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Money Management and Financial Planning - Muncy School District

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					Chapter 16

             Money Management
             and Financial
             Planning



                                1
16-1


                 Personal Financial
                 Statements
Goals:
n Explain the basics of money management.
n Create a personal balance sheet.
n Develop a personal cash flow statement.


                                            2
Key Terms
n Money management
n Personal assets
n Net worth
n Cash flow statement




                        3
MONEY MANAGEMENT
BASICS
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
  spending
n Involves making and using a plan for
  spending

                                              4
SUCCESSFUL MONEY
MANAGERS
n Set goals
n Make wise decisions
n Buy wisely
n Live within their income




                             5
Checkpoint >>

What are some characteristics of a wise money
manager?
Answer
n Wise money managers get the most from their limited
  incomes through careful planning, saving, and
  spending.
n They set goals, make wise decisions, buy wisely, and
  live within their incomes.

                                                         6
 PERSONAL
 BALANCE SHEET
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
                                                                 7
Sample Personal Balance Sheet




                                8
Checkpoint >>

What are three main categories of a personal balance
sheet?
Answer
n Assets
n Liabilities
n Net worth or owner’s
  equity


                                                       9
PERSONAL CASH
FLOW STATEMENT
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,
      entertainment, etc.
    ¨ Cash inflows – cash outflows = net cash flow


                                                     10
Sample
Personal
Cash Flow
Statement




        11
Checkpoint >>

What do cash outflows represent?
Answer
n Cash outflows represent amounts spent for food,
  clothing, transportation, and other living expenses.




                                                         12
16-2


                   Budgeting
                   Techniques
Goals:
n Identify purposes of a budget.
n Describe steps for preparing a budget.
n Describe characteristics of successful budgeting.


                                                      13
Key Terms
n fixed expenses
n variable expenses
n allowance
n budget variance




                      14
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



                                         15
Checkpoint >>

What are the main purposes of a budget?
Answer
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
  skills.



                                                          16
Expenses
n   Fixed –
    ¨ Examples – rent, mortgage, insurance, loan
      payments, etc.
n   Variable
    ¨ Examples  – food, clothing, utilities, cell phone,
      medical, etc.

    § Allowance – the amount of money you plan to
      use for savings and other expenses.
                                                      17
THE BUDGET PROCESS
n   Set financial goals          BUDGET CATEGORIES
                                 n Savings
n   Plan budget categories       n Food
n   Maintain financial records   n Clothing
                                 n Household
n   Evaluate your budget         n Transportation
                                 n Health and
                                   personal care
                                 n Recreation
                                   and education
                                 n Gifts and contributions



                                                        18
Sample Family Budget




                       19
Checkpoint >>

What are eight commonly used budget categories?
Answer
n savings                   n transportation
n food                      n health and personal care
n clothing                  n recreation and education
n household                 n gifts and contributions




                                                         20
CHARACTERISTICS OF
AN EFFECTIVE BUDGET
n Must be realistic
n Should be flexible
n Should be evaluated regularly
n Must be well planned and clearly
  communicated
n Should have a simple format



                                     21
Sample Income and Expense Record




                                   22
Checkpoint >>

What are five characteristics of an effective budget?
Answer
n Realistic
n Flexible
n Evaluated regularly
n Well planned and clearly communicated
n Simple format



                                                        23
16-3


                   Your Financial
                   Future
Goals:
n Describe the financial planning process.
n Explain actions for implementing a financial plan.
n Identify actions for reviewing a financial plan.


                                                       24
Key Terms
n financial plan
n individual retirement account (IRA)
n estate planning




                                        25
ADVANTAGES OF FINANCIAL
PLANNING
n   Your financial uncertainties will be reduced.
n   You will gain more control of your financial
    activities.
n   Your family and household members will know
    more in case they need to assume control of
    your finances.
n   Earning, spending, protecting, and saving your
    resources will be more systematic.

                                                     26
FINANCIAL PLANNING
PROCESS
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


                                              27
FINANCIAL INVENTORY
n Careful review of your finances
n Personal balance sheet
n Personal cash flow statement
n Information about current financial position




                                             28
CURRENT FINANCIAL
POSITION
n   Income
n   Savings
n   Investments
n   Property
n   Living expenses
n   Insurance
n   Money owed


                      29
PERSONAL FINANCIAL
FILING SYSTEM
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
    records


                                                 30
Filing System
for Personal
Financial
Records




          31
FINANCIAL LIFE CYCLE
n Teen years
n Twenties
n Later
n Retirement




                       32
USING A
FINANCIAL PLANNER
n   Questions to ask when choosing a
    financial planner:
    ¨ What   experience and training do you have?
    ¨ Are you willing to supply references from past
      clients?
    ¨ How are your fees determined?




                                                   33
Checkpoint >>

List five recommended steps for financial planning.
Answer
n Analyze your current financial condition.
n Develop financial goals that are responsive to your
   vision.
n Create your financial plan.
n Implement the plan.
n Revise your financial plan.


                                                        34
IMPLEMENT A
FINANCIAL PLAN
n   Insure current income
              income insurance
    ¨ Disability
    ¨ Unemployment insurance

n   Plan for future income
    ¨ Social Security
    ¨ Pensions
    ¨ Retirement accounts
    ¨ Annuities



                                 35
Checkpoint >>

What are common sources of income during retirement?
Answer
n Social Security
n Pensions
n Individual retirement accounts
n Roth IRAs
n 401 (k) plans
n Keogh plans
n Annuities



                                                       36
REVIEW YOUR
FINANCIAL PLAN
n Revise financial goals
n Review financial activities
n Remember to save and share




                                37
Checkpoint >>

What activities are involved when reviewing a
financial plan?
Answer
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
  death.
                                                       38
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