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. Principles of Business, 8e C H A P T E R 16 SLIDE 2 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

3. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 3 SUCCESSFUL MONEY MANAGERS ●Set goals ●Make wise decisions ●Buy wisely ●Live within their income

4. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 4 PERSONAL BALANCE SHEET ●Assets ●Liabilities ●Net Worth

5. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 5 PERSONAL CASH FLOW STATEMENT ●Cash inflows ●Cash outflows ●Compare inflows and outflows

6. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 6 BUDGET ACTIVITIES ●Live within your income ●Achieve your financial goals ●Buy wisely ●Avoid credit problems ●Plan for financial emergencies ●Develop good money management skills

7. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 7 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.

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

9. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 9 SAMPLE FAMILY BUDGET FOR ONE MONTH

10. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 10 Checkpoint ●What are eight commonly used budget categories? ●Savings ●Food ●Clothing ●Household ●Transportation ●Health and personal care ●Recreation and education ●Gifts and contributions

11. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 11 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

12. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 12 BUDGETING FORMATS ●Software program ●Handwritten ●Checkbook ●Unwritten

13. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 13 SAMPLE INCOME AND EXPENSE RECORD

14. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 14 TYPE OF TAXES ●Taxes on purchases ●Taxes on property ●Taxes on wealth ●Taxes on earnings

15. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 15 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.

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

17. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 17 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.

18. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 18 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.

19. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 19 WHEN AND WHERE YOU PAY TAXES ●Part of everyday living ●Triggered by events

20. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 20 INCOME TAX PAYMENTS ●Withholding ●Estimated payments

21. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 21 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

22. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 22 COMPLETING THE FEDERAL INCOME TAX RETURN ●Filing status ●Tax forms ●Avoiding common filing errors ●Filing taxes online

23. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 23 TAX PREPARATION ASSISTANCE ●IRS services ●Tax publications ●Online sources ●Tax preparation software ●Tax preparation services

24. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 24 EFFECTIVE TAX STRATEGIES ●Home ownership ●Tax-exempt investments ●Tax-deferred investments

25. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 25 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

26. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 26 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.

27. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 27 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

28. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 28 FINANCIAL INVENTORY ●Careful review of your finances ●Personal balance sheet ●Personal cash flow statement ●Information about current financial position

29. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 29 CURRENT FINANCIAL POSITION ●Income ●Savings ●Investments ●Property ●Living expenses ●Insurance ●Money owed

30. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 30 PERSONAL FINANCIAL FILING SYSTEM

31. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 31 FINANCIAL LIFE CYCLE ●Teen years ●Twenties ●Later ●Retirement

32. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 32 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?

33. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 33 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.

34. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 34 IMPLEMENT A FINANCIAL PLAN ●Insure current income ●Disability income insurance ●Unemployment insurance ●Plan for future income ●Social Security ●Pensions ●Retirement accounts ●Annuities

35. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 35 REVIEW YOUR FINANCIAL PLAN ●Revise financial goals ●Review financial activities ●Remember to save and share

36. © 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 36 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.