1. Chapter 4 Financial Decisions and Planning

2. Financial Literacy Chapter 4 Objectives Describe needs and wants
Apply a decision making process to make personal financial choices
Understand terms on personal cash flow statements and net worth statements
Prepare a personal budget, planning for projected income and expenses
Explain and draft a financial plan
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3. What Are Needs and Wants?
Needs are things you must have.
Examples: food, clothing, shelter
Wants are things people desire.
Examples: new cars, vacations, luxury items
Financial resources are used to acquire goods and services.
4-1 Resources and Choices
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4. Resources Limit Choices
People’s wants and needs are unlimited
Financial resources are limited
With limitations comes choice
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5. How Are Income and Wealth Measured? See page 120
Personal cash flow statement lists cash inflows and outflows.
Inflows = income
Outflows = expenses
Personal net worth statement shows a person’s net worth based on assets and liabilities.
Assets = money or items of value
Liabilities = debts
4-1 Resources and Choices
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6. How Is Wealth Measured? See page 120
PERSONAL NET WORTH STATEMENT
Assets
Liabilities
Cash and checking account $
Car loan
$1,100.00
Savings account
500.00
Credit card debt
200.98
Savings bond
300.00
Total liabilities
$1,300.98
Baseball card collection
100.00
Computer, iPod, games
Car, current value
3,000.00
Net Worth
Total assets
$4,652.56
Assets minus liabilities
3,351.58
Total liabilities and net worth
Net Worth
4-1 Resources and Choices
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7. Know these terms well: From the Net Worth Statement Value of Assets
Assets: Money and items of value that you own
Liabilities: Debts that you owe
Net Worth: difference between your assets and your liabilities
Appreciating: Assets that are growing in value, ex. Land, house, savings bonds
Depreciating: Assets that are decreasing in value, ex. Cars and electronics
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8. Financial Strategies
Consider your future – how will this choice affect your future?
If you have doubt, don’t buy it - wait
Avoid buyer’s remorse:
(emotional or impulse buys)
Learn from other’s
mistakes
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9. What Is the Purpose of Budgeting?
A budget is a spending and saving plan.
It is based on estimated income and expenses.
Use spreadsheet software to prepare a budget.
4-2 Basics of Budgeting
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10. How Do You Prepare a Budget?
Step 1: Estimate income
Step 2: Plan for savings (10% to start)
Step 3: Estimate expenses
Variable expenses- ex. Gas and electric bill
Fixed expenses – ex. Rent, car payment
Charitable giving
Step 4: Balance the budget: Budget Equation
Savings + Expenses = Income
4-2 Basics of Budgeting
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11. Personal Budget Income Weekly Monthly Yearly Work (part-time) $30.00
$120.00
$1,440.00
Allowance for household chores
10.00
40.00
480.00
Lunch money allowance
15.00
60.00
720.00
Savings account interest
.50
2.00
24.00
Total income
$55.50
$222.00
$2,664.00
Savings
Deposit to savings account
$ 5.50 $ $
Expenses
Gifts
$ 5.00 $ $
Clothes and shoes
Loan payment to parents
5.00
20.00
240.00
Lunches
Entertainment/miscellaneous
Total expenses
$50.00
$200.00
$2,400.00
Total savings and expenses
4-2 Basics of Budgeting
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12. Preparing a Budget Analysis
Not everything will go as planned
Variances
Difference between
planned amounts and
actual amounts
Favorable and Unfavorable (F or U)
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13. Record Keeping Manual Electronic Pen and paper Keep it somewhere safe
Using software such as Quicken or Quickbooks
Microsoft Excel
Google Docs
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14. Q&A: Answer these Questions in space below: page 123: #13, #14, #16
Then go to Activity 1 in back of packet.
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15. Financial Literacy …continuing Chapter 4
Current Objectives:
Identify the purpose of a personal budget
Prepare a personal budget
Learn how to analyze and prepare for variances in a budget
Learn importance of Financial Planning
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16. What Is Financial Planning?
Financial planning is a process of looking at your current financial situation and thinking about your future.
A financial plan has personal and financial goals along with steps and a timeline.
Review and update your financial plan periodically.
Helps you insure that your “net worth” increases over time
4-3 Personal Financial Planning
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17. Financial Planning Steps to Success
Step 1: Gather financial information
Step 2: Analyze information
Step 3: Set goals
Personal and financial
Step 4: Develop a timeline and
benchmarks
Step 5: Implement and evaluate the plan
4-3 Personal Financial Planning
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18. Financial Plan (One Goal)
Net worth on April 1, 20--: $525.56
Personal Goal
Financial Goal
Benchmarks
Timeline
Live in my own house in the country.
Buy a house in the country.
Save money for a down payment ($12,000)
5 years
Set aside $200 per month
Once per month
Open a separate account for money saved
April 8 (next week)
Talk to a mortgage broker to get prepared
Make an appointment for April 15
Get a job that provides enough income to make monthly payments
2 years
4-3 Personal Financial Planning
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19. Success Skills for Life:
Tips for Dealing With Conflict…
Stop and take a ten-second time out.
Ask yourself “what is happening here?”
Listen rather than talk.
Suggest that you continue your talk later.
Focus on the problem, not the person.
Be willing to compromise when appropriate.
4-2 Basics of Budgeting
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20. Focus On . . . Philanthropy Philanthropy is a form of
charitable giving.
It is the primary source of funding for the fine arts, performing arts, and most religious and humanitarian causes.
It is good to add some sort of charitable giving to your budget, through a church, a non-profit cause, or other reputable organization
4-2 Basics of Budgeting
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21. 1. What do things really cost?
Activity 1
1. What do things really cost?
Find a cell phone plan – monthly cost?
Pick a phone, add to cart, then go through individual plans.
Write in your choice and monthly cost:
_________________________________
Find TV and Internet Service – monthly cost?
Could be a bundle or separate.
___________________________________
2. Ch. 4 Key Terms List
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22. Activity 2 – What is your monthly car payment?
1. Find your car on any website and write price:
Car:_____________Total price:_____________
Then, using autos.yahoo.com
Go to the Finance tab
Select the Monthly Payment calculator
Info needed:
Your car sales price
You will put $1500 down payment
Interest: Choose national average
Monthly car payment: ______________
2. Finish Ch. 4 Key Terms List
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23. Activity What is your estimated annual/monthly income for your future career? (see green Career WS )
Annual Income:______________ Monthly Income: _____________
Start a new Spreadsheet in Excel OR use my Sample Budget template on my website and SAVE AS:
“Your Name, Personal Monthly Budget”
Set up the Rows as on My Sample Budget on my website
3. In your Excel Personal Budget spreadsheet
Add in your researched decisions:
Monthly income
Monthly car payment
Monthly cell phone payment
Monthly TV/Internet payment.
4. Save as “Personal Budget” in the “Fin Lit” folder you created on your server
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