1. Chapter 4 Financial Decisions and Planning
Copyright 2007 Thomson South-Western

2. Meeting Wants and Needs
Basic needs – items or services that are necessary to survive.
Examples: Food, water, clothing
Other needs – items or services that are not necessary to survive but that we have become dependent upon as a society.
Examples: computers, cell phones
4-1 Resources and Choices
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3. Meeting Wants and Needs
Wants – items and services that are not necessary to survive. These items are bought with discretionary income.
An expensive car is a product that fills customers’ wants.
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4. Financial Resources
Financial resources are money or other assets used to acquire goods and services
Many people do not have enough resources to meet all their needs and wants
People must decide how to use their scarce resources
4-1 Resources and Choices
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5. Personal Income and Expense Statement
4-1 Resources and Choices
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6. Personal Balance Sheet
4-1 Resources and Choices
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7. Making Financial Choices
Buying decisions play an important part in managing your money
A trade-off involves giving up a particular benefit or item to get another that you think is more desirable
Opportunity cost is the benefit or item you give up (do not buy)
4-1 Resources and Choices
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8. Opportunity Cost
You have $20 and you feel like going to dinner and then to the movies and you would like to have a new shirt to wear.
The movie will cost $9, a fast food dinner will cost $7, and the new shirt costs $19.
If you go to dinner and the movie, what is your opportunity cost?
If you buy the shirt, what is your opportunity cost?
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9. Decision-Making Process
Define the need or problem
List options available
Compare the options
Make a decision
Take action to apply the decision
Reevaluate your choices after some time has passed
4-1 Resources and Choices
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10. Building Communications Skills
Reading Vocabulary
Reading is a basic communications skill
Your vocabulary is the words you know and understand how to use
Improving your vocabulary will help you better understand the material you read
4-1 Resources and Choices
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11. Purpose of Budgeting Budget A spending and saving plan
Based on expected income and expenses
Allows you to compare financial resources with financial needs
A budget can be created using a spreadsheet.
4-2 Budgeting
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12. Building a Budget Estimate income Plan savings Estimate expenses
Variable expenses
Fixed expenses
Balance the budget
Eating at a fancy restaurant is entertainment, a variable expense.
4-2 Budgeting
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13. Personal Budget
4-2 Budgeting
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14. Budget Analysis
Income, savings, and expenses will not be exactly as budgeted
Differences between planned and actual amounts are called variances
Favorable variances
Unfavorable variances
Looking at variances can help you budget better in the future
4-2 Budgeting
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15. Discretionary Income
This is the amount of money a person has to spend after needs are met.
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16. Budget Variances Report
4-2 Budgeting
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17. Recordkeeping Methods
Keeping good records will help you prepare better budgets
Manual records
Computerized records
You can keep financial records on a handheld computer using programs such as Microsoft® Money or Excel.
4-2 Budgeting
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18. Technology Corner Internet Research
The Internet can be used to research and compare products and prices
Search engines allow you to search using keywords. Ex: Google, Bing, Yahoo Search
Search results provide links to Web pages
Enter a word or term and click Search.
Search
4-2 Budgeting
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19. Success Skills Dealing With Conflict
Conflicts will occur sooner or later
When faced with a conflict
Take a time out to consider the situation
State the problem briefly to show that you understand it
Suggest talking later if the other person is angry
Focus on the problem and be objective
Be willing to compromise to reach a resolution
4-2 Budgeting
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20. Financial Planning A financial plan contains Gather Information
Analyze information
Set goals (financial and personal)
Develop a timeline to achieve them
Implement and Evaluate the plan
4-3 Personal Financial Planning
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21. One Goal in a Financial Plan
4-3 Personal Financial Planning
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22. Financial Planning Process
Gather information 
Personal income and expense statements
Personal balance sheet
Personal budget
Current bank account statements
Investment account statements
Financial contracts
Other documents related to your finances
Checkbooks
Insurance policies
Current paycheck stub
Tax returns
Will
Trusts
4-3 Personal Financial Planning
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23. Financial Planning Process
Analyze information
Review income and expenses
Review your balance sheet
Consider changing goals or spending habits
Set goals
Personal goals
Financial goals
4-3 Personal Financial Planning
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24. Financial Planning Process
Develop a timeline
Consider how soon you want to achieve each goal
Consider steps must you take to achieve each goal
Implement and evaluate the plan
Work toward achieving goals
Review and adjust the plan at least once a year
4-3 Personal Financial Planning
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25. Ethics A financial planner
Financial Planners and Commission Earnings
A financial planner
Provides financial advice to individuals
May also buy and sell products on commission
Financial planners are unethical if they buy or sell products just to earn a commission
Choose a financial planner you can trust to deal fairly
4-3 Personal Financial Planning
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26. Focus on... Phishing Is a type of Internet scam
You are asked by to provide personal information such as a bank account number
Your data may be used to commit identity theft or other crimes
To protect yourself, do not send personal data in reply to s that appear to be from a bank or business
4-3 Personal Financial Planning
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