1. Mr. Stasa – Willoughby-Eastlake City Schools © http://www.youtube.com/watch?v=OiMs5qblQGQ

2. Review… (It’s back…!)  What is the 70-20-10 rule?  What are short-term, intermediate, and long- term goals?  What are SMART goals?

3. What do you spend money on?  Cell phone  Soda  Snacks  Food  Clothing  Gasoline  Car Insurance  School supplies  Gifts

4. Why Budget?  A spending plan (budget) is a paper or electronic document used to record planned and actual income through expenditures over a period of time

5. Income Food Savings Insurance Housing Transportation Taxes/Deductions Communication Medical Clothing/Other Entertainment Categories

6. 6-Step Spending Plan Process

7. Step 1: Set Financial Goals

8.  Set financial goals for the present and the future.  Use the SMART goal process.  Have short-term, intermediate, and long- term goals

9. Step 2: Estimate Your Income

10.  Estimate the amount of income you expect to earn for the month  Paycheck  Interest  Investment earnings  Do not list income sources that you may not receive  Gifts, lottery, etc.

11. What is Earned Income?  Earned income is income earned through a paycheck or labor provided.

12. What is Unearned Income?  Unearned income is income received other than through a paycheck or wages.  Examples include:  Interest  Gifts  Investments

13. Step 3: Plan for Unexpected Emergencies

14.  Always save at least 8 months of living expenses at all times for emergencies. http://www.youtube.com/watch?v=E_ctwPiDgHk http://www.youtube.com/watch?v=rGGLmoCWJbI

15. P.Y.F.  PYF (Pay Yourself First)  Always set aside money to save for emergencies and goals before spending. http://www.youtube.com/watch?v=NKjFhUkf42o

16. Emergency Fund  An emergency fund is money that is saved for unexpected emergencies.  Unexpected emergencies may include:  Car repairs  Job loss  Health problems http://www.youtube.com/watch?v=E_ctwPi DgHk

17. Step 4: Budget Fixed Expenses  Fixed expenses are monthly expenses which do not change in price.  Examples include:  Mortgage payments  Student loan payments  Car payments  Car insurance  Health insurance

18. Step 5:Budget Flexible Expenses  Flexible expenses are monthly expenses which change in price each month.  Examples include:  Gas  Electricity  Water  Groceries http://www.monkeysee.com/play/6313-what-is-the-difference-between-a- fixed-and-variable-expense

19. Step 6: Record Actual Spending  List how much you actually earned and spent.  You will sometimes spend exactly what you estimated, more, or less.

20. Step 6: Record Actual Spending  A budget variance is the difference between your estimated spending amounts and actual amounts.  A budget surplus is when you spend less than you estimated  A budget deficit is when you spend more than you estimated.

22. Budgeting Part II

23. IanMitchell Income - $30,000 Net Worth - $50,000 Income - $85,000 Net Worth - $35,000 What is your definition of financial wealth? How is it that Ian is wealthier than Mitchell, yet Mitchell makes more than double the income than Ian? What factors do you think could cause such a difference?

24. ASSETSLIABILITIES Checking acct$800Credit card$1,200 Savings Account$4,000Car loan$3,500 Pepsi stock$6,500House mortgage$123,000 Retirement fund$16,000Computer payments$500 House$140,000Student loans$23,000 Furniture$8,000TOTAL LIABILITIES$151,200 Car$14,500NET WORTH: Loan to brother$3,000Assets – Liabilities = Net worth Jewelry$400193,200-151,200 = $42,000 TOTAL ASSETS$193,200 24 Personal Balance Sheet

25. What’s a personal balance sheet?  A personal balance sheet is a current snapshot of your financial situation.  A personal balance sheet lists  Current assets (amounts you own)  Current liabilities (amounts you owe)  Net worth (measure of your wealth) 25

26.  To determine exactly how much money you own and owe  To track progress towards goals  Lenders will ask at the time of applying for loans, accounts, life insurance, etc.  Provides a financial report card that allows you to evaluate your current financial health 26 Why do you need a personal balance sheet?

27. What Should My Net Worth be Doing?  Your net worth should increase as you age because….  You gain more assets as you age  Your debts are gradually paid off as you age  Once you retire, your net worth will gradually decrease 27

28. How Much Should it be? Net Worth Estimation Formula Example: At the age of 22, earning $35,000 per year… 22 x 35,000 / 10 = $77,000 28 http://video.cnbc.com/gallery/?video=3000164039

29. What About Beth?  Calculate if Beth’s net worth of $307,111 is on track from the Suze Orman clip:  http://video.cnbc.com/gallery/?video=3000164039 http://video.cnbc.com/gallery/?video=3000164039  Beth’s current age:  Beth’s monthly income:  Beth’s annual household income (multiply her monthly income by 12)  What should Beth’s estimated net worth be?  Is Beth’s current net worth on track or off track of where she should be? 29 43 years old $3,100 $3,100 x 12 = $37,200 43 x $37,200 / 10 = $159,960 Beth’s current net worth is $307,111 Her current net worth is more than on track of where it should be.

30. Categories of a Balance Sheet 1. An asset is any item of value that you own  Examples:  Cash  Property  Collectibles  Investments 30

31. How much is it worth?  You should list assets at their current value, not the value they were purchased at. 31

32. Use fair market value! The fair market value is the price at which a willing and rationale buyer would pay. 32 Derek purchased a car for $12,000 two years ago Today’s current market value = $8,500

33. Categories of a Balance Sheet  Liabilities:  Debts you owe that have not been fully paid  Examples:  Loans  Mortgage  Credit card bills  Medical bills 33

34. What’s net worth  Net worth is a true measure of your wealth. 34 AssetsLiabilities Net Worth http://video.cnbc.com/gallery/?video=3000164039

35. Net Worth vs. Income Net WorthIncome A person may have high income and low net worth or vice versa Depends on how a person manages their income Money received such as wages earned from working for pay

36. Figure this out…  What is your current net worth if you have $4,000 in assets and $1,250 in liabilities? 36 ASSETS-LIABILITIES=NET WORTH $4,000-$1,250=$2,750

37. So who is wealthier? Ian’s Statement of Financial Position Mitchell’s Statement of Financial Position Assets Home60,000 Home100,000 Retirement Savings 20,000 5,000 Retirement Savings 20,000 7,000 Automobile10,000 Automobile20,000 Total Assets$95,000 Total Assets$147,000 Liabilities Mortgage (house loan)40,000 Mortgage (house loan)80,000 College loan5,000 College loan20,000 Automobile loan0 10,000 Credit card debt0 2,000 Total Liabilities$45,000 Total Liabilities$112,000 Net Worth$50,000 Net Worth$35,000 Income - $30,000 Net Worth - $50,000 Income - $85,000 Net Worth - $35,000

38. ASSETSLIABILITIES Checking acct$800Credit card$1,200 Savings Account$4,000Car loan$3,500 Pepsi stock$6,500House mortgage$123,000 Retirement fund$16,000Computer payments$500 House$140,000Student loans$23,000 Furniture$8,000TOTAL LIABILITIES$151,200 Car$14,500NET WORTH: Loan to brother$3,000Assets – Liabilities = Net worth Jewelry$400193,200-151,200 = $42,000 TOTAL ASSETS$193,200 38 Personal Balance Sheet