1 11 MSU Extension Personal & Family Financial Management Publications.
Chapter 2 PERSONAL FINANCIAL MANAGEMENT. OBJECTIVES Describe the importance of personal financial...
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Transcript of Chapter 2 PERSONAL FINANCIAL MANAGEMENT. OBJECTIVES Describe the importance of personal financial...
Chapter 2
PERSONAL FINANCIAL MANAGEMENT
OBJECTIVES Describe the importance of personal financial
management Identify the significance of money management and
budgeting Identify the difference between gross income and net
income Create a personal budget Recognize money wasters Identify debt and debt-management resources Identify wise use of credit Describe the importance of savings and investments Protect yourself from identity theft
FINANCIAL MANAGEMENT
Personal financial management: the process of controlling your income and your expenses
FINANCIAL MANAGEMENTIncome
Income: money coming in Income may come from:
Parents Grants Student loans Job
After college and starting your new career your income most likely will increase
FINANCIAL MANAGEMENTExpense
Expense: money going out Common college expenses
include: Tuition, text books, supplies Housing Transportation Hobbies and entertainment Medical
PERSONAL FINANCIAL MANAGEMENT AFFECTS WORK PERFORMANCE
Personal finances impact all areas of your life Finances assist you in reaching life
goals Keep debt under control Affect your work situation
PERSONAL FINANCIAL MANAGEMENT AFFECTS WORK PERFORMANCE
Maintain a positive credit report Use credit wisely Begin savings and investment
now Protect yourself from identity theft Pay your bills
YOUR PAYCHECK
Do not overdo spending Now is the time to manage your
money Create a budget to help you
reach your goals Financial success begins with
discipline and planning
MONEY MANAGEMENTBudgeting
Budget: a detailed financial plan used to allocate money for a specific time period Reflects your goals Controls and prioritizes spending
Be honest and precise when creating a budget
MONEY MANAGEMENTCash Management
Cash management is the key to good budgetingRecord all transactions Carry a small amount of cashReduce trips to the ATM
MONEY MANAGEMENTSteps to Creating a Budget
1. Identify goals2. Attach financial goals to personal goals3. Determine monthly income (money in)4. Determine monthly expenses (money out)
Budget on a monthly basis Keep track of all spending Reduce money wasters
MONEY MANAGEMENT
Fixed expenses: expenses that do not change from month to month
Flexible expenses: expenses that change from month to month
Money wasters: small expenditures that you do not realize are actually using up a portion of your income
DEBT MANAGEMENT
Debt management involves: Debt Interest Net worth Assets Liabilities
DEBT MANAGEMENTDebt, Loans, and Interest
Debt: money you owe for borrowed funds Debt vs. expenses
Debt includes a loan with interest Expenses include bills that come regularly
Loan: a large debt that is paid in smaller amounts over a period of time and has interest added to the payment
Interest: the cost of borrowing money This is extra money paid to the lender
DEBT MANAGEMENTTotal Net Worth
Total Assets – Total Liabilities= Total Net Worth
Assets: what you own Car, home, furniture
Liabilities: an obligation to pay what you owe Car loan, home loan
Net worth: the amount of money that is yours after paying off debt
DEBT MANAGEMENTSteps to Get Out of Debt
Do not create additional debt Prioritize your debt Pay off the smallest amount or
the amount with the largest interest first
Take the extra cash from a paid-off debt and apply it to the next debt on your priority list
TALK IT OUT
What are warning signs that you may be getting into debt?
WISE USE OF CREDITManage Your Credit
Managing credit is the best way to stay out of debt
Do not abuse the privilege of credit and credit cards
Spend wisely and pay off the balance each month
Use credit only for items you can afford
Avoid taking out loans
TALK IT OUT
Identify potential terms and conditions that you should consider before getting credit from a lender
SAVINGS AND INVESTMENTS
Begin saving now Put away funds for short-term
goals or emergencies Rule of thumb: Have at least five
months’ income saved for emergencies
Have savings in a bank Determine if you should use a
regular savings account or a Certificate of Deposit
SAVINGS AND INVESTMENTS
Begin investing now Opportunity to increase the value
of your money Long term Involves risk Establish after you have a savings
account
IDENTITY THEFT
Identity theft is when another individual uses your personal information to obtain credit in your name
Prevent by: Disposing of any communication that
contains your personal information Shred or cut up any mail and delete any
electronic correspondence Keep copies of important information in a
safe place
IDENTITY THEFTTips to Remember
Do not give out your social security number over the telephone or Internet without verifying the authenticity of the company and individual requesting the information
Document all important numbers and keep them in a safe place
Practice good personal financial management Remove your name from credit card and
marketing lists
IDENTITY THEFTIf You Become a Victim of Identity Theft
File a police report Contact your bank, credit card companies,
and cell phone provider Do not change your social security number,
contact the Social Security Administration Fraud Department
Contact the credit reporting agency fraud lines
Document everything you do