BUDGETS AND RECORD KEEPING!!! BUSINESS FINANCE CHAPTER 8

GOALS  Describe the budgeting process and prepare personal budgets.  Explain the purpose of record keeping and be able to prepare a personal net worth statement and a personal property inventory.

Did you know???  The average teen in the U.S. spends $3,500 each year.  10% of North American teenagers use their parents credit cards.  25% of 18 and 19 year olds have their own credit card.  Teens in 1996 spent a projected $103 BILLION  U.S. citizens generally save less than 5% of their gross income.

NEEDS VS. WANTS  Wants  Desirable, make life more comfortable  Needs  Must have for survival  Hard to distinguish between because of advertising.

Decision-Making Process Example 1.Identify Goal: Buy a car within 6 months for under $1,500 2.Gather Information: Advice, dealer info., Consumer Reports 3.Examine Alternative: Used Subaru, Ford, Chevy… 4.Analyze Outcomes: Subaru in good shape, Ford needs expensive repairs 5.Make Decision: (If alternatives, start process from step 2 again) … Subaru 6.Evaluate Results: Purchase Subaru

GOALS + DECISIONS + ACTION = RESULTS

Goals and Objectives Objective Achievement Date Estimated Cost Weekly Amount to Save Transportation 2 weeks $10.00$5.00 Food $15.00$7.50 Ticket $15.00$7.50 Miscellaneous $5.00$2.50 Short term goal (less than 3 months): Go to a football game

Definitions You Need to Know!!!  Budgets – Guide that helps you understand how and where you are spending your money.  Match your expected income to your expected expenses.  Disposable Income – Money after taxes, social security, and other required and optional deductions have been withheld from your gross pay.  Financial Plan – Orderly program for spending, saving, and investing the money you earn.

Setting Up a Budget 1.Estimate your total expected income. 2.Decide how much of your income you want to save. 3.Estimate your total expenses  Fixed – Expenses that remain constant  Variable – Expenses that change according to needs and short term goals

Personal Records  Four types you will want to keep 1.Records of income and expenses 2.Personal Property Inventory 3.Tax records 4.Statement of Net Worth

Records of Income and Expenses  Income  W2 – Shows money earned and deductions taken out  Statements from banks of interest earned on savings  Expense  Receipts  Bills

Personal Property Inventory  Current list of what you own and its value  Why?  Fire, theft, or other property damage  To keep track of what you own and how you are spending your money

Tax Returns  Tax returns and W2 statements  Receipts verifying income and expenses listed on tax returns for 3 years after return is filed.  Audits

Statement of Net Worth  Difference between assets and liabilities  Needed when applying for a loan  Assets – Items of value  Solvent – Assets greater than liabilities  Liabilities – Money that is owed to others debt  Unsolvent - Liabilities greater than assets

Goals - Lesson 8.2  Discuss the elements of legal contracts and your responsibilities regarding contracts.  Describe negotiable instruments and warranties.  Discuss ways to set up a filing system for personal records.

Contracts and Agreements  Contract  A legally enforceable agreement  Formal Agreements  Written  You sign your name consenting to the conditions of the agreement  Examples: 1.Charge accounts 2.Rental agreements 3.Mortgage 4.Promissory notes

Agreements cont’d  Oral agreements are also enforceable.  Informal Agreements 1.Driver’s License 2.Car Registration 3.Pet Licensing 4.Work Responsibilities 5.Parenting

Valid, Void, and Voidable Contracts  Valid – Must contain all of the these elements  Mutual assent – Agreement to all terms of the contract by all parties  Consideration – Anything of value exchanged as part of a contract  Competent parties – people who are legally capable of giving binding assent.  Lawful objectives – Must be lawful.  Agreed upon time period – Must be specific  Legal form – Must contain all necessary information

Cont’d  Void – missing all or some of the essential elements  Voidable - party decided to avoid from the transaction, or disaffirms the agreement

The Rights of a Minor  You are protected by law as a minor  Contracts made with minors are voidable. (Ability to cancel obligations).  Age of Majority  Either when the minor turns eighteen (or the state’s age of majority, whichever is greater), the minor loses the right to disaffirm and the contract becomes VALID.

