2.1.3.G1 © Take Charge Today – August 2013 – Financial Decisions – Slide 1 Funded by a grant...

2.1.3.G1

© Take Charge Today – August 2013 – Financial Decisions – Slide 1Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona

Introduction to Chapter 4

Objectives:• Apply the concepts

of trade-offs and opportunity costs to decision making.

• Identify the difference between a cash flow and net worth statement.

QUESTION:Describe the difference

between…Instant Gratification and Future

Gratification

2.1.3.G1

Financial Decisions

Chapter 4, Section 1

2.1.3.G1


What contributes to the decisions you make?

Values

Needs

Wants

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Needs, Wants, and Cupcakes

Icing and decorations represent wants, the extra items that make our lives interesting and enjoyable.

The cake part of a cupcake represents our needs. They must be present and addressed before considering any icing or decorations (wants).

Decisions: ask yourself if your needs are met before spending on any of your wants. What you determine to be a need versus a want will depend on your personal values.

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Resources Limit Choices

Unlimited Wants/Needs + Limited Financial Resources = Financial Choices

**Opportunity Cost

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Financial Strategies

• Consider your future– Financial Plan/Goals

• If you have doubt, don’t buy it– Remember: businesses create demand by advertising

• Avoid buyer’s remorse (impulse buys)– Don’t be tempted to buy products you can’t afford

2.1.3.G1


Cash Flow StatementApril 1-30, 2012

Cash Inflows (Income)

Work (part-time) $120.00

Allowance for household chores 40.00

Lunch money allowance 60.00

Savings account interest 2.00

Total cash inflows $222.00

Cash Outflows (Expenses)

Gifts $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 $22.00Shows the movement of money

FINANCIAL

SITUATION

2.1.3.G1

© Take Charge Today – August 2013 – Financial Decisions – Slide 8Funded by a grant from Take Charge America, Inc. to the Norton School of Family and Consumer Sciences Take Charge America Institute at the University of Arizona Slide 84-1 Resources and Choices

PERSONAL NET WORTH STATEMENTAssets (items of value) Liabilities (debt)

Cash and checking account $ 452.56 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

300.00

Car, current value 3,000.00 Net Worth

Total assets $4,652.56 Assets minus liabilities

3,351.58

Total liabilities and net worth $4,652.56

Net Worth

Shows your wealth based on assets – liabilities

FINANCIAL

SITUATION

2.1.3.G1


NAME THIS STATEMENT!Assets (items of value) Liabilities (debt)





100.00


300.00



3,351.58


Net Worth

Shows your wealth based on assets – liabilities

FINANCIAL

SITUATION

2.1.3.G1


NAME THIS STATEMENT!April 1-30, 2012








Gifts $20.00



Lunches 60.00



Net cash flow $22.00Shows the movement of money

FINANCIAL

SITUATION

2.1.3.G1


NAME THIS STATEMENT!April 1-30, 2012








Gifts $20.00



Lunches 60.00



Net cash flow $22.00

FINANCIAL

SITUATION

2.1.3.G1


NAME THIS STATEMENT!!Assets Liabilities





100.00


300.00



3,351.58


FINANCIAL

SITUATION

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Why do you think this happens? –People do not make enough money–People spend too much money

Almost half of all American families spend more money than they make

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Why is a Spending Plan an important

part of financial

planning?

Analyze the opportunity costs

to maximize financial well-

being

Set and reach goals

Track where your money is

going

Identify income and expenses

2.1.3.G1


Money Management Tools

Statement of Financial Position

Cash Flow & Net Worth

Income & Expense Statement

Spending Plan/Budget

What is my financial position

today?

What is my future money

management plan?

How have I managed my

money in the past?

Make changes

Determine what changes to make

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Spending Plan Development Process

Step 1 – Analyze spending for one

month

Step 2 - Personalize by designating

money to specific categories

Step 3 – Implement and

Control

Step 4 – Identify

Variances

Step 5 – Balance your budget

Develop the spending plan

Maintain the spending plan

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Be Sure to Pay Yourself First!

• Before designating money in different categories, take a fixed amount for yourself and put it in your savings account.

Remember, a little goes a long way!

Amount Saved Interest Earned 10 Year Future Value$7.00 5% $4,720$21.00 5% $14,160$35.00 5% $23,600

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70-20-10 Strategy

• Spend 70% of your income• Save 20% of your income• Invest 10% of your income

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Spending Plan Guide

What variables may cause these percentages to be different?

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Financial Plan (One Goal)FINANCIAL PLAN

Net worth on April 1, 20--: $525.56

Personal Goal

Financial Goal

Steps to Take (Benchmarks)

Timeline

Live in my own house in the country.

Buy a house in the country.

1. 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

November 6 (next week)

• Talk to a mortgage broker to get prepared

Make an appointment for November 9

2. Get a job that provides enough income to make monthly payments

2 years

Step 1: Gather InformationStep 2: AnalyzeStep 3: Set GoalsStep 4: Develop a TimelineStep 5: Implement

**Review and Update as Needed**

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Budget Advice

• In your assigned group, read through the information on the Brown Family and the Carson Family and complete both activities.

2.1.3.G1 © Take Charge Today – August 2013 – Financial Decisions – Slide 1 Funded by a grant...

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