1. PERSONAL FINANCIAL MANAGEMENT
Chapter 2
PERSONAL FINANCIAL MANAGEMENT

2. OBJECTIVES Describe the importance of personal financial management
Identify the significance of money management and budgeting
Identify the difference between gross income and net income
Create a personal budget
Recognize money wasters
Identify debt and debt-management resources
Identify wise use of credit
Describe the importance of savings and investments
Protect yourself from identity theft

3. FINANCIAL MANAGEMENT
Personal financial management: the process of controlling your income and your expenses

4. FINANCIAL MANAGEMENT Income
Income: money coming in
Income may come from:
Parents
Grants
Student loans
Job
After college and starting your new career your income most likely will increase

5. FINANCIAL MANAGEMENT Expense
Expense: money going out
Common college expenses include:
Tuition, text books, supplies
Housing
Transportation
Hobbies and entertainment
Medical

6. PERSONAL FINANCIAL MANAGEMENT AFFECTS WORK PERFORMANCE
Personal finances impact all areas of your life
Finances assist you in reaching life goals
Keep debt under control
Affect your work situation

7. PERSONAL FINANCIAL MANAGEMENT AFFECTS WORK PERFORMANCE
Maintain a positive credit report
Use credit wisely
Begin savings and investment now
Protect yourself from identity theft
Pay your bills

8. YOUR PAYCHECK Do not overdo spending
Now is the time to manage your money
Create a budget to help you reach your goals
Financial success begins with discipline and planning

9. MONEY MANAGEMENT Budgeting
Budget: a detailed financial plan used to allocate money for a specific time period
Reflects your goals
Controls and prioritizes spending
Be honest and precise when creating a budget

10. MONEY MANAGEMENT Cash Management
Cash management is the key to good budgeting
Record all transactions
Carry a small amount of cash
Reduce trips to the ATM

11. MONEY MANAGEMENT Steps to Creating a Budget
Identify goals
Attach financial goals to personal goals
Determine monthly income (money in)
Determine monthly expenses (money out)
Budget on a monthly basis
Keep track of all spending
Reduce money wasters

12. MONEY MANAGEMENT
Fixed expenses: expenses that do not change from month to month
Flexible expenses: expenses that change from month to month
Money wasters: small expenditures that you do not realize are actually using up a portion of your income

13. DEBT MANAGEMENT Debt management involves: Debt Interest Net worth
Assets
Liabilities

14. DEBT MANAGEMENT Debt, Loans, and Interest
Debt: money you owe for borrowed funds
Debt vs. expenses
Debt includes a loan with interest
Expenses include bills that come regularly
Loan: a large debt that is paid in smaller amounts over a period of time and has interest added to the payment
Interest: the cost of borrowing money
This is extra money paid to the lender

15. DEBT MANAGEMENT Total Net Worth
Total Assets – Total Liabilities
= Total Net Worth
Assets: what you own
Car, home, furniture
Liabilities: an obligation to pay what you owe
Car loan, home loan
Net worth: the amount of money that is yours after paying off debt

16. DEBT MANAGEMENT Steps to Get Out of Debt
Do not create additional debt
Prioritize your debt
Pay off the smallest amount or the amount with the largest interest first
Take the extra cash from a paid-off debt and apply it to the next debt on your priority list

17. TALK IT OUT
What are warning signs that you may be getting into debt?

18. WISE USE OF CREDIT Manage Your Credit
Managing credit is the best way to stay out of debt
Do not abuse the privilege of credit and credit cards
Spend wisely and pay off the balance each month
Use credit only for items you can afford
Avoid taking out loans

19. TALK IT OUT
Identify potential terms and conditions that you should consider before getting credit from a lender

20. SAVINGS AND INVESTMENTS
Begin saving now
Put away funds for short-term goals or emergencies
Rule of thumb: Have at least five months’ income saved for emergencies
Have savings in a bank
Determine if you should use a regular savings account or a Certificate of Deposit

21. SAVINGS AND INVESTMENTS
Begin investing now
Opportunity to increase the value of your money
Long term
Involves risk
Establish after you have a savings account

22. IDENTITY THEFT
Identity theft is when another individual uses your personal information to obtain credit in your name
Prevent by:
Disposing of any communication that contains your personal information
Shred or cut up any mail and delete any electronic correspondence
Keep copies of important information in a safe place

23. IDENTITY THEFT Tips to Remember
Do not give out your social security number over the telephone or Internet without verifying the authenticity of the company and individual requesting the information
Document all important numbers and keep them in a safe place
Practice good personal financial management
Remove your name from credit card and marketing lists

24. IDENTITY THEFT If You Become a Victim of Identity Theft
File a police report
Contact your bank, credit card companies, and cell phone provider
Do not change your social security number, contact the Social Security Administration Fraud Department
Contact the credit reporting agency fraud lines
Document everything you do