n Explain the basics of money management.
n Create a personal balance sheet.
n Develop a personal cash flow statement.
n Money management
n Personal assets
n Net worth
n Cash flow statement
n Refers to the day-to-day financial activities
associated with using limited income to
satisfy your unlimited needs and wants
n Involves getting the most for your money
through careful planning, saving, and
n Involves making and using a plan for
n Set goals
n Make wise decisions
n Buy wisely
n Live within their income
What are some characteristics of a wise money
n Wise money managers get the most from their limited
incomes through careful planning, saving, and
n They set goals, make wise decisions, buy wisely, and
live within their incomes.
n Balance Sheet – a record of assets and
liabilities at a point in time.
n 3 parts:
¨ Assets – things you own
¨ Liabilities – things you owe
¨ Net Worth – aka - “owner’s equity” – overall
value after subtracting liabilities from assets
n The money that could be claimed if all liabilities were
paid and assets were sold for cash.
¨ Assets – Liabilities = Net Worth
Sample Personal Balance Sheet
What are three main categories of a personal balance
n Net worth or owner’s
n 3 parts:
¨ Cash inflows –money you have available to
spend from income, interest earned from
checking or savings account, etc.
¨ Cash outflows – aka “expenditures” – money
spent for living costs, transportation,
¨ Cash inflows – cash outflows = net cash flow
What do cash outflows represent?
n Cash outflows represent amounts spent for food,
clothing, transportation, and other living expenses.
n Identify purposes of a budget.
n Describe steps for preparing a budget.
n Describe characteristics of successful budgeting.
n fixed expenses
n variable expenses
n budget variance
Purpose of a Budget:
To help you:
n Live within your income
n Achieve your financial goals
n Buy wisely
n Avoid credit problems
n Plan for financial emergencies
n Develop good money management skills
What are the main purposes of a budget?
n The main purposes of a budget are to help people live
within their incomes, achieve financial goals, buy
wisely, avoid credit problems, plan for financial
emergencies, and develop good money management
n Fixed –
¨ Examples – rent, mortgage, insurance, loan
¨ Examples – food, clothing, utilities, cell phone,
§ Allowance – the amount of money you plan to
use for savings and other expenses.
THE BUDGET PROCESS
n Set financial goals BUDGET CATEGORIES
n Plan budget categories n Food
n Maintain financial records n Clothing
n Evaluate your budget n Transportation
n Health and
n Gifts and contributions
Sample Family Budget
What are eight commonly used budget categories?
n savings n transportation
n food n health and personal care
n clothing n recreation and education
n household n gifts and contributions
AN EFFECTIVE BUDGET
n Must be realistic
n Should be flexible
n Should be evaluated regularly
n Must be well planned and clearly
n Should have a simple format
Sample Income and Expense Record
What are five characteristics of an effective budget?
n Evaluated regularly
n Well planned and clearly communicated
n Simple format
n Describe the financial planning process.
n Explain actions for implementing a financial plan.
n Identify actions for reviewing a financial plan.
n financial plan
n individual retirement account (IRA)
n estate planning
ADVANTAGES OF FINANCIAL
n Your financial uncertainties will be reduced.
n You will gain more control of your financial
n Your family and household members will know
more in case they need to assume control of
n Earning, spending, protecting, and saving your
resources will be more systematic.
1. Analyze your current financial condition
2. Develop financial goals that are
responsive to your vision
3. Create your financial plan
4. Implement the plan
5. Revise your financial plan
n Careful review of your finances
n Personal balance sheet
n Personal cash flow statement
n Information about current financial position
n Living expenses
n Money owed
n Personal records n Tax records
n Housing records n Financial services
n Consumer purchase and credit records
records n Investment,
n Insurance records retirement, and estate
n Money management records
FINANCIAL LIFE CYCLE
n Teen years
n Questions to ask when choosing a
¨ What experience and training do you have?
¨ Are you willing to supply references from past
¨ How are your fees determined?
List five recommended steps for financial planning.
n Analyze your current financial condition.
n Develop financial goals that are responsive to your
n Create your financial plan.
n Implement the plan.
n Revise your financial plan.
n Insure current income
¨ Unemployment insurance
n Plan for future income
¨ Social Security
¨ Retirement accounts
What are common sources of income during retirement?
n Social Security
n Individual retirement accounts
n Roth IRAs
n 401 (k) plans
n Keogh plans
n Revise financial goals
n Review financial activities
n Remember to save and share
What activities are involved when reviewing a
n When reviewing a financial plan, one should revise
short- and long-term financial goals on a regular
basis, make changes in spending and saving habits
as needed, and engage in estate planning to build
assets and arrange to distribute property after