Elements of an Enforceable Contract 1.Agreement (offer and acceptance) 2.Consideration (value) 3.Contractual Capacity (ability of the parties to enter into agreements) 4.Legality (Legal thing to do)

Contracts that must be in writing  Contracts for purchase and sale of real estate  Contracts that cannot be performed in less than one year  Contracts for the purchase and sale of goods over a certain price

Consumer Responsibilities in Agreements 1.Fill in all blank spaces or indicate N/A for items that are not applicable. 2.Write all terms clearly. 3.Enter dates, amounts, and other numbers correctly and clearly. 4.Be sure the seller has supplied all relevant information, including rate of interest, total finance charges, and cash payment price 5.Understand all terms contained in the agreement. DO NOT SIGN IT UNTIL YOU HAVE READ IT!!! 6.Check that no changes have been made after you have signed it. Your initials at the bottom of each page will prevent substitution of pages. 7.Keep a copy of the agreement.

Negotiable Instruments  Negotiable Instrument  An unconditional written promise to pay a specified sum of money upon demand of the holder.  Examples: 1.Checks 2.Promissory notes (used when borrowing a large sum of money from a financial institution)  Maker – creates and signs the note  Payee – the person to whom the note is made payable  Co-signer – person who promises to pay the note if the maker fails to. (Young people with little credit are asked to provide a co-signer on their first loan. )

Warranties  Warranty  Also called a guarantee.  A statement about a product’s qualities or performance that the seller assures the buyer are true.  Some warranties are implied  Tennis ball

Filing Systems for Personal Records  Paper Filing System  Simple and easy to use  Record all income received and expenditures  Keep receipts  Keep system neat and orderly; information easy to find and use.  Electronic Record Keeping  Convenient  Spreadsheet – performs tasks such as graphs and tables.  Database – organizes data for easy search and retrieval.  Disadvantage of Electronic = Software applications must be learned before they work as intended.

BUDGETS AND RECORD KEEPING!!! BUSINESS FINANCE CHAPTER 8

8.1 GOALS  Describe the budgeting process and prepare personal budgets.  Explain the purpose of record keeping and be able to prepare a personal net worth statement and a personal property inventory.

Did you know???  The average teen in the U.S. spends _______ each year.  _______ of North American teenagers use their __________ credit cards.  ________ of 18 and 19 year olds have their _______ credit card.  Teens in ______ spent a projected __________________  U.S. citizens generally save _____ than _____ of their _________ income.

NEEDS VS. WANTS  Wants  _____________, make life more comfortable  Needs  Must have for ___________  Hard to distinguish between because of ___________.

Decision-Making Process Example 1.Identify Goal: Buy a car within _________ for under ____________ 2.Gather Information: Advice, ________ info., Consumer _____________ 3.Examine ____________: Used _________, Ford, Chevy… 4.Analyze Outcomes: Subaru in _______ shape, Ford needs ___________ repairs 5.Make Decision: (If alternatives, _______ process from step _____ again) … Subaru 6.Evaluate Results: __________ Subaru

GOALS + _________________ + ACTION = _________________

Goals and Objectives Objective Achievement Date Estimated Cost Weekly Amount to Save _____________ 2 weeks ________$5.00 Food $15.00________ ____________ ________$7.50 Miscellaneous ________$2.50 Short term goal (less than _________): Go to a football game

Definitions You Need to Know!!!  Budgets – _______ that helps you understand _____ and understand you are spending your money.  Match your __________ income to your expected ____________.  Disposable __________ – Money after _______, social security, and other required and __________ deductions have been withheld from your _______ pay.  Financial Plan – Orderly program for __________, saving, and _________ the money you earn.

