© goodheart-willcox co., inc.. 6 personal finance: an overview

6Personal Finance:

An Overview

Objectives

• Prepare a _______ tailored to income and needs.

• Prepare __________and ____worth statements.

• __________family finances for different stages in the life cycle.

• Give examples of economic, demographic, cultural, and technological ________that can impact financial planning.

continued

Objectives

• Explain ways to deal with a financial_______

• Identify important financial and legal ______________to keep on hand.

Preparing Financial Statements

• Financial planning enables you to– ________important_________– achieve a sense of financial

________for life• Financial security is the ability to

________ essential ______without taking on more debt than you can repay

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• Financial __________is – having a ______understanding of

_________and ______needed to manage financial resources

– Being ______of and knowledgeable about financial management_______

– Feeling _____in your _________ to make your resources work for you

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• Financial statements include– __________– ______ ___________statement– ________________statement

Tailoring a Budget to Income and Needs

• A __________helps you manage– _________and ____________– ______-to-day expenses

• Creating a basic budget involves ________steps

1. Establish Financial_______

• _____your financial _______• Your goals will change over time

2. _______and Total Your Income

• _________a budget_______• _________ _______ from each

source• ______the estimated income

3. ________and Total Your______

• _______expenses – _____ ____ _______ each budget

period– are often the ______or nearly the

same amount from month to month– include payments for_____, _________,

_________, ________premiums, and auto and other________

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3. Estimate and Total Your Expenses

• _________expenses – Can _______from month to month,

both in amount and time to pay– can often be pared down or_____– include payments for______,

_________, _______expenses, ____________expenses

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3. Estimate and Total Your Expenses

• Use a _____to estimate and total expenses

Building Savings into Your Budget

• Build _______into a budget for – Unexpected ___________: medical

expense, car______, a possible period of______________

– medium- and ______-term goals– investments to _________your

financial circumstances

Charitable Giving as an Expense

• Budget for philanthropy by giving to _________ charities

• Making _________may lower______

4. Analyze Current Income and Spending

• Subtract ________from_______• If the number is________, you have

money left over for_____• If the number is 0 or________, find

ways to increase _______or cut__________

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• Ways to increase ________:– Handle more ____________at home to

possibly increase your_________– Get a part-time ____ – If you work, negotiate a _____ or

increased ______

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• Ways to reduce _______:– Reduce or cut ____________ expenses– Reduce ____ and ________ expenses– Cut expenses unrelated to goals and

__________

5. Prepare a Trial Budget

• Use goals, income, and expenses• Use ________ expenses

6. Put Your Budget into Action

• Fill in actual amounts for income and expenses

• If actual amounts exceed budgeted amounts, identify the cause

• Revise budget using actual costs • Study budget before making

financial decisions

7. Evaluate Your Budget Periodically

• Is your _______ working? • Are you reaching ________ goals

and setting new ones?• Are you _________ your spending? • Has your income or spending

_______ changed? • Do ____ changes call for

adjustments?

Preparing a Cash Flow Statement

• Shows real ______ and ________

• Inflow is income; _______ is _________

• Prepare at end of ________ period

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Preparing a Cash Flow Statement

• By _________ income and expenses, you get a good picture of your _________ patterns

Preparing a Net Worth Statement

• Net ______ = assets – liabilities– ________ net worth lets you meet

your financial _________ and goals, and __________ wealth

– Negative net worth can be _________ by reducing expenses or _________ income

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Preparing a Net Worth Statement

• This measures your ________ standing at a specific point in _____

Assets

• Liquid assets are easily ________ to cash– _____, money in savings

• Investment assets are _______ funds set aside for long-term goals– Stocks, ______

• Use assets are _______ goods – Auto, furniture

Liabilities

• Current ________ are items that must be paid soon, usually within a year– ________ bill, taxes, _________ bill

• Long-term _________ are obligations paid over a longer period of time– Mortgage, student loan

Planning Family Finances

• Factors affecting adult budgeting decisions are– age– stage in the family life cycle

• Families can skip, overlap, or repeat family life cycle stages

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Planning Family Finances

• Family life cycle_________– _________– __________ – ___________ – ___________ – ___________

Beginning Stage

• _______ _______ from parents, obtain higher education,_______, start jobs and_________

• _________: education, college loans, home down payment, auto, home furnishings, insurance

Expanding Stage

• Job___________, increasing income, increasing responsibilities, childbirth, and parenting

• Expenses: child-related costs, increased _________protection, increased housing expenses

__________Stage

• _______school-age children and___________, climbing income and expenses

• Expenses: child- and ______-________ costs,_______ ______, retirement planning

__________Stage

• _________of children from home, peaking earnings, aging parents

• Expenses:________, retirement savings, costs of caring for _______ ________

In Your Opinion

• Which stages of the family life cycle can you recognize in your own family’s history? Were any stages skipped or repeated?

