1. NOTE: To change the image on this slide, select the picture and delete it. Then click the Pictures icon in the placeholder to insert your own image. Lesson 4-1 Resources and Choices Learning Goals: -Describe needs and wants and explain how financial resources help fulfill needs and wants. -Prepare a personal cash flow statement and a personal net worth statement. -Apply a decision-making process to personal financial choices. Chapter 4 Financial Decisions and Planning

2. Needs and Wants Needs are things you must have for survival, including food, clothing, shelter, and medical care. People may have other needs beyond the basic needs to make a more comfortable lifestyle such as a second pair of shoes, clothing for different purposes, furniture and appliances. Wants are things people desire for reasons beyond survival and basic comfort. Examples of wants include new cars, vacations, a large wardrobe, dozens of pairs of shoes, etc. Wants and needs are unlimited and growing.

3. Financial Resources Financial Resources include money or other items of value that people use to acquire goods and services. Our financial resources are limited, forcing us to make choices as to which of our needs and wants we will fill. Basic needs must be met first. Discretionary income is the money a person has to spend after needs are met.

4. Income and Wealth Measurements Income can be measured using a cash flow statement. Wealth can be measured using the personal net worth statement.

5. Personal Cash Flow Statement Personal cash flow statement lists your cash inflows and cash outflows for a period of time. Cash inflows include income you receive from your job, investments, and other sources. Cash outflows are expenses, or items for which you must spend money. Net Cash flow = Cash inflows (income) – Cash outflows (expenses)

6. Personal Net Worth Statement The Personal net worth statement shows a person’s net worth based on his or her assets and liabilities. Assets are money and items of value that you own. Ex. Car, House, Land, Livestock Liabilities are debt you owe. Ex. Car Loan, House Loan, Student Loan Net Worth = Assets - Liabilities

7. Cash Flow and Net Worth statements By preparing and comparing these forms monthly, you are able to see how your wealth is growing (or shrinking) over time. Can also tell if you are meeting your financial goals.

8. Making Buying Decisions Tradeoff is giving up one option in exchange for another. Opportunity cost is the value of your next best option – what you are giving up.

9. Decision-Making Process 1.Define the need. 2.List options for meeting the need. 3.Compare the options you have identified. 4.Make a decision. 5.Take action based on your decision. 6.Reevaluate your choice

10. Financial Strategies Financial choices should be forward –looking. Consider the opportunity cost each time you make a purchase. When in doubt about an item or service, don’t do it. Do not make snap decisions about financial matters. Spend less than your income each month. Be realistic when deciding which wants you can fill. Take enough time to read all financial agreements. Learn from mistakes that others have made.

11. Assignment Page 123, Answer questions 1–14, 16-20