1. Financial Decisions and Planning

2. CHRIS TUCKER DORTHY HAMILL MIKE TYSON NICHOLAS CAGE

3. 4-1 Resources and Choices Needs: Things needed for survival – food, clothing, shelter, medical care. Wants: Things people desire for reasons beyond survival and basic comfort. Financial Resources: Money or other items of value that are used to acquire goods and services. Cash Inflows: Income from your job, investments, and other sources.

4. Cash Outflows: Expenses or items for which you must spend money. Assets: Money and items of value that you own. Liabilities: Debts that you owe. Net Worth: The difference between your assets and your liabilities. Tradeoff: Giving up one options in exchange for another Opportunity Cost The value of your next best option – what you are giving up.

5. WHAT ARE NEEDS AND WANTS Based on your definition of needs and wants, list five needs and five wants NEEDSWANTS

6. We must choose between are needs and wants. Individuals only have limited resources to obtain their needs and wants. A. Resources Limit Choices a. People’s _____________________ are limited while are wants and needs are ______________________ and growing. b. Must make choices because most people do not have enough resources to meet all their needs and wants. c. ______________________________ is the amount of money a person has to spend after needs are met. Financial Resources Unlimited Resources Discretionary Income

7. How are Income and Wealth Measured? The Personal Cash Flow Statement lists your cash inflows and your cash outflows for a period of time. If Cash Inflow > Cash Outflow = Net Income I f Cash Inflow < Cash Outflow = Net Loss

8. Sample Personal Cash Flow Statement

9. DON JONES September 1 – 30, 2011 Work (Part-Time)$440.00 Breakfast/Lunch Allowance 60.00 Chores40.00 Savings Account Interest5.00 545.00 Breakfast/Lunch Expenses60.00 Gasoline Expense50.00 Savings40.00 Entertainment Expense50.00 200.00 345.00

10. The Personal Net Worth Statement Shows a persons net worth based on his or her assets and liabilities. __________________are money and items of value that you own. ASSETS __________________are the debts you owe Liabilities ASSETS – LIABILITIES = NET WORTH

11. Sample Personal Net Worth Statement

12. Prepare a Personal Net Worth Statement Assets growing in value are said to be appreciating Ben Lingo Car2,000.00 Savings Account 150.00 Checking Account 82.00 Personal Property Inventory 3,000.00 $6,232.00 Car Loan$1,500.00 Credit Card 1,000.00 $2,500.00 $3,732.00 $6,232.00 October 31, 2012 MBD BIKE 1,000.00

13. How Can you Make Good Financial Choices? A. Decision-Making Process: a. Deciding one option in exchange for another is called a _______________. b. The trade off results in an ______________________________ the value of your next best option (what you are giving up. TRADE OFF Opportunity Cost

14. 6-Step Decision Process Define the Need List options for meeting the need. Compare the options you have identified. Make a Decision. Take Action Based on your Decision. Reevaluate your choice

15. Financial Strategies Financial choices should be forward looking When in doubt to buy a product or service, do not buy Do not make a quick decision – Buyer’s Remorse Spend less than your income. Be realistic about which wants you can fill. Read all financial agreements Learn from others mistakes.

16. Vocabulary Terms 1. Items needed to survive, such as food, clothing, shelter, and medical care 2. Expenses, or items for which you must spend money 3. The difference between your assets and your liabilities 4. Income from your job, investments, and other sources 5. The act of giving up one option in exchange for another. Needs Cash Outflows Net Worth Cash Inflows Trade Off

17. Vocabulary Terms 6. Things people desire for reasons beyond survival and basic comfort. 7. The value of your next best option. 8. Money or other items of value that are used to acquire goods and services. 9. Items of value you own. Wants Opportunity Cost Financial Resources Assets

18. Assignment Assume that you belong to a school club that has ten members and two teacher advisers. The club members and advisers are planning to attend a conference in your state capital. Apply the decision – making process you learned in this chapter to help you decide how your club should travel to the conference. Work with a classmate to complete this activity. Complete the following activities in a word document. You will be given 1 class period to work on this. Complete activities a through e.

19. 4-2 Basics of Budgeting Budget Variable Expenses: Fixed Expenses: Charitable Giving is spending and saving plan based on expected income and expenses. costs that can go up and down each month. costs that do not change each month. the act of donating money or time to a cause in which you believe.

20. What is the Purpose of Budgeting? Budget is a plan on how you will spend and/or save your money. Based on your expected income and expenses. You may need to adjust your budget – using spreadsheet software makes this very easy.

21. How Do You Prepare a Budget? a. Look at the amount available to spend or save. b. Decide how much you will save and how much you will spend. c. Compare your actual spending and saving to the budget you created.

22. 4 Simple Steps in Preparing a Budget. 1. Estimate Income a. You may have different sources of income. b. Calculate income for the year from both earned and unearned income. 2. Plan Savings a. Pay yourself first 3. Estimate Expenses a. Variable Expenses costs that can go up and down each month. Examples: Gas Bill, Electric Bill, Food, Clothing, b. Fixed Expenses: costs that do not change each month. Examples: Mortgage Payment, Car payment, life insurance premium, cable bill Charitable Giving: the act of donating money or time to a cause in which you believe.

23. Balance the Budget. Total Savings = Total Expenses

24. SAMPLE BUDGET

25. Preparing a Budget Analysis Variances: the differences between planned amounts and actual amounts. 1. Favorable Variance: Earned or saved more than you estimated. 2. Unfavorable Variance: _Earned or saved less than you estimated.

26. Variance Analysis on John Jones’ Budget: Calculate the actual amount John spent during the month and the Variance Analysis -8% U 25% F 0 0 0 0 20% F -17% U -10% 8% F 13% F -1%.9-%

27. Practice Problem