_______Stage

• ___________, earnings drop, “_______ _____”, birth of grandchildren, caring for elderly parents, estate planning

• __________: medical costs, insurance, travel, costs of caring for elderly parents

• Security at this stage depends on earlier planning

Variations in the Cycle

• _______and ________couples _____the expanding, developing, and launching stages

• Single parents who ________may _______stages with new spouses

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• Single-parent ______-headed families often have ____ _______, less savings

• After separation and divorce, income often falls while _____ _____________

Financial Decisions in a Changing World

• Other forces impacting financial decisions:– __________factors– __________ factors– ___________factors– ____________ factors

• Financial planning and saving help people cope with economic challenges

The Economy and Your Finances

• During ______economic______,– consumers and business owners

are___________– most people who want _____can find

them– _______and __________ rise– people save and ________for the

future

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• During a_________,– people

are_____________– people fear or

experience ___ ______incomes stagnate

– people spend less; _______ ________

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• During___________,– ______ ______ _________than income– money buys_______– people cannot buy or save as much

Demographics and Your Finances

• Demographic _______that impact the economy and people’s finances– An aging population – Changing job market– Rising educational requirements for

jobs – More young adults living with their

parents

Culture and Your Finances

• _________ethnic, cultural, religious diversity, especially in ______areas

• More relationships and marriages between people of different backgrounds

• Cultural and ethnic _________can affect financial decisions

Technology and Your Finances

• New technology can have financial impacts

• Example: _____________ advances led to longer lives and the ______for more__________ continued


• Positive impacts of advanced technology:– New markets in which to buy and

sell– Wider _________of goods and services– _______ __________ goods and

services– New_______– New money management________– Easy ________to information

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• _______created by advanced technology:– Offshore____________—businesses

move factories and jobs to other countries to benefit from cheap labor and weaker government regulations

– American workers competing for jobs with lower-paid workers may ______ ___, benefits, or take pay cuts

Working Through Financial Problems

• To __________ a financial_______,– get the best ________and job training

possible– Keep _____under __________– Create ________ _______; save

regularly– _______taking excess ________– Get ___________protection– _______finances with household

members

Unexpected Crisis

• Some crises ________ ____ _________ or prepared for in advance

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Unexpected Crisis

• Causes of a family crisis include– job loss– separation and divorce– death– disability– serious illness– natural disaster

continued

Unexpected Crisis

• To cope with a family crisis– discuss problem with adult members

of household– list your resources– minimize negative financial

consequences– get the help of professionals

Keeping Important Documents

• Keep documents and papers necessary for financial and legal transactions

• Develop a recordkeeping system

Key Lists to Keep Current and Available

• _______and _________ accounts• Credit card and _______accounts• ______Personal identification

numbers)• ___________and investment

records• _______and trusts• _________policies• Loan________, including mortgage continued

Key Lists to Keep Current and Available

• ______records• Property ______and titles• ____________plans and employee

benefits documents• ______Security and Medicare

records• ________, possessions, and _________• Product information and_________• Instructions for management of

your affairs

Scheduling Bills

• Set aside a specific _____to put _____as they arrive

• If you don’t receive an expected bill, _______the business right away

• Keep track of _____dates • Set a ______ ______for bill paying• Pay bills ___the ______they are due

Keeping Budgeting Records

• Your files should contain records related to income, spending, and savings

• Keep _________for – _______expenses– __________you may want to________– purchases that may need

________service

Central Ideas of the Chapter

• Enjoying financial security throughout life is an achievable goal.

• Budgets and other financial planning tools can help people achieve financial security.

Glossary of Key Terms

• budget. A spending plan for the use of money over time based on goals and expected income.

• cash flow statement. A summary of the amount of money received as well as the amount paid out for goods and services during a specific period.

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• demographics. The statistical characteristics of the population.

• expense. The cost of a good or service a person buys.

• family crisis. A major problem that impacts the future of the family and its lifestyle.

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• family life cycle. The stages of change a family passes through from formation to aging.

• financial literacy. The understanding of the basic knowledge and skills needed to manage financial resources.

• fixed expense. A set cost that must be paid each budged period.

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• income. Any form of money a person receives from various sources.

• liability. A financial obligation that a person currently owes or will owe in the future.

• net worth. The difference between what a person owns and owes.

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• net worth statement. A written record of a person’s current financial situation.

• philanthropy. The act of giving money, goods, or services for the good of others.

• recordkeeping. The process of setting up and maintaining an organized system for your financial affairs.

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• variable expense. A cost that changes both in the amount and time it must be paid.

• wealth. An abundance of assets that are accumulated over time.

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© goodheart-willcox co., inc.. 6 personal finance: an overview

Documents

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financial decisions

time slide

furniture slide

overview slide

estimated income slide

total expenses

student loan slide