Chapter © 2010 South-Western, Cengage Learning Budgets and Financial Records Budgeting and Planning Legal Agreements and Record Keeping 8

© 2010 South-Western, Cengage Learning SLIDE 2 Chapter 8 Lesson 8.1 Budgeting and Planning GOALS Explain the purpose of financial planning and prepare a personal budget. Explain the need for and create a net worth statement and a personal property inventory.

© 2010 South-Western, Cengage Learning SLIDE 3 Chapter 8 Financial Planning Basics Planning, budgeting, and keeping good records provide the road map that leads to financial security.

© 2010 South-Western, Cengage Learning SLIDE 4 Chapter 8 Getting Started The two elements to consider when getting started are income and expenses Gross income doesn’t represent money over which you have control Disposable income is the money you have left to spend or save after taxes and other required deductions are taken.

© 2010 South-Western, Cengage Learning SLIDE 5 Chapter 8 Getting Started You will need to create a financial plan A financial plan is a set of goals for spending, saving, and investing the money your receive Financial planning will help you do the following: Determine and evaluate your choices Prioritize your choices so your money goes as far as possible Avoid careless and wasteful spending Organize your financial resources so you can achieve your financial goals Avoid money worries by planning your saving, spending, and borrowing to live within your income.

© 2010 South-Western, Cengage Learning Getting Started The first step in financial planning is understanding your resources. These are the sources and amounts of money to expect to receive You will also have to understand your obligations. SLIDE 6 Chapter 8

© 2010 South-Western, Cengage Learning SLIDE 7 Chapter 8 Visualizing Your Future Keep track of what you receive and how you spend it. When people can actually see how much they spend on something, they are able to make changes Preparing a budget will take your financial planning visions to reality.

© 2010 South-Western, Cengage Learning SLIDE 8 Chapter 8 Preparing a Budget The next step toward achieving your financial goals is to prepare a budget. A budget is a spending and saving plan based on your expected income and expenses. Money coming in (earnings plus borrowing) must equal money going out (spending plus saving). The budget must balance. A budget helps you plan your spending and saving so that you won’t have to borrow money or use credit to meet your daily needs.

© 2010 South-Western, Cengage Learning SLIDE 9 Chapter 8 Steps in Preparing a Budget 1.Estimate your total expected income for a certain time period. 2.Estimate your expenses, or money you will need for day-to-day purchases 3.Decide how of your income you want to save. 4.Balance your budget.

© 2010 South-Western, Cengage Learning SLIDE 10 Chapter 8 Evan Anderson—Budget for September IncomeExpenses Part-time job$320Daily lunches$ 80 Allowance20Supplies20 Birthday gift40Clothes40 Total Income$380Entertainment140 Total expenses$280 Savings Credit union account$100 Total expenses plus savings $380 Simple Budget The budget balances.

© 2010 South-Western, Cengage Learning SLIDE 11 Chapter 8 Monthly Budget There are two types of expenses – fixed and variable Fixed expenses are costs that do not change from month to month. You are obligated to pay fixed expenses regardless of income changes. House payment Car loan Insurance premiums Utility bills

© 2010 South-Western, Cengage Learning SLIDE 12 Chapter 8 Monthly Budget There are two types of expenses – fixed and variable Variable expenses are costs that vary in amount and type, depending on the choices you make. Grocery bills Entertainment costs Clothing expenses

© 2010 South-Western, Cengage Learning SLIDE 13 Chapter 8 Personal Records Good personal records makes budgeting and long- range planning easier. Your records also make it easier to prepare income tax returns, credit applications, and other financial forms. You should keep five types of personal records: Income and expenses records Net worth statement Personal property inventory Tax records Other miscellaneous documents

© 2010 South-Western, Cengage Learning SLIDE 14 Chapter 8 Income and Expenses Records Examples of income records W-2 forms Shows the money earned and deductions taken from your paycheck during the year Statements from banks Shows interest earned on savings accounts Statements from investment companies Lists dividends earned from stocks and other investments Examples of expense records Receipts listing charitable contributions Medical bills Receipts for work-related expenses

© 2010 South-Western, Cengage Learning SLIDE 15 Chapter 8 Net Worth Statement A net worth statement shows a person’s net worth based on his or her assets and liabilities. Assets are items of value that a person owns. Money or debts you owe to others are called liabilities. When you subtract your liabilities from your assets, the difference is known as net worth. Assets – Liabilities = Net worth

© 2010 South-Western, Cengage Learning Net Worth Statement As net worth increases, you are growing in overall wealth. When assets are greater than liabilities, a person is said to be solvent, or in a favorable financial position. When liabilities are greater than assets (you owe more than you own), a person is said to be insolvent, or in a poor financial position. SLIDE 16 Chapter 8

© 2010 South-Western, Cengage Learning SLIDE 17 Chapter 8 Anisa Newkirk January 1, 20— AssetsLiabilities Checking account$500Loan on car$1,800 Savings account800Loan from parents100 Car value3,000Total liabilities$1,900 Personal property5,000Net Worth Total assets$9,300Assets minus liabilities$7,400 Total liabilities and net worth$9,300 Net Worth Statement These two numbers must be the same.

© 2010 South-Western, Cengage Learning SLIDE 18 Chapter 8 Personal Property Inventory A personal property inventory is a list of the valuable items you own, along with their purchase prices and approximate current values. Personal property includes anything of value inside your home—clothing, furniture, appliances, and so forth.

© 2010 South-Western, Cengage Learning SLIDE 19 Chapter 8 Personal Property Inventory Anisa Newkirk: January 2, 20— Item Year Purchased Purchase Price Approximate Current Value Sphinx XTL DVD Player with big-screen TV2008$ 3,200$1,300 Bedroom furniture (bed, dresser, lamp, clock)20062,0001,200 Clothing, jewelry , MBD motor bike20051,8001,000 CD collection, CD burner, digital camera, scanner20062,0001,000 $12,000$5,000 (continued)

© 2010 South-Western, Cengage Learning SLIDE 20 Chapter 8 Tax Records All taxpayers should keep copies of their tax records for at least three years after they file their tax return. Tax records include the tax return itself (a copy of the signed form), W-2 forms, and other receipts verifying income and expenses listed on each return. Keep your tax records in a safe place in case of an audit.

© 2010 South-Western, Cengage Learning SLIDE 21 Chapter 8 Other Miscellaneous Documents Lists of credit card numbers Car titles Insurance policies Birth certificates Marriage certificates Passports

© 2010 South-Western, Cengage Learning 8.1 Assessment Complete on page 170 of book SLIDE 22 Chapter 8