1. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt PERSONAL FINANCIAL MANAGEMENT Chapter 3

2. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt “The entire essence of America is the hope to first make money—then make money with money—then make lots of money with lots of money.” Paul Erdman

3. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt 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

4. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt FINANCIAL MANAGEMENT Personal financial management: the process of controlling your income and your expenses

5. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt FINANCIAL MANAGEMENT Income Income: money coming in Income may come from: –Parents –Grants –Student loans –Job After college, your income most likely will increase

6. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt FINANCIAL MANAGEMENT Expense Expense: money going out Common college expenses include: –Tuition –Text books –School supplies –Housing –Transportation –Hobbies and entertainment These are life needs

7. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt PERSONAL FINANCIAL MANAGEMENT AFFECTS WORK PERFORMANCE Finances help you reach life goals Keep debt under control Begin a savings and investments plan now Protect yourself from identity theft Personal financial management can affect your work situation

8. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt 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. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt 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. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt MONEY MANAGEMENT Cash Management Cash management is the key to good budgeting Carry a small amount of cash Be careful about using debit cards Reduce trips to the ATM Write checks instead of using cash Record all transactions

11. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt 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. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt 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. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt 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 Try to stay away from taking out loans

14. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt TALK IT OUT Identify potential terms and conditions that you should consider before getting credit from a lender

15. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt DEBT MANAGEMENT Debt management involves: –Debt –Interest –Net worth –Assets –Liabilities

16. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt DEBT MANAGEMENT Debt, Loans, and Interest Debt: money you owe –Debt vs. expenses Debt is usually a larger amount of money that is paid over a period of time Expenses are 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

17. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt DEBT MANAGEMENT Total Net Worth Total Assets – Total Liabilities = Total Net Worth  Assets: what you own  Car, home, furniture  Liabilities: what you owe  Car loan, home loan  Net worth: the amount of money that is yours after paying off debt

18. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt 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

19. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt TALK IT OUT What are warning signs that you may be getting into debt?

20. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt CREDIT REPORTS Credit report: a detailed credit history on an individual –Details credit cards and loans you have –Shows if you have paid debts on time and if you are late with payments –Includes all personal identification information –Previous names, addresses, and employers –Liens, foreclosures, or bankruptcies will show

21. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt SAVINGS AND INVESTMENTS Do not wait 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 Start investing now

22. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt IDENTITY THEFT Identity theft is when another individual uses your personal information to obtain credit in your name Prevent by: –Disposing of junk mail properly –Shred or cut up any mail that includes your social security number, date of birth, credit card numbers, etc. –Keep copies of important information in a safe place

23. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt 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. Copyright ©2011 by Pearson Education, Inc. publishing as Pearson [imprint] Professionalism: Skills for Workplace Success, 2/e Lydia E. Anderson Sandra B. Bolt 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