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Chapter 16 Money Management & Financial Planning. Mrs. Wilson  Business Essentials. 16-1 Personal Financial Statements. This lesson provides information about money management basics and the reports used to measure financial progress. Money Management Basics.

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chapter 16 money management financial planning

Chapter 16Money Management &Financial Planning

Mrs. Wilson  Business Essentials

16 1 personal financial statements
16-1 Personal Financial Statements

This lesson provides information about money management basics and the reports used to measure financial progress.

money management basics
Money Management Basics
  • Money management – refers to the day-to-day financial activities associated with using limited income to satisfy your unlimited needs and wants
  • It involves getting the most for your money through careful planning, saving, and spending
  • If you learn to manage your money well, you will be able to buy what you really want
money management basics1
Money Management Basics
  • Wise money managers get the most from their limited incomes through careful planning, saving, and spending
  • They set goals, make wise decisions, buy wisely, and live within their incomes
  • A balance sheet is a record of assets and liabilities at a point in time
  • It reports what a person or family owns as well as owes
personal balance sheet
Personal Balance Sheet
  • Personal assets – items of values
    • Money in bank accounts
    • Investments
    • Furniture
    • Clothing
    • Automobiles
    • Jewelry
    • Rare coins
  • The current value of all assets of an individual or family is the first thing stated on a balance sheet
personal balance sheet1
Personal Balance Sheet
  • Liabilities – amounts owed to others
  • These debts may include:
    • Credit card balances
    • Car loans
    • Home mortgage
    • Personal loans
  • A listing of your liabilities is the second item on a balance sheet
  • Net worth – the difference between a person’s assets and liabilities
personal balance sheet2
Personal Balance Sheet
  • To examine changes in a person’s net worth, another financial statement can be helpful
  • Cash flow statement – reports net wages and other income along with spending for a period, such as for a month
  • Cash inflows – the money you have available to spend as a result of working or from other income, such as interest earned on your savings
personal balance sheet3
Personal Balance Sheet
  • Cash outflows – amount spent for food, clothing, transportation, and other living costs
  • Keeping track of how much is spent for various living expenses will help you plan and control your spending
16 2 budgeting techniques
16-2 Budgeting Techniques

This lesson introduces budgeting activities along with an explanation of personal financial statements.

budget activities
Budget Activities
  • Budget– allows you to meet your personal goals with a system of saving and wise spending
  • The main purposes of a budget are to help you do the following:
    • Live within your income
    • Achieve your financial goals
    • Buy wisely
    • Avoid credit problems
    • Plan for financial emergencies
    • Develop good money management skills
the budget process
The Budget Process
  • Having a written budget is a key part of successful money management
  • The process of creating and using a budget involves 4 main steps:
    • Set financial goals
    • Plan budget categories
    • Maintain financial records
    • Evaluate your budget
the budget process1
The Budget Process
  • Most financial advisers recommend that an amount be set aside for savings as the first part of a budget
  • After savings, 2 types of living expenses must be considered:
    • Fixed expenses – costs that occur on a regular basis and are the same amount each time
      • Ex) rent, mortgage payments, insurance premiums
    • Variable expenses – living costs that differ each time and may not be as easy to estimate
      • Ex) food, clothing, utilities, medical and dental costs
the budget process2
The Budget Process
  • While the budget categories can vary for the different situations, 8 main divisions are commonly used:
    • Savings
    • Food
    • Clothing
    • Household
    • Transportation
    • Health & personal care
    • Recreation & education
    • Gifts & contributions
successful budgeting
Successful Budgeting
  • Effective budgeting will be an ongoing learning process for you
  • The following are common characteristics of a successful budget:
    • Must be realistic
    • Should be flexible
    • Should be evaluated regularly
    • Must be well planned and clearly communicated
    • Should have a simple format