Chapter 8 Budgets and Financial Records

Preparing a Budget Budget = Spending and saving plan Budget = Spending and saving plan Income = Expenses Income = Expenses Why? Why? Steps in preparing a budget: Steps in preparing a budget: 1. Estimate income 2. Determine savings 3. Estimate expenses 4. Balance income and expenses

Preparing a Budget (con’t) Fixed expenses – recurring obligations Fixed expenses – recurring obligations Rent or mortgage Rent or mortgage Car loan Car loan Utility bills Utility bills Insurance premiums Insurance premiums Variable expenses – vary based on decisions Variable expenses – vary based on decisions Grocery bill Grocery bill Dining out Dining out Going to the movies Going to the movies Buying clothes Buying clothes Figures 8-1 and 8-2 Figures 8-1 and 8-2

Personal Records Records of income and expenses Records of income and expenses Income records: Income records: W-2 W-2 Interest statements from bank Interest statements from bank Dividend statements Dividend statements Expense records: Expense records: Charitable contributions Charitable contributions Medical bills Medical bills Work-related expenses Work-related expenses

Personal Records (con’t) Net worth statement Net worth statement Assets = things you own Assets = things you own Liabilities = things you owe Liabilities = things you owe Net Worth = Assets – Liabilities Net Worth = Assets – Liabilities Solvent = Assets > Liabilities Solvent = Assets > Liabilities Insolvent = Assets < Liabilities Insolvent = Assets < Liabilities Figure 8-3 Figure 8-3

Personal Records (con’t) Personal property inventory Personal property inventory List of clothing, furniture, appliances, etc. List of clothing, furniture, appliances, etc. Used for insurance purposes in the event of fire, theft or property damage Used for insurance purposes in the event of fire, theft or property damage Figure 8-4 Figure 8-4 Tax records Tax records Tax returns, W-2 forms, etc Tax returns, W-2 forms, etc Keep copies for 3 years (IRS has up to 3 years to request an audit) Keep copies for 3 years (IRS has up to 3 years to request an audit)

Lesson 8.2 Legal Documents and Filing Systems

Contracts and Agreements Contract – legally enforceable agreement Contract – legally enforceable agreement Express contracts – oral or written Express contracts – oral or written Implied contracts – unwritten, assumed Implied contracts – unwritten, assumed Elements of an enforceable contract Elements of an enforceable contract Agreement – both parties agree Agreement – both parties agree Counteroffer – changes to an offer Counteroffer – changes to an offer Consideration – something of value Consideration – something of value Contractual capacity – legal ability Contractual capacity – legal ability Legality – lawful Legality – lawful

Consumer Responsibilities Figure 8-5 Fill in all blank spaces Fill in all blank spaces Write terms clearly Write terms clearly Enter dates, amounts, etc. correctly Enter dates, amounts, etc. correctly Check for relevant information Check for relevant information Read before signing Read before signing Check for any changes Check for any changes Keep a copy Keep a copy

Negotiable Instruments Negotiable – legally collectible Negotiable – legally collectible Negotiable instrument – promise to pay a certain sum of money (checks, promissory notes) Negotiable instrument – promise to pay a certain sum of money (checks, promissory notes) Promissory note (figure 8-6) – written promise to pay Promissory note (figure 8-6) – written promise to pay

Promissory Note Maker – creates and signs Maker – creates and signs Payee – who the note is payable to Payee – who the note is payable to Co-signer – promises to pay the payee if maker fails to pay Co-signer – promises to pay the payee if maker fails to pay

Warranties Warranty – guarantee Warranty – guarantee Implied warranty – assumed warranty Implied warranty – assumed warranty Merchantability – product is supposed to do what it is made to do Merchantability – product is supposed to do what it is made to do Ex: a new tennis ball must bounce Ex: a new tennis ball must bounce Express warranty – written warranty Express warranty – written warranty States the product will perform for a specific period of time States the product will perform for a specific period of time Ex: new car warranty Ex: new car warranty

Filing Systems Paper filing systems – file folders and labels Paper filing systems – file folders and labels Electronic filing systems – computerized Electronic filing systems – computerized Easy to update Easy to update Easy storage and retrieval Easy storage and retrieval Fast computations and comparisons Fast computations and comparisons Spreadsheets – organizes data in columns and rows Spreadsheets – organizes data in columns and rows Database – organizes data for easy search and retrieval Database – organizes data for easy search and retrieval