Financial Decisions and Planning

CHRIS TUCKER

DORTHY HAMILL

MIKE TYSON

NICHOLAS CAGE

WHAT ARE NEEDS AND WANTS

Based on your definition of needs and wants, list five needs and five wants

NEEDS WANTS

We must choose between are needs and wants. Individuals only have limited resources to obtain their needs and wants.

A. Resources Limit Choicesa. 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

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

If Cash Inflow < Cash Outflow =

Net Loss

Sample Personal Cash Flow Statement

PERSONAL CASH FLOW STATEMENT

Cash InflowsWork (Part-time) 120.00$ Allowanced for household chores 40.00$ Lunch money allowance 60.00$ Savings Account Interest 2.00$ Total Cash Inflows 222.00$

Cash OutflowsGifts 20.00$ Clothes and shoes 60.00$ Loan Payment to parents 20.00$ Lunches 60.00$ Entertainment/miscellaneous 40.00$ Total cash outflows 200.00$

Net Cash Flow 22.00$

ANDREA JONESPERSONAL CASH FLOW STATEMENT

September 1 -30, 2011

Cash Inflows

Total Cash Inflows

Cash Outflows

Total cash outflows

Net Cash Flow

PERSONAL CASH FLOW STATEMENT

PERSONAL CASH FLOW STATEMENT

DON JONES

September 1 – 30, 2011

Work (Part-Time) $440.00Breakfast/Lunch Allowance 60.00Chores 40.00

Savings Account Interest 5.00545.00

Breakfast/Lunch Expenses 60.00

Gasoline Expense 50.00Savings 40.00

Entertainment Expense 50.00

200.00

345.00

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

Sample Personal Net Worth Statement

PERSONAL Net Worth Statement

ASSETS LiabilitiesCash and checking Account 452.56$ Car Loan 1,100.00$ Savings Account 500.00$ Credit Card Debt 200.98$ Savings Bonds 300.00$ Total Liabilities 1,300.98$ Baseball Card Collection 100.00$ Computer, iPod, games 300.00$ Net WorthCar, current value 3,000.00$ Assets minus liabilities 3,351.58$ Total Assets 4,652.56$ Total liabilities and Net worth 4,652.56$

John SmithPERSONAL NET WORTH STATEMENT

September 30, 2011

Prepare a Personal Net Worth Statement

ASSETS Liabilities

Total Liabilities

Net WorthAssets minus liabilities

Total Assets Total liabilities and Net worth

PERSONAL NET WORTH STATEMENT

PERSONAL Net Worth Statement

Assets growing in value are said to be appreciating

Ben Lingo

Car 2,000.00Savings Account 150.00Checking Account 82.00

Personal Property Inventory 3,000.00

$6,232.00

Car Loan $1,500.00Credit Card 1,000.00

$2,500.00

$3,732.00

$6,232.00

October 31, 2012

MBD BIKE 1,000.00

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

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

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.

AssignmentAssume 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.

4-2 Basics of BudgetingBudget

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.

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.

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.

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 Savingsa. Pay yourself first

3. Estimate Expensesa. 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.

Balance the Budget.

Total Savings = Total Expenses

SAMPLE BUDGET

 Weekly Monthly Yearly

IncomeWork (Part - Time_ 30.00 120.00 1,440.00allowance for household chores 10.00 40.00 480.00Lunch Money Allowance 15.00 60.00 720.00Savings Account Interest 0.50 2.00 24.00Total Income 55.50 222.00 2,664.00

SavingsDeposit toSavings Account 5.50 22.00 264.00

ExpensesGift 5.00 20.00 240.00Clothes and shoes 15.00 60.00 720.00Loan Payment to Parents 5.00 20.00 240.00Lunches 15.00 60.00 720.00Entertainment/miscellaneous 10.00 40.00 480.00Total Expenses 50.00 200.00 2,400.00

Total Savings and Expenses. 55.50 222.00 2,664.00

PERSONAL BUDGETJOHN JONES

BUDGET FOR 2011

Preparing a Budget AnalysisVariances: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.

Variance Analysis on John Jones’ Budget: Calculate the actual amount John spent during the month and the Variance Analysis Monthly Actual Difference

IncomeWork (Part - Time_ 120.00 110.00 -10.00allowance for household chores 40.00 50.00 10.00Lunch Money Allowance 60.00 60.00 0.00Savings Account Interest 2.00 2.00 0.00Total Income 222.00 0.00

SavingsDeposit toSavings Account 22.00 22.00 0.00

ExpensesGift 20.00 16.00 4.00Clothes and shoes 60.00 70.00 -10.00Loan Payment to Parents 20.00 22.00 -2.00Lunches 60.00 55.00 5.00Entertainment/miscellaneous 40.00 35.00 5.00Total Expenses 200.00 198.00 2.00

Total Savings and Expenses. 222.00 220.00 2.00

-8% U25% F

000

0

20% F-17% U-10%8% F13% F

-1%

.9-%

Practice Problem