© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE Personal Financial Statements Budgeting Techniques Taxes in Your Life Your Financial Future 16 C H A P T E R Money Management and Financial Planning

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 2 MONEY MANAGEMENT BASICS ●Refers to the day-to-day financial activities associated with using limited income to satisfy your unlimited needs and wants ●Involves getting the most for your money through careful planning, saving, and spending ●Involves making and using a plan for spending

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 3 SUCCESSFUL MONEY MANAGERS ●Set goals ●Make wise decisions ●Buy wisely ●Live within their income

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 4 PERSONAL BALANCE SHEET ●Assets ●Liabilities ●Net Worth

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 5 PERSONAL CASH FLOW STATEMENT ●Cash inflows ●Cash outflows ●Compare inflows and outflows

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 6 BUDGET ACTIVITIES ●Live within your income ●Achieve your financial goals ●Buy wisely ●Avoid credit problems ●Plan for financial emergencies ●Develop good money management skills

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 7 Checkpoint ●What are the main purposes of a budget? ●The main purposes of a budget are to help you live within your income, achieve financial goals, buy wisely, avoid credit problems, plan for financial emergencies, and develop good money management skills.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 8 THE BUDGET PROCESS ●Set financial goals ●Plan budget categories ●Maintain financial records ●Evaluate your budget BUDGET CATEGORIES ●Savings ●Food ●Clothing ●Household ●Transportation ●Health and personal care ●Recreation and education ●Gifts and contributions

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 9 SAMPLE FAMILY BUDGET FOR ONE MONTH

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 10 Checkpoint ●What are eight commonly used budget categories? ●Savings ●Food ●Clothing ●Household ●Transportation ●Health and personal care ●Recreation and education ●Gifts and contributions

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 11 CHARACTERISTICS OF AN EFFECTIVE BUDGET ●Must be realistic ●Should be flexible ●Should be evaluated regularly ●Must be well planned and clearly communicated ●Should have a simple format

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 12 BUDGETING FORMATS ●Software program ●Handwritten ●Checkbook ●Unwritten

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 13 SAMPLE INCOME AND EXPENSE RECORD

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 14 TYPE OF TAXES ●Taxes on purchases ●Taxes on property ●Taxes on wealth ●Taxes on earnings

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 15 TAXES ON PURCHASES ●Sales tax ●A sales tax is a state or local tax on goods and services that is collected by the seller. ●Food and prescription drugs are often exempt. ●Excise tax ●An excise tax is imposed on specific goods and services. ●For example, all states impose an excise tax on gasoline.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 16 TAXES ON PROPERTY ●Real estate property tax ●This tax is based on the value of land and buildings. ●Most property tax revenue is used to pay for schools and local government services. ●Personal property tax ●This tax is based on the value of personal property such as boats, cars, and trucks.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 17 TAXES ON WEALTH ●Estate tax ●This tax is based on the value of a person’s property at death. ●Inheritance tax ●This tax is based on the value of items received from a deceased person. ●Gift tax ●This tax applies to gifts of any kind of property, including money, when the value of the gift exceeds a certain dollar amount. ●Generally the donor is responsible for the gift tax.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 18 TAXES ON EARNINGS ●Social Security tax ●This tax is based on earnings and is used to finance retirement and disability benefits. ●Income tax ●This tax is based on earnings and other sources of income and is a source of revenue for governments.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 19 WHEN AND WHERE YOU PAY TAXES ●Part of everyday living ●Triggered by events

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 20 INCOME TAX PAYMENTS ●Withholding ●Estimated payments

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 21 PREPARING THE FEDERAL INCOME TAX RETURN Step 1:Determine gross income Step 2:Calculate adjusted gross income Step 3:Subtract deductions Step 4:Determine exemptions Step 5:Compute taxable income Step 6:Taxes owed Step 7:Make tax payments or ask for a refund or credit

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 22 COMPLETING THE FEDERAL INCOME TAX RETURN ●Filing status ●Tax forms ●Avoiding common filing errors ●Filing taxes online

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 23 TAX PREPARATION ASSISTANCE ●IRS services ●Tax publications ●Online sources ●Tax preparation software ●Tax preparation services

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 24 EFFECTIVE TAX STRATEGIES ●Home ownership ●Tax-exempt investments ●Tax-deferred investments

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 25 DEVOLPING A FINANCIAL PLAN ●A financial plan is a report that ●Summarizes your current financial condition ●Acknowledges your financial needs ●Sets a direction for your future financial activities ●Financial planning includes ●Evaluating one’s financial position ●Setting financial goals ●Guiding activities and resources toward reaching those goals

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 26 ADVANTAGES OF FINANCIAL PLANNING ●Your financial uncertainties will be reduced. ●You will gain more control of your financial activities. ●Your family and household members will know more in case they need to assume control of your finances. ●Earning, spending, protecting, and saving your resources will be more systematic.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 27 FINANCIAL PLANNING PROCESS 1.Analyze your current financial condition 2.Develop financial goals that are responsive to your vision 3.Create your financial plan 4.Implement the plan 5.Revise your financial plan

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 28 FINANCIAL INVENTORY ●Careful review of your finances ●Personal balance sheet ●Personal cash flow statement ●Information about current financial position

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 29 CURRENT FINANCIAL POSITION ●Income ●Savings ●Investments ●Property ●Living expenses ●Insurance ●Money owed

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 30 PERSONAL FINANCIAL FILING SYSTEM

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 31 FINANCIAL LIFE CYCLE ●Teen years ●Twenties ●Later ●Retirement

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 32 USING A FINANCIAL PLANNER ●Questions to ask when choosing a financial planner: ●What experience and training do you have? ●Are you willing to supply references from past clients? ●How are your fees determined?

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 33 Checkpoint ●List five recommended steps for financial planning. ●Analyze your current financial condition. ●Develop financial goals that are responsive to your vision. ●Create your financial plan. ●Implement the plan. ●Revise your financial plan.

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 34 IMPLEMENT A FINANCIAL PLAN ●Insure current income ●Disability income insurance ●Unemployment insurance ●Plan for future income ●Social Security ●Pensions ●Retirement accounts ●Annuities

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 35 REVIEW YOUR FINANCIAL PLAN ●Revise financial goals ●Review financial activities ●Remember to save and share

© 2012 Cengage Learning. All Rights Reserved. Principles of Business, 8e C H A P T E R 16 SLIDE 36 Checkpoint ●What activities are involved when reviewing a financial plan? ●When reviewing a financial plan, one should revise short- and long-term financial goals on a regular basis, make changes in spending and saving habits as needed, and engage in estate planning to build assets and arrange to distribute property after death.