1. Chapter 4 Financial Decisions and Planning

2. What Are Needs and Wants?
Needs are things you must have.
Examples:
Wants are things people desire.
Examples:
Financial resources are used to acquire goods and services.
4-1 Resources and Choices
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3. How Are Income and Wealth Measured?
Personal cash flow statement: cash inflows and outflows
Inflows = income
Outflows = expenses
Inflows > Outflows
Outflows > Inflows
4-1 Resources and Choices
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4. Personal Cash Flow Statement
Cash Inflows
Total cash inflows _______
Cash Outflows
Total cash outflows _______
____________
Net Cash Flow ________
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5. How Are Income and Wealth Measured?
Personal net worth statement: based on assets and liabilities
Assets = money or items of value
Liabilities = debts
Assets – Liabilities = Net Worth
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6. PERSONAL NET WORTH STATEMENT
How Is Wealth Measured?
PERSONAL NET WORTH STATEMENT
Assets
Liabilities
Cash and checking account $
Car loan
$1,100.00
Savings account
500.00
Credit card debt
200.98
Savings bond
300.00
Total liabilities
$1,300.98
Baseball card collection
100.00
Computer, iPod, games
Car, current value
3,000.00
Net Worth
Total assets
$4,652.56
Assets minus liabilities
3,351.58
Total liabilities and net worth
Net Worth
4-1 Resources and Choices
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7. Personal Net Worth Statement
Create your own!
Use page 120 as a reference
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8. How Can You Make Good Financial Choices?
Decision-Making Process
Define the need.
List options for meeting the need.
Compare the options.
Consider the opportunity cost—the value of your next best option.
Make a decision.
Take action based on your decision.
Reevaluate your choice.
4-1 Resources and Choices
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9. What Is Financial Planning?
Financial planning is a process of looking at your current financial situation and thinking about your future.
A financial plan has personal and financial goals along with steps and a timeline.
4-3 Personal Financial Planning
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10. Steps of a Financial Plan
Step 1: Gather financial information
Step 2: Analyze information
Step 3: Set goals
Step 4: Develop a timeline and benchmarks
Step 5: Implement and evaluate the plan
4-3 Personal Financial Planning
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11. Financial Plan (One Goal)
Net worth on April 1, 20--: $525.56
Personal Goal
Financial Goal
Benchmarks
Timeline
Live in my own house in the country.
Buy a house in the country.
Save money for a down payment ($12,000)
5 years
Set aside $200 per month
Once per month
Open a separate account for money saved
April 8 (next week)
Talk to a mortgage broker to get prepared
Make an appointment for April 15
Get a job that provides enough income to make monthly payments
2 years
4-3 Personal Financial Planning
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12. What Is the Purpose of Budgeting?
A budget is a spending and saving plan.
It is based on estimated income and expenses.
4-2 Basics of Budgeting
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13. How Do You Prepare a Budget?
Step 1: Estimate income
Step 2: Plan savings
Step 3: Estimate expenses
Variable expenses
Fixed expenses
Charitable giving
Step 4: Balance the budget
4-2 Basics of Budgeting
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14. Personal Budget Income Weekly Monthly Yearly Work (part-time) $30.00
$120.00
$1,440.00
Allowance for household chores
10.00
40.00
480.00
Lunch money allowance
15.00
60.00
720.00
Savings account interest
.50
2.00
24.00
Total income
$55.50
$222.00
$2,664.00
Savings
Deposit to savings account
$ 5.50 $ $
Expenses
Gifts
$ 5.00 $ $
Clothes and shoes
Loan payment to parents
5.00
20.00
240.00
Lunches
Entertainment/miscellaneous
Total expenses
$50.00
$200.00
$2,400.00
Total savings and expenses
4-2 Basics of Budgeting
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15. Analyzing Your Budget
Variances: Differences between planned amounts and actual amounts
Reasons for variances?
Why should you analyze your budget?
Analyze budget on page 130
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