Introduction to Business© Thomson South-Western
ChapterChapterChapterChapter
Money Management and Financial Planning
16-116-1 Personal Financial Statements
16-216-2 Budgeting Techniques
16-316-3 Your Financial Future
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LESSON 16-1
Personal Financial Statements
Goals Explain the basics of money
management. Create a personal balance sheet. Develop a personal cash flow
statement.
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Key Terms
money management personal assets net worth cash flow statement
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MONEY MANAGEMENT BASICS Refers to the day-to-day financial activities
associated with using limited income to satisfy your unlimited needs and wants
Involves getting the most for your money through careful planning, saving, and spending
Involves making and using a plan for spending
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SUCCESSFUL MONEY MANAGERS Set goals Make wise decisions Buy wisely Live within their income
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>> C H E C K P O I N T
What are some characteristics of a wise money manager?
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PERSONAL BALANCE SHEET Assets Liabilities Net Worth
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SAMPLE PERSONAL BALANCE SHEET
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>> C H E C K P O I N T
What are three main categories of a personal balance sheet?
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PERSONAL CASH FLOW STATEMENT Cash inflows Cash outflows Compare inflows and outflows
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SAMPLE PERSONAL CASH FLOW STATEMENT
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What do cash outflows represent?
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LESSON 16-2
Budgeting Techniques
Goals Identify purposes of a budget. Describe steps for preparing a budget. Describe characteristics of successful
budgeting.
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Key Terms
fixed expenses variable expenses allowance budget variance
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BUDGET ACTIVITIES
Live within your income Achieve your financial goals Buy wisely Avoid credit problems Plan for financial emergencies Develop good money management skills
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>> C H E C K P O I N T
What are the main purposes of a budget?
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THE BUDGET PROCESS Set financial goals Plan budget categories
BUDGET CATEGORIES Savings Food Clothing Household Transportation Health and
personal care Recreation
and education Gifts and contributions
Maintain financial records Evaluate your budget
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SAMPLE FAMILY BUDGET
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>> C H E C K P O I N T
What are eight commonly used budget categories?
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CHARACTERISTICS OF AN EFFECTIVE BUDGET Must be realistic Should be flexible Should be evaluated regularly Must be well planned and clearly
communicated Should have a simple format
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BUDGETING FORMATS
Software program Handwritten Checkbook Unwritten
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SAMPLE INCOME AND EXPENSE RECORD
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>> C H E C K P O I N T
What are five characteristics of an effective budget?
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LESSON 16-3
Your Financial Future
Goals Describe the financial planning process. Explain actions for implementing a
financial plan. Identify actions for reviewing a financial
plan.
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Key Terms
financial plan individual retirement account (IRA) estate planning
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ADVANTAGES OF FINANCIAL PLANNING Your financial uncertainties will be reduced. You will gain more control of your financial
activities. Your family and household members will
know more in case they need to assume control of your finances.
Earning, spending, protecting, and saving your resources will be more systematic.
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FINANCIAL PLANNING PROCESS1.1. Analyze your current financial condition
2.2. Develop financial goals that are responsive to your vision
3.3. Create your financial plan
4.4. Implement the plan
5.5. Revise your financial plan
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FINANCIAL INVENTORY
Careful review of your finances Personal balance sheet Personal cash flow statement Information about current financial position
Income Savings Investments Property
Living expenses Insurance Money owed
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PERSONAL FINANCIAL FILING SYSTEM Personal records Housing records Consumer purchase records Insurance records Money management records Tax records Financial services and credit records Investment, retirement, and estate records
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FINANCIAL LIFE CYCLE
Teen years Twenties Later Retirement
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USING A FINANCIAL PLANNER Questions you might ask when
choosing a financial planner What experience and training do you
have? Are you willing to supply references from
past clients? How are your fees determined?
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>> C H E C K P O I N T
List five recommended steps for financial planning.
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IMPLEMENT A FINANCIAL PLAN Insure current income
Disability income insurance Unemployment insurance
Plan for future income Social Security Pensions Retirement accounts Annuities
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What are common sources of income during retirement?
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REVIEW YOUR FINANCIAL PLAN Revise financial goals Review financial activities Remember to save
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>> C H E C K P O I N T
What common activities are needed when reviewing a financial plan?