Introduction to Business© Thomson South-Western

ChapterChapterChapterChapter

Money Management and Financial Planning

16-116-1 Personal Financial Statements

16-216-2 Budgeting Techniques

16-316-3 Your Financial Future

1616

Chapter 16

Slide 2Introduction to Business

© Thomson South-Western

LESSON 16-1

Personal Financial Statements

Goals Explain the basics of money

management. Create a personal balance sheet. Develop a personal cash flow

statement.

Chapter 16

Slide 3Introduction to Business

© Thomson South-Western

Key Terms

money management personal assets net worth cash flow statement

Chapter 16

Slide 4Introduction to Business

© Thomson South-Western

MONEY MANAGEMENT BASICS Refers to the day-to-day financial activities

associated with using limited income to satisfy your unlimited needs and wants

Involves getting the most for your money through careful planning, saving, and spending

Involves making and using a plan for spending

Chapter 16

Slide 5Introduction to Business

© Thomson South-Western

SUCCESSFUL MONEY MANAGERS Set goals Make wise decisions Buy wisely Live within their income

Chapter 16

Slide 6Introduction to Business

© Thomson South-Western

>> C H E C K P O I N T

What are some characteristics of a wise money manager?

Chapter 16

Slide 7Introduction to Business

© Thomson South-Western

PERSONAL BALANCE SHEET Assets Liabilities Net Worth

Chapter 16

Slide 8Introduction to Business

© Thomson South-Western

SAMPLE PERSONAL BALANCE SHEET

Chapter 16

Slide 9Introduction to Business

© Thomson South-Western

>> C H E C K P O I N T

What are three main categories of a personal balance sheet?

Chapter 16

Slide 10Introduction to Business

© Thomson South-Western

PERSONAL CASH FLOW STATEMENT Cash inflows Cash outflows Compare inflows and outflows

Chapter 16

Slide 11Introduction to Business

© Thomson South-Western

SAMPLE PERSONAL CASH FLOW STATEMENT

Chapter 16

Slide 12Introduction to Business

© Thomson South-Western

>> C H E C K P O I N T

What do cash outflows represent?

Chapter 16

Slide 13Introduction to Business

© Thomson South-Western

LESSON 16-2

Budgeting Techniques

Goals Identify purposes of a budget. Describe steps for preparing a budget. Describe characteristics of successful

budgeting.

Chapter 16

Slide 14Introduction to Business

© Thomson South-Western

Key Terms

fixed expenses variable expenses allowance budget variance

Chapter 16

Slide 15Introduction to Business

© Thomson South-Western

BUDGET ACTIVITIES

Live within your income Achieve your financial goals Buy wisely Avoid credit problems Plan for financial emergencies Develop good money management skills

Chapter 16

Slide 16Introduction to Business

© Thomson South-Western

>> C H E C K P O I N T

What are the main purposes of a budget?

Chapter 16

Slide 17Introduction to Business

© Thomson South-Western

THE BUDGET PROCESS Set financial goals Plan budget categories

BUDGET CATEGORIES Savings Food Clothing Household Transportation Health and

personal care Recreation

and education Gifts and contributions

Maintain financial records Evaluate your budget

Chapter 16

Slide 18Introduction to Business

© Thomson South-Western

SAMPLE FAMILY BUDGET

Chapter 16

Slide 19Introduction to Business

© Thomson South-Western

>> C H E C K P O I N T

What are eight commonly used budget categories?

Chapter 16

Slide 20Introduction to Business

© Thomson South-Western

CHARACTERISTICS OF AN EFFECTIVE BUDGET Must be realistic Should be flexible Should be evaluated regularly Must be well planned and clearly

communicated Should have a simple format

Chapter 16

Slide 21Introduction to Business

© Thomson South-Western

BUDGETING FORMATS

Software program Handwritten Checkbook Unwritten

Chapter 16

Slide 22Introduction to Business

© Thomson South-Western

SAMPLE INCOME AND EXPENSE RECORD

Chapter 16

Slide 23Introduction to Business

© Thomson South-Western

>> C H E C K P O I N T

What are five characteristics of an effective budget?

Chapter 16

Slide 24Introduction to Business

© Thomson South-Western

LESSON 16-3

Your Financial Future

Goals Describe the financial planning process. Explain actions for implementing a

financial plan. Identify actions for reviewing a financial

plan.

Chapter 16

Slide 25Introduction to Business

© Thomson South-Western

Key Terms

financial plan individual retirement account (IRA) estate planning

Chapter 16

Slide 26Introduction to Business

© Thomson South-Western

ADVANTAGES OF FINANCIAL PLANNING Your financial uncertainties will be reduced. You will gain more control of your financial

activities. Your family and household members will

know more in case they need to assume control of your finances.

Earning, spending, protecting, and saving your resources will be more systematic.

Chapter 16

Slide 27Introduction to Business

© Thomson South-Western

FINANCIAL PLANNING PROCESS1.1. Analyze your current financial condition

2.2. Develop financial goals that are responsive to your vision

3.3. Create your financial plan

4.4. Implement the plan

5.5. Revise your financial plan

Chapter 16

Slide 28Introduction to Business

© Thomson South-Western

FINANCIAL INVENTORY

Careful review of your finances Personal balance sheet Personal cash flow statement Information about current financial position

Income Savings Investments Property

Living expenses Insurance Money owed

Chapter 16

Slide 29Introduction to Business

© Thomson South-Western

PERSONAL FINANCIAL FILING SYSTEM Personal records Housing records Consumer purchase records Insurance records Money management records Tax records Financial services and credit records Investment, retirement, and estate records

Chapter 16

Slide 30Introduction to Business

© Thomson South-Western

FINANCIAL LIFE CYCLE

Teen years Twenties Later Retirement

Chapter 16

Slide 31Introduction to Business

© Thomson South-Western

USING A FINANCIAL PLANNER Questions you might ask when

choosing a financial planner What experience and training do you

have? Are you willing to supply references from

past clients? How are your fees determined?

Chapter 16

Slide 32Introduction to Business

© Thomson South-Western

>> C H E C K P O I N T

List five recommended steps for financial planning.

Chapter 16

Slide 33Introduction to Business

© Thomson South-Western

IMPLEMENT A FINANCIAL PLAN Insure current income

Disability income insurance Unemployment insurance

Plan for future income Social Security Pensions Retirement accounts Annuities

Chapter 16

Slide 34Introduction to Business

© Thomson South-Western

>> C H E C K P O I N T

What are common sources of income during retirement?

Chapter 16

Slide 35Introduction to Business

© Thomson South-Western

REVIEW YOUR FINANCIAL PLAN Revise financial goals Review financial activities Remember to save

Chapter 16

Slide 36Introduction to Business

© Thomson South-Western

>> C H E C K P O I N T

What common activities are needed when reviewing a financial plan?