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Copyright 2007 Thomson South-Western

Chapter 4Financial Decisions and

Planning

Meeting Wants and Needs

• Basic needs• Other needs• Wants

4-1 Resources and Choices

An expensive car is a product that fills customers’ wants.

PR Newswire PORSCHE CARS NORTH AMERICA, INC.

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


Personal Income and Expense Statement


Personal Balance Sheet


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)


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


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


Purpose of Budgeting

• Budget – A spending and saving

plan– Based on expected

income and expenses– Allows you to compare

financial resources with financial needs

4-2 Budgeting

A budget can be created using a spreadsheet.

Building a Budget

• Estimate income• Plan savings• Estimate expenses

– Variable expenses– Fixed expenses

4-2 Budgeting

Eating at a fancy restaurant is entertainment, a variable expense.

• Balance the budget

Personal Budget

4-2 Budgeting

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

Budget Variances Report

4-2 Budgeting

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.

4-2 Budgeting

Technology Corner

Internet Research • The Internet can be used to research and

compare products and prices • Search engines allow you to search using

keywords

Enter a word or term and click Search.

Search

• Search results provide links to Web pages

4-2 Budgeting

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

Financial Planning

• A financial plan contains– Personal goals– Financial goals– Steps to take for achieving goals– A timeline for achieving goals

4-3 Personal Financial Planning

One Goal in a Financial Plan


Financial Planning Process

• Gather information


• Personal income and expensestatements

• 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


• Analyze information– Review income and expenses– Review your balance sheet– Consider changing goals or spending habits

• Set goals– Personal goals– Financial goals



• 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


Focus on...

Phishing• Is a type of Internet scam

– You are asked by e-mail 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 e-mails that appear to be from a bank or business


Ethics

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


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