chapter 4 financial decisions and planning. financial literacy chapter 4 objectives –describe...
TRANSCRIPT
Chapter 4
Financial Decisions and Planning
Financial Literacy• Chapter 4 Objectives
– Describe needs and wants– Apply a decision making process to make
personal financial choices– Understand terms on personal cash flow
statements and net worth statements – Prepare a personal budget, planning for
projected income and expenses– Explain and draft a financial plan
Slide 2
Slide 3
What Are Needs and Wants?
4-1 Resources and Choices
• Needs are things you must have.o Examples: food, clothing, shelter
• Financial resources are used to acquire goods and services.
• Wants are things people desire.o Examples: new cars,
vacations, luxury items
Resources Limit Choices
• People’s wants and needs are unlimited
• Financial resources are limited
• With limitations comes choice
Slide 4
Slide 5
How Are Income and Wealth Measured? See page 120
4-1 Resources and Choices
• Personal cash flow statement lists cash inflows and outflows.o Inflows = incomeo Outflows = expenses
• Personal net worth statement shows a person’s net worth based on assets and liabilities.o Assets = money or items of valueo Liabilities = debts
Slide 6
How Is Wealth Measured? See page 120
4-1 Resources and Choices
PERSONAL NET WORTH STATEMENT
Assets Liabilities
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
Know these terms well:From the
Net Worth Statement
Assets: Money and items of value that you own
Liabilities: Debts that you owe
Net Worth: difference between your assets and your liabilities
Value of Assets Appreciating: Assets
that are growing in value, ex. Land, house, savings bonds
Depreciating: Assets that are decreasing in value, ex. Cars and electronics
Slide 7
Financial Strategies• Consider your future – how will this choice affect
your future?
• If you have doubt, don’t buy it - wait
• Avoid buyer’s remorse:
(emotional or impulse buys)
• Learn from other’smistakes
Slide 8
Slide 9
What Is the Purpose of Budgeting?
• A budget is a spending and saving plan.
• It is based on estimated income and expenses.
• Use spreadsheet software to prepare a budget.
4-2 Basics of Budgeting
Slide 10
How Do You Prepare a Budget?
4-2 Basics of Budgeting
• Step 1: Estimate income• Step 2: Plan for savings (10% to start)• Step 3: Estimate expenses
o Variable expenses- ex. Gas and electric billo Fixed expenses – ex. Rent, car paymento Charitable giving
• Step 4: Balance the budget: Budget Equation
Savings + Expenses = Income
Slide 11
Personal Budget
4-2 Basics of Budgeting
Income Weekly Monthly Yearly
Work (part-time) $30.00 $120.00 $1,440.00Allowance for household chores 10.00 40.00 480.00Lunch money allowance 15.00 60.00 720.00Savings account interest .50 2.00 24.00Total income $55.50 $222.00 $2,664.00
Savings
Deposit to savings account $ 5.50 $ 22.00 $ 264.00
Expenses
Gifts $ 5.00 $ 20.00 $ 240.00Clothes and shoes 15.00 60.00 720.00Loan payment to parents 5.00 20.00 240.00Lunches 15.00 60.00 720.00Entertainment/miscellaneous 10.00 40.00 480.00Total expenses $50.00 $200.00 $2,400.00
Total savings and expenses $55.50 $222.00 $2,664.00
Preparing a Budget Analysis
• Not everything will go as planned
• Variances– Difference between
planned amounts and
actual amounts
• Favorable and Unfavorable (F or U)
Slide 12
Record Keeping
• Manual– Pen and paper– Keep it somewhere safe
• Electronic– Using software such as Quicken or Quickbooks– Microsoft Excel– Google Docs
Slide 13
Q&A: Answer these Questions in space below:
page 123: #13, #14, #16
• Then go to Activity 1 in back of packet. Slide 14
Financial Literacy …continuing Chapter 4
• Current Objectives:– Identify the purpose of a personal budget– Prepare a personal budget– Learn how to analyze and prepare for
variances in a budget– Learn importance of Financial Planning
Slide 15
Slide 16
What Is Financial Planning? • Financial planning is a process of looking at your
current financial situation and thinking about your
future.
4-3 Personal Financial Planning
• A financial plan has personal and financial goals along with steps and a timeline.
• Review and update your financial plan periodically.
• Helps you insure that your “net worth” increases over time
Slide 17
Financial Planning Steps to Success
• Step 1: Gather financial information• Step 2: Analyze information• Step 3: Set goals
o Personal and financial• Step 4: Develop a timeline and
benchmarks• Step 5: Implement and evaluate the plan
4-3 Personal Financial Planning
Slide 18
Financial Plan (One Goal)
4-3 Personal Financial Planning
FINANCIAL PLAN
Net worth on April 1, 20--: $525.56
Personal Goal Financial Goal 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
April 8 (next week)
• Talk to a mortgage broker to get prepared
Make an appointment for April 15
2. Get a job that provides enough income to make monthly payments
2 years
Slide 19
Success Skills for Life:
Tips for Dealing With Conflict…
4-2 Basics of Budgeting
• Stop and take a ten-second time out.o Ask yourself “what is happening here?”o Listen rather than talk.
• Suggest that you continue your talk later.• Focus on the problem, not the person.• Be willing to compromise when appropriate.
Slide 20
Focus On . . .
Philanthropy • Philanthropy is a form of
charitable giving.• It is the primary source of funding for the fine
arts, performing arts, and most religious and humanitarian causes.
• It is good to add some sort of charitable giving to your budget, through a church, a non-profit cause, or other reputable organization
4-2 Basics of Budgeting
Activity 11. What do things really cost?
– Find a cell phone plan – monthly cost?• Pick a phone, add to cart, then go through
individual plans. • Write in your choice and monthly cost:• _________________________________
– Find TV and Internet Service – monthly cost?• Could be a bundle or separate.• Write in your choice and monthly cost:• ___________________________________
2. Ch. 4 Key Terms List Slide 21
Slide 22
Activity 2 –What is your monthly car payment?
1. Find your car on any website and write price:
Car:_____________Total price:_____________•Then, using autos.yahoo.com
– Go to the Finance tab
– Select the Monthly Payment calculator
•Info needed:
– Your car sales price
– You will put $1500 down payment
– Interest: Choose national average
•Monthly car payment: ______________2. Finish Ch. 4 Key Terms List
Activity 31. What is your estimated annual/monthly income
for your future career? (see green Career WS )
Slide 23
Annual Income:______________ Monthly Income: _____________
2. Start a new Spreadsheet in Excel OR use my Sample Budget template on my website and SAVE AS:“Your Name, Personal Monthly Budget”
• Set up the Rows as on My Sample Budget on my website
3. In your Excel Personal Budget spreadsheetAdd in your researched decisions:
Monthly incomeMonthly car paymentMonthly cell phone payment Monthly TV/Internet payment.
4. Save as “Personal Budget” in the “Fin Lit” folder you created on your server