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Chapter 2 PERSONAL FINANCIAL MANAGEMENT. OBJECTIVES  Describe the importance of personal financial management  Identify the significance of money management.

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Presentation on theme: "Chapter 2 PERSONAL FINANCIAL MANAGEMENT. OBJECTIVES  Describe the importance of personal financial management  Identify the significance of money management."— Presentation transcript:


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 1. Identify goals 2. Attach financial goals to personal goals 3. Determine monthly income (money in) 4. 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

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