Personal Finance
Financial Security Enjoying financial security throughout
life is an achievable goal Budgets and other financial planning
tools can help you achieve financial security
Facts A person with a high school education
will earn just over 1 million dollars in a lifetime
What is a lifetime? Working from the time you are 18, until
you retire at around age 62 That’s 44 years
Facts A person with a college education can
be expected to earn more than 2 million dollars in the same time period
No matter how much you make, if your resources are not used wisely, your needs will not be met
Financial Planning Ongoing process Takes you from where you are now to
where you want to be financially It’s a way to control your financial
resources and your future The goal of financial planning is to reach
goals that are important to you and feel financially secure
Financial Security The ability to meet essential needs
without taking on more debt than you can repay
Financial security comes when you plan
Financial Literacy Understanding of the basic knowledge
and skills needed to manage financial resources
You are aware of financial management options
Budget A spending plan for the use of money
over time based on goals and expected income
Purpose is to take control of your money and spending
Steps To Prepare A Budget1. Establish financial goals: direct your money to those things you
consider most important Keep in mind financial goals change
2. Estimate and total your income: Determine your budget period-weekly,
biweekly or monthly Biweekly-every other week Income-any form of money you receive-
allowance, paycheck Estimate your income during a typical
budget period
Example: if you receive a weekly allowance from your parents, you should have a weekly budget
3. Estimate and total your expenses: Expense-the cost of goods or services
you buy
Fixed Expense A set cost that must be paid each
budget period
PYF Pay Yourself First Determine how much you want to save
each month automatically route your specified
savings contribution from each paycheck at the time it is received, before paying anything else
The golden rule of personal finance
Other Fixed Expenses Rent or mortgage payments Insurance Car payments Loan payments These expense tend to increase in amount
as you move into adult years As a rule, these expenses must be paid
when due Important to list first in your list of expenses
Variable Expense A cost that changes both in amount and
time it must be paid Food Clothing Medical expenses Entertainment
Discretionary Expenses Most teenagers receive basic
necessities from their families So, you spend your money on
discretionary expenses Music Snacks Computer games Movies
For adults, discretionary expenses are: Vacations Gifts Expensive clothing Other unnecessary things Wants
Savings Allows you to have cash available when
an unexpected expense occurs Car repairs Unexpected medical bills Home repairs Job loss
Charitable Giving The act of giving money, goods or
services for the good of others
4. Analyze Current Income and spending: Its easy to over or under estimate
income and spending Are your income figures accurate Subtract your expenses from your
income Do you have money left over, do you
come out negative, or are you even?
Negative and Even You will have to find ways to increase
income or cut expenses
5. Prepare a Trial Budget A plan reduces the temptation to
spend carelessly Keep these records so you can review
your financial situation
6. Put Your Budget Into Action Once you set up your budget, save and
spend according to your plans You will have two columns for planned
and actual expenses When an actual expense is greater than
what you planned for, identify the cause If your estimate was too low, adjust your
budget
7. Evaluate your budget periodically: Financial plans change with significant
events in your life College Starting a new job Leaving home Getting married Having children
If you monitor your finances carefully, you income will work well for you over the years
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