chapter 3 goal setting, career planning, and budgeting
TRANSCRIPT
CHAPTER 3Goal Setting, Career Planning, and Budgeting
Chapter Preview Setting short-term and long-term goals Establishing a career plan Developing and implementing a budget Monitoring and controlling expenses Understanding your personal money
attitudes and how they affect budgeting
…applying the planning process
Where Does This Fit in Your Comprehensive Financial Plan?
Establish a firm foundation: Evaluate your finances, acquire tools and skills, set goals, develop a budget (Chapters 1 - 4)
Secure basic needs: Liquidity, consumer purchases and credit decisions, insurance, employee benefits (Chapters 5-10)
Build wealth: Save and invest to meet short-term and long-term goals (Chapters 11-15)
Protection: Plan for death and incapacity (Chapters 16-17)
Short-term and Long-term Goals If you do not have goals, you are less likely
to achieve them. The most effective people are those who
regularly set goals and develop strategies for accomplishing them.
Goals should be specific and measurable.
Steps to Setting Goals
1. Make a wish list.
2. Prioritize your list.
3. Break big goals into smaller steps.
4. Re-evaluate regularly.
Why Is Career Planning Important?
Most personal financial goals cost money. Your earning potential is therefore integrally
related to your ability to achieve your goals. You can think of education as an investment in
your human capital—the present value of your future earnings potential
This is probably your most valuable asset.
Steps in Career Planning Identify your abilities and interests.
If you choose a career that’s compatible with your intrinsic interests, then you will be happier and more successful.
Identify career paths that fit. Evaluate the costs, benefits, and risks.
Research employment trends: population aging, growth industries and sectors, globalization
Prepare yourself for the job market.
Developing a Budget What is a budget?
A plan for spending and saving your money in the future so that you can achieve your financial goals.
Steps in the budgeting process Forecasting Implementing Monitoring Evaluating
How to Forecast Income and Expenditures Determine the period the budget will cover.
Monthly or annual in most cases Set up a record-keeping format
Excel spreadsheet or hand-written ledger Business supply stores have various budget
aids Begin with current cash flow statement Assume reasonable increases for variable
income and expenses.
Example: Danelle Washington
Cash Inflows 2004Salary
9,500
Student Loan6,000
Scholarship1,300
Gifts 200
Total 17,000
Cash Inflows 2005Salary 28,000
Gifts 250
Total 28,250
Example: Danelle WashingtonCash Outflows 2004
Taxes 850
Groceries 2,050
Housing/utilities 4,560
Car 2,310
Credit cards 1,500
Insurance/med. 1,500
Education 4,000
Other 2,120
Total 18,890
Cash Outflows 2005Taxes 3,000
Groceries 2,500
Housing/utilities 6,000
Car 4,300
Credit cards 1,500
Insurance/med. 1,500
Student loan 1,800
Other 3,000
Total 23,600
Example: Danelle Washington
2004 2005
Cash Inflows 17,000 28,250
Cash Outflows 18,890 23,600
Net Cash Flow -1,890 4,650
Based on this forecast, Danelle estimates she can save about $4,650/12 = $387 per month.
Tracking Budget Variances Objective
Stop small cash leakages. Ensure that large irregular cash flows do not
cause financial hardship.
How to do this Create a budget tracking worksheet to see how
well you stay within your forecast expenditure amounts.
Example of Budget Tracking Worksheet
CASH INFLOWS
Take-home pay
JANUARY
Forecast
2,100
JANUARYActual
1.950
BUDGET
VARIANCE
CASH OUTFLOWS
Gifts Housing/utilities
Car Credit cards Insurance/med
Student loan
Other
208
500
358
125
125
150
250
0
600
420
125
100
145
260
208
-100
-62
0
25
5
-10
Money Attitudes and Budgeting Couples with different attitudes toward
budgeting may experience conflict. You’ve been brown-bagging your lunch in order
to save $25 a week for your vacation fund. Your spouse buys a $200 power tool that he
doesn’t really need, without consulting you.
Before combining household finances, it’s important to discuss these issues.
How to Households Spend?
Family Finance Issues Who pays the bills and makes decisions? Should each person have separate funds? When does an expenditure require joint
approval? How will you approach gift giving? Who pays for debt that precedes the
marriage? Who pays for expenses associated with
children from previous marriage? Should you have a prenuptial?