1. Chapter 22 THE FUTURE OF BUSINESS Gitman & McDaniel 5 th Edition THE FUTURE OF BUSINESS Gitman & McDaniel 5 th Edition Chapter Managing Your Personal Finances Managing Your Personal Finances Prepared by Deborah Baker Texas Christian University Prepared by Deborah Baker Texas Christian University 22

2. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 2 1How does the financial-planning process facilitate successful personal financial management? 2How do cash flow planning and management of liquid assets contribute to your financial goals? 3What are the advantages and disadvantages of using consumer credit? 4What types of taxes are individuals responsible for? 5What factors should you consider in deciding what insurance to purchase? Learning Goals

3. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 3 6What personal goals are important when making investment decisions? 7How do investors open a brokerage account and make securities transactions? 8What emerging trends affect the way you manage your personal finances? Learning Goals

4. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 4 Learning Goal 1 How does the financial-planning process facilitate successful personal financial management? 1

5. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 5 Financial Planning: The First Steps 1 1. Establish financial goals 2. Gather information 3. Analyze the information 4. Develop a plan 5. Implement the plan 6. Monitor your plan

6. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 6 2 Learning Goal 2 How do cash flow planning and management of liquid assets contribute to your financial goals?

7. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 7 2 Cash Management: Cash Flow Plan  Establish goals and calculate the savings you need to meet them.  Estimate your income and expenses, including savings contributions.  Track actual income and expenses for a one- month period.  Compare planned and actual income and expenses.  Modify estimates for the next month and repeat the process.

8. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 8 2 Balancing Your Checkbook

9. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 9 3 Learning Goal 3 What are the advantages and disadvantages of using consumer credit?

10. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 10 3 Using Consumer Credit ProsPros  Convenience  Immediate use of good  Bargain prices on sale merchandise  Establish a credit rating  Convenient record keeping  Financial emergencies  Perks ConsCons  Easy to overspend  Costs money in interest charges  Merchandise may cost more  Legal commitment to repay debt reduces future discretionary income

11. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 11 3 Tips to Pay Off Credit Cards  Don’t wait until the last minute to pay.  Talk back. Ask for a lower interest rate and removal of any fees  Check your statement. Credit-card fraud is widespread!

12. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 12 3 Minimum Payments Don’t Pay

13. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 13 3 Loans  Principal is the total amount borrowed  Prepayment penalties are additional fees that may be owed if a loan is repaid early  Security requirements are provisions that allow a lender to take back the collateral if a loan is not repaid according to the terms of the agreement  Credit life insurance is insurance that will repay a loan if the borrower dies while the loan is still outstanding

14. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 14 4 What types of taxes are individuals responsible for? Learning Goal 4

15. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 15 4 Managing Taxes Property Sales Social Security & Medicare Income Types of Taxes Types

16. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 16 What factors should you consider in deciding what insurance to purchase? 5 Learning Goal 5

17. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 17 5 Property and Liability Insurance Health Insurance Disability Income Insurance Life Insurance Automobile Homeowners/renters Indemnity Plans Managed Care Plans Term Life Whole Life Universal life Selecting Insurance

18. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 18 6 What personal goals are important when making investment decisions? What personal goals are important when making investment decisions? Learning Goal 6

19. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 19 6 Investment Risk Pyramid

20. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 20 6 Safety Growth Income Government and high-grade corporate bonds, preferred stocks, and mutual funds. Growth stocks with above-average rates of growth in earnings and price. Low-risk securities: Treasury issues, corporate bonds, preferred stock, and income stocks. Goals Choices Investment Goals

21. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 21 6 4. Invest regularly 3. Diversify 2. Start early 1. Establish an emergency fund Developing an Investment Strategy

22. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 22 7 How do investors open a brokerage account and make securities transactions? How do investors open a brokerage account and make securities transactions? Learning Goal 7

23. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 23 7  Basic accounts at brokerage firm –Cash accounts –Margin accounts  Three types of orders –Market order –Limit order –Stop-loss order Securities Transaction Basics

24. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 24 8 What emerging trends affect the way you manage your personal finances? Learning Goal 8

25. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 25 8 Increase in Identity Theft Debt Load of Gen-X Debt Load of Gen-X Trends

26. Chapter 22 Copyright ©2005 by South-Western, a division of Thomson Learning. All rights reserved 26 8 Identify Theft