●What are five characteristics of an effective budget? ●Realistic ●Flexible ●Evaluated regularly ●Well planned and clearly communicated ●Simple format

22. © 2012 Cengage Learning. All Rights Reserved. SLIDE 22 16-3Taxes in Your Life Goal 1Identify the types of taxes paid by consumers. Goal 2Describe the steps when filing a federal income tax return. Goal 3Explain tax-assistance sources. Goal 4Identify common tax-planning strategies.

23. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 23 TYPE OF TAXES ●Taxes on purchases ●Taxes on property ●Taxes on wealth ●Taxes on earnings

24. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 24 TAXES ON PURCHASES ●Sales tax ●A sales tax is a state or local tax on goods and services that is collected by the seller. ●Food and prescription drugs are often exempt. ●Excise tax ●An excise tax is imposed on specific goods and services. ●For example, all states impose an excise tax on gasoline.

25. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 25 TAXES ON PROPERTY ●Real estate property tax ●This tax is based on the value of land and buildings. ●Most property tax revenue is used to pay for schools and local government services. ●Personal property tax ●This tax is based on the value of personal property such as boats, cars, and trucks.

26. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 26 TAXES ON WEALTH ●Estate tax ●This tax is based on the value of a person’s property at death. ●Inheritance tax ●This tax is based on the value of items received from a deceased person. ●Gift tax ●This tax applies to gifts of any kind of property, including money, when the value of the gift exceeds a certain dollar amount. ●Generally the donor is responsible for the gift tax.

27. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 27 TAXES ON EARNINGS ●Social Security tax ●This tax is based on earnings and is used to finance retirement and disability benefits. ●Income tax ●This tax is based on earnings and other sources of income and is a source of revenue for governments.

28. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 28 WHEN AND WHERE YOU PAY TAXES ●Part of everyday living ●Triggered by events

29. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 29 INCOME TAX PAYMENTS ●Withholding ●Estimated payments

30. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 30 PREPARING THE FEDERAL INCOME TAX RETURN Step 1:Determine gross income Step 2:Calculate adjusted gross income Step 3:Subtract deductions Step 4:Determine exemptions Step 5:Compute taxable income Step 6:Taxes owed Step 7:Make tax payments or ask for a refund or credit

31. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 31 COMPLETING THE FEDERAL INCOME TAX RETURN ●Filing status ●Tax forms ●Avoiding common filing errors ●Filing taxes online

32. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 32 TAX PREPARATION ASSISTANCE ●IRS services ●Tax publications ●Online sources ●Tax preparation software ●Tax preparation services

33. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 33 EFFECTIVE TAX STRATEGIES ●Home ownership ●Tax-exempt investments ●Tax-deferred investments

34. © 2012 Cengage Learning. All Rights Reserved. SLIDE 34 16-4Your Financial Future Goal 1Describe the financial planning process. Goal 2Explain actions for implementing a financial plan. Goal 3Identify actions for reviewing a financial plan.

35. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 35 KEY TERMS ●financial plan ●individual retirement account (IRA) ●estate planning

36. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 36 DEVOLPING A FINANCIAL PLAN ●A financial plan is a report that ●Summarizes your current financial condition ●Acknowledges your financial needs ●Sets a direction for your future financial activities ●Financial planning includes ●Evaluating one’s financial position ●Setting financial goals ●Guiding activities and resources toward reaching those goals

37. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 37 ADVANTAGES OF FINANCIAL PLANNING ●Your financial uncertainties will be reduced. ●You will gain more control of your financial activities. ●Your family and household members will know more in case they need to assume control of your finances. ●Earning, spending, protecting, and saving your resources will be more systematic.

38. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 38 FINANCIAL PLANNING PROCESS 1.Analyze your current financial condition 2.Develop financial goals that are responsive to your vision 3.Create your financial plan 4.Implement the plan 5.Revise your financial plan

39. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 39 FINANCIAL INVENTORY ●Careful review of your finances ●Personal balance sheet ●Personal cash flow statement ●Information about current financial position

40. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 40 CURRENT FINANCIAL POSITION ●Income ●Savings ●Investments ●Property ●Living expenses ●Insurance ●Money owed

41. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 41 PERSONAL FINANCIAL FILING SYSTEM

42. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 42 FINANCIAL LIFE CYCLE ●Teen years ●Twenties ●Later ●Retirement

43. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 43 USING A FINANCIAL PLANNER ●Questions to ask when choosing a financial planner: ●What experience and training do you have? ●Are you willing to supply references from past clients? ●How are your fees determined?

44. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 44 Checkpoint ●List five recommended steps for financial planning. ●Analyze your current financial condition. ●Develop financial goals that are responsive to your vision. ●Create your financial plan. ●Implement the plan. ●Revise your financial plan.

45. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 45 IMPLEMENT A FINANCIAL PLAN ●Insure current income ●Disability income insurance ●Unemployment insurance ●Plan for future income ●Social Security ●Pensions ●Retirement accounts ●Annuities

46. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 46 Checkpoint ●What are common sources of income during retirement? ●Social Security ●Pensions ●Individual retirement accounts ●Roth IRAs ●401 (k) plans ●Keogh plans ●Annuities

47. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 47 REVIEW YOUR FINANCIAL PLAN ●Revise financial goals ●Review financial activities ●Remember to save and share

48. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 48 Checkpoint ●What activities are involved when reviewing a financial plan? ●When reviewing a financial plan, one should revise short- and long-term financial goals on a regular basis, make changes in spending and saving habits as needed, and engage in estate planning to build assets and arrange to distribute property after death.