Setting Up a Budget 1.Estimate your total expected ________. 2.Decide how much of your income you want to _________. 3.Estimate your total _________  Fixed – Expenses that remain __________  Variable – Expenses that ___________ according to ________ and short term goals

Personal Records  Four types you will want to keep 1.Records of _________ and expenses 2.Personal __________ Inventory 3.Tax __________ 4.Statement of _________ Worth

Records of Income and Expenses  Income  _______ – Shows money earned and _____________ taken out  Statements from _______ of interest earned on ___________  Expense  _____________  ____________

Personal Property Inventory  Current list of what you ______ and its _________  Why?  Fire, ________, or other property __________.  To keep track of what you _____ and how you are ____________ your money

Tax Returns  Tax returns and _______ statements  Receipts verifying _______ and expenses listed on tax returns for _____ years after return is filed.  ___________

Statement of Net Worth  Difference between ________ and liabilities  Needed when applying for a _________  Assets – Items of _______  Solvent – Assets __________ than liabilities  Liabilities – Money that is _______ to others __________  Unsolvent - _______ greater than assets

Goals - Lesson 8.2  Discuss the elements of legal contracts and your responsibilities regarding contracts.  Describe negotiable instruments and warranties.  Discuss ways to set up a filing system for personal records.

Contracts and Agreements  Contract  A ___________ enforceable agreement  Formal Agreements  Written  You sign your name __________ to the conditions of the agreement  Examples: 1._________________________________ 2._________________________________ 3._________________________________ 4._________________________________

Agreements cont’d  Oral agreements are also __________.  Informal Agreements 1.________________________ 2.________________________ 3.________________________ 4.________________________ 5.________________________

Valid, Void, and Voidable Contracts  Valid - Contains all of the _________ elements  Mutual assent – _______________________  Consideration - ________________________  Competent parties - ____________________  Lawful objectives - _____________________  Agreed upon time period - _______________  Legal form - _________________________  Void – missing _____________ or _________ of the essential elements  Voidable - _________ party decided to __________ from the transaction

The Rights of a Minor  You are ___________ by law as a minor  Contracts made with minors are ___________. (Ability to cancel __________ ).  Age of Majority  Either when the minor turns ____________ (or the state’s age of majority, whichever is __________ ), the minor loses the right to ___________ and the contract becomes __________.  Shield vs. Sword  Minors must use their rights as a __________ to protect those who would take advantage, not as a __________ to take advantage of others.

Elements of an Enforceable Contract 1.Agreement ( _______ and _________ ) 2.Consideration ( __________ ) 3.Contractual Capacity (ability of the ________ to enter into ____________ ) 4.Legality ( ____________ to do)

Contracts that must be in writing  Contracts for __________ and ________ of real estate  Contracts that __________ be performed in less than ___________ year  Contracts for the purchase and sale of ________ over a ____________ price

Consumer Responsibilities in Agreements 1.Fill in all _________ spaces or indicate _________. 2.Write all __________ clearly. 3.Enter __________, ___________, and other ___________ correctly and clearly. 4.Be sure the ___________ has supplied all relevant information, including rate of _________, total __________ charges, and cash ____________ price 5.Understand all ____________ contained in the agreement. DO NOT SIGN IT UNTIL YOU HAVE ___________ IT!!! 6.Check that no ___________ have been made ___________ you have signed it. Your ___________ at the bottom of ___________ page will prevent ___________________ of pages. 7.Keep a ____________ of the agreement.

Negotiable Instruments  Negotiable Instrument  An ________________ written promise to pay a ____________ sum of money upon demand of the _____________.  Examples: 1.______________________ 2.______________________ (used when borrowing a large sum of __________ from a __________ institution)  Maker – creates and _________ the note  Payee – the person to whom the note is made __________  Co-signer – person who _____________ to pay the note if the ___________ fails to. ( ___________ people with little __________ are asked to provide a co-signer on their first _______________. )

Warranties  Warranty  Also called a ___________________.  A statement about a ____________ qualities or performance that the ______________ assures the buyer are _____________.  Some warranties are ______________  Tennis ball - __________________________ ____________________________________ ____________________________________ _________________________________.

Filing Systems for Personal Records  ___________ Filing System  Simple and ________ to use  Record all __________ received and expenditures  Keep _____________  Keep system __________ and orderly; information easy to _______________ and _______________.  _______________ Record Keeping  ______________ and convenient  Spreadsheet – performs tasks such as _____________ and _____________  Database – organizes data for _________ search and retrieval.  Disadvantage of Electronic = ____________ applications must be ____________ before they work as ______________.