© goodheart-willcox co., inc.. 6 personal finance: an overview
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© Goodheart-Willcox Co., Inc.
6Personal Finance:
An Overview
Objectives
• Prepare a _______ tailored to income and needs.
• Prepare __________and ____worth statements.
• __________family finances for different stages in the life cycle.
• Give examples of economic, demographic, cultural, and technological ________that can impact financial planning.
continued
Objectives
• Explain ways to deal with a financial_______
• Identify important financial and legal ______________to keep on hand.
Preparing Financial Statements
• Financial planning enables you to– ________important_________– achieve a sense of financial
________for life• Financial security is the ability to
________ essential ______without taking on more debt than you can repay
continued
Preparing Financial Statements
• Financial __________is – having a ______understanding of
_________and ______needed to manage financial resources
– Being ______of and knowledgeable about financial management_______
– Feeling _____in your _________ to make your resources work for you
continued
Preparing Financial Statements
• Financial statements include– __________– ______ ___________statement– ________________statement
Tailoring a Budget to Income and Needs
• A __________helps you manage– _________and ____________– ______-to-day expenses
• Creating a basic budget involves ________steps
1. Establish Financial_______
• _____your financial _______• Your goals will change over time
2. _______and Total Your Income
• _________a budget_______• _________ _______ from each
source• ______the estimated income
3. ________and Total Your______
• _______expenses – _____ ____ _______ each budget
period– are often the ______or nearly the
same amount from month to month– include payments for_____, _________,
_________, ________premiums, and auto and other________
continued
3. Estimate and Total Your Expenses
• _________expenses – Can _______from month to month,
both in amount and time to pay– can often be pared down or_____– include payments for______,
_________, _______expenses, ____________expenses
continued
3. Estimate and Total Your Expenses
• Use a _____to estimate and total expenses
Building Savings into Your Budget
• Build _______into a budget for – Unexpected ___________: medical
expense, car______, a possible period of______________
– medium- and ______-term goals– investments to _________your
financial circumstances
Charitable Giving as an Expense
• Budget for philanthropy by giving to _________ charities
• Making _________may lower______
4. Analyze Current Income and Spending
• Subtract ________from_______• If the number is________, you have
money left over for_____• If the number is 0 or________, find
ways to increase _______or cut__________
continued
4. Analyze Current Income and Spending
• Ways to increase ________:– Handle more ____________at home to
possibly increase your_________– Get a part-time ____ – If you work, negotiate a _____ or
increased ______
continued
4. Analyze Current Income and Spending
• Ways to reduce _______:– Reduce or cut ____________ expenses– Reduce ____ and ________ expenses– Cut expenses unrelated to goals and
__________
5. Prepare a Trial Budget
• Use goals, income, and expenses• Use ________ expenses
6. Put Your Budget into Action
• Fill in actual amounts for income and expenses
• If actual amounts exceed budgeted amounts, identify the cause
• Revise budget using actual costs • Study budget before making
financial decisions
7. Evaluate Your Budget Periodically
• Is your _______ working? • Are you reaching ________ goals
and setting new ones?• Are you _________ your spending? • Has your income or spending
_______ changed? • Do ____ changes call for
adjustments?
Preparing a Cash Flow Statement
• Shows real ______ and ________
• Inflow is income; _______ is _________
• Prepare at end of ________ period
continued
Preparing a Cash Flow Statement
• By _________ income and expenses, you get a good picture of your _________ patterns
Preparing a Net Worth Statement
• Net ______ = assets – liabilities– ________ net worth lets you meet
your financial _________ and goals, and __________ wealth
– Negative net worth can be _________ by reducing expenses or _________ income
continued
Preparing a Net Worth Statement
• This measures your ________ standing at a specific point in _____
Assets
• Liquid assets are easily ________ to cash– _____, money in savings
• Investment assets are _______ funds set aside for long-term goals– Stocks, ______
• Use assets are _______ goods – Auto, furniture
Liabilities
• Current ________ are items that must be paid soon, usually within a year– ________ bill, taxes, _________ bill
• Long-term _________ are obligations paid over a longer period of time– Mortgage, student loan
Planning Family Finances
• Factors affecting adult budgeting decisions are– age– stage in the family life cycle
• Families can skip, overlap, or repeat family life cycle stages
continued
Planning Family Finances
• Family life cycle_________– _________– __________ – ___________ – ___________ – ___________
Beginning Stage
• _______ _______ from parents, obtain higher education,_______, start jobs and_________
• _________: education, college loans, home down payment, auto, home furnishings, insurance
Expanding Stage
• Job___________, increasing income, increasing responsibilities, childbirth, and parenting
• Expenses: child-related costs, increased _________protection, increased housing expenses
__________Stage
• _______school-age children and___________, climbing income and expenses
• Expenses: child- and ______-________ costs,_______ ______, retirement planning
__________Stage
• _________of children from home, peaking earnings, aging parents
• Expenses:________, retirement savings, costs of caring for _______ ________
In Your Opinion
• Which stages of the family life cycle can you recognize in your own family’s history? Were any stages skipped or repeated?
_______Stage
• ___________, earnings drop, “_______ _____”, birth of grandchildren, caring for elderly parents, estate planning
• __________: medical costs, insurance, travel, costs of caring for elderly parents
• Security at this stage depends on earlier planning
Variations in the Cycle
• _______and ________couples _____the expanding, developing, and launching stages
• Single parents who ________may _______stages with new spouses
continued
Variations in the Cycle
continued
Variations in the Cycle
