Financial Decisions and Planning

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• Chapter 4
• Financial Decisions and Planning

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What Are Needs and Wants?

• Needs are things you must have.
• Examples food, clothing, shelter

• Wants are things people desire.
• Examples new cars, vacations, luxury items

• Financial resources are used to acquire goods and
  services.

4-1 Resources and Choices
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How Are Income and Wealth Measured?

• Personal cash flow statement lists cash inflows
  and outflows.
• Inflows income
• Outflows expenses
• Personal net worth statement shows a persons net
  worth based on assets and liabilities.
• Assets money or items of value
• Liabilities debts

4-1 Resources and Choices
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How Is Wealth Measured?
PERSONAL NET WORTH STATEMENT PERSONAL NET WORTH STATEMENT PERSONAL NET WORTH STATEMENT PERSONAL NET WORTH STATEMENT 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
4-1 Resources and Choices
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How Can You Make Good Financial Choices?

• Decision-Making Process
• Define the need.
• List options for meeting the need.
• Compare the options.
• Consider the opportunity costthe value of your
  next best option.
• Make a decision.
• Take action based on your decision.
• Reevaluate your choice.

4-1 Resources and Choices
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Building Communications Skills

• Reading Vocabulary
• Try to learn the meaning of a word by seeing how
  it is used in a sentence.
• Divide a long word into parts.
• Look up a word in the dictionary.
• Look up a word in the glossary.
• Practice using new words in conversation or
  writing.

4-1 Resources and Choices
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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
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How Do You Prepare a Budget?

• Step 1 Estimate income
• Step 2 Plan savings
• Step 3 Estimate expenses
• Variable expenses
• Fixed expenses
• Charitable giving
• Step 4 Balance the budget

4-2 Basics of Budgeting
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Personal Budget
Income Weekly Monthly Yearly
Work (part-time) 30.00 120.00 1,440.00
Allowance for household chores 10.00 40.00 480.00
Lunch money allowance 15.00 60.00 720.00
Savings account interest .50 2.00 24.00
Total income 55.50 222.00 2,664.00
Savings
Deposit to savings account 5.50 22.00 264.00
Expenses
Gifts 5.00 20.00 240.00
Clothes and shoes 15.00 60.00 720.00
Loan payment to parents 5.00 20.00 240.00
Lunches 15.00 60.00 720.00
Entertainment/miscellaneous 10.00 40.00 480.00
Total expenses 50.00 200.00 2,400.00
Total savings and expenses 55.50 222.00 2,664.00

4-2 Basics of Budgeting
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Focus On . . .

• Philanthropy
• Philanthropy is a form of charitable giving.
• It supports a societal cause.
• It often lasts for an extended period of time.
• It is the primary source of funding for the fine
  arts, performing arts, and most religious and
  humanitarian causes.

4-2 Basics of Budgeting
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Success Skills
Dealing With Conflict

• Stop and take a ten-second time out.
• Ask what is happening here?
• Listen rather than talk.
• Suggest that you continue your talk later.
• Focus on the problem, not the person.
• Be objective.
• Be willing to compromise when appropriate.

4-2 Basics of Budgeting
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What Is Financial Planning?

• Financial planning is a process of looking at
  your current financial situation and thinking
  about your future.

• A financial plan has personal and financial goals
  along with steps and a timeline.
• Review and update your financial plan
  periodically.

4-3 Personal Financial Planning
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Good Afternoon - sit wherever you would like

• Todays agenda
• Scenario for Cash Flow
• Notes (5 slides)
• Simple/Compound Interest Work
• Bernie Madoff

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Interest Formulas

• Simple Interest IPRT
• Compound Interest AP (1 r/n) nt
• A- Amount
• P- Principle
• R- Rate (decimal form)
• N- Number of times compounded per year.
• T- Time

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What Is Financial Planning?

• Step 1 Gather financial information
• Step 2 Analyze information
• Step 3 Set goals
• Personal and financial
• Step 4 Develop a timeline and benchmarks
• Step 5 Implement and evaluate the plan

4-3 Personal Financial Planning
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Financial Plan (One Goal)
FINANCIAL PLAN FINANCIAL PLAN FINANCIAL PLAN FINANCIAL PLAN
Net worth on April 1, 20-- 525.56 Net worth on April 1, 20-- 525.56 Net worth on April 1, 20-- 525.56 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. Save money for a down payment (12,000) 5 years
Live in my own house in the country. Buy a house in the country. Set aside 200 per month Once per month
Live in my own house in the country. Buy a house in the country. Open a separate account for money saved April 8 (next week)
Live in my own house in the country. Buy a house in the country. Talk to a mortgage broker to get prepared Make an appointment for April 15
Live in my own house in the country. Buy a house in the country. Get a job that provides enough income to make monthly payments 2 years
4-3 Personal Financial Planning
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Where Can You Get Good Financial Advice?

• Financial planners
• Financial experts
• Newspapers and magazines
• Seminars and workshops
• Financial websites

4-3 Personal Financial Planning
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How Can You Protect Financial Resources?

• Deal only with financial advisers you know and
  trust.
• Keep good records.
• Verify account balances regularly.
• Guard passwords.
• Be aware of phishing.
• Guard against identity theft.

4-3 Personal Financial Planning