BUDGETS AND FINANCIAL RECORDS Chapter 8 BUDGETS AND FINANCIAL RECORDS

Lesson 8.1 Budgeting and Record Keeping I. Importance of Financial Planning A. Budgeting is the first step to financial security B. Disposable income—the money you have left to spend or save after taxes C. Financial plan—set of goals for spending, saving, and investing the $ you earn

II. Preparing a budget A . Budget—a spending and saving plan based on expected income/expenses 1. Money coming in (income) = money going out (expenses) 2. Budget must balance

B. Steps in preparing a budget 1. Estimate your total expected income 2. Decide how much you want to save—to set aside for future needs (10%) 3. Estimate your expenses (lunch, fees, clothes, entertainment) 4. Balance your budget; adjust amounts to make them match

C. A Typical Monthly Budget (p.177) 1. Include take-home pay, interest, earnings on investments 2. Fixed expenses—costs you are obligated to pay at specific times (rent/mortgage, car loan, utilities, insurance) 50—60% of take home pay 3. Variable expenses—costs that vary in amount and type (groceries, entertainment, clothes)

III. Personal Records A. Records of Income and Expenses 1. W-2 forms 2. Bank statements 3. Receipts (charity, medical bills, work-related expenses) 4. Store in a safe place for future reference

B. Net Worth Statement includes 1. Assets—items of value that a person owns 2. Liabilities (debts)—money owed to others 3. Net worth—the difference between assets and liabilities

Net Worth 4. Solvent—when your assets>liabilities (favorable) 5. Insolvent—when your liabilities>assets (poor financial position) 6. Need your net worth info when you apply for credit

C. Personal Property Inventory 1. A list of all valuable items you own, along with their purchase prices and approximate current values 2. Useful in the event of fire, theft, or property damage 3. Photograph each item and store in safe deposit box

D. Tax Records 1. Keep records for at least 3 years 2. IRS has legal right to audit your tax returns and supporting records for three years from date of filing

How do teens spend their own money? Top 5 items: Guys Food 30% Soda 26% Candy 24% Clothes 21% Music 19% Girls Clothes 43% Candy 34% Soda 32% Food 31% Salty Snacks 22% Lunch 22% Source: NOPWorld 2003 Survey based on teens ages 13 to 17

Let’s Create a Budget!

Legal Documents and Filing Systems Lesson 8.2 Legal Documents and Filing Systems

I. Contracts and Agreements A. Contract—a legally enforceable agreement between two or more parties 1. Express contract can be oral or written, terms of agreement are in words (credit plans, mortgages, rental agreements)

Contract Be sure to read everything in the agreement before you sign it Implied contract—unwritten agreement; agree to certain things by doing other things (driving—will follow traffic laws)

B. Elements of an Enforceable Contract 1. A contract must be binding—all who enter into the contract must be legally obligated to abide by its terms 2. To be legally binding, enforceable agreements, contracts must include:

Contracts a. Agreement—valid offer is made and accepted i. Both offer and acceptance must express voluntary intent to be bound by the agreement ii. Genuine agreement does not exist when there is a mistake, fraud, duress (threats), or undue influence

Contract b. Consideration—anything of value exchanged as part of a contract, each party receives something of value

Contract c. Contractual Capacity—refers to the competence (legal ability) of the parties to enter into a contract. Minors have limited contractual competence to protect them from being taken advantage of

Contracts d. Legality—contract must be lawful

Contracts Agreement Consideration Contractual Capacity Legality

Contracts 3. Notarized—receive a seal that says the person signed a document of his/her own free will

C. Consumer Responsibilities in Agreements 1. Fill in all blank spaces or write N/A 2. Write all terms clearly Enter dates, amounts, other numbers correctly and clearly 4. Be sure seller has provided all relevant info—interest rate, total finance charges, cash payment price, etc

Responsibilities 5. Understand all terms in agreement—ask questions before you sign it. Your signature states you have read and understood the contract. 6. Check that no changes have been made after you signed it 7. Keep of a copy of the agreement

II. Negotiable Instruments A. Negotiable instrument—an unconditional written promise to pay a specified sum of money upon demand of the holder (checks, promissory notes)

B. Promissory note is a written promise to pay, is legal document 1. Maker—person who creates and signs the note 2 . Payee—the person to whom the note is made payable 3. Co-signer—a person who promises to pay the note if the maker fails to pay

III. Warrantees A. AKA guarantee—statement about a product’s quality or performance that the seller assures the buyer are true B. All products contain implied warrantees—a product is supposed to do what it is made to do

IV. Filing Systems for Personal Records A. Paper Filing System includes folders, labels, filing cabinet B. Electronic Record Keeping—can update info easily 1. Spreadsheet—program that organizes data in columns and rows 2. Database—program that organizes date for search and retrieval

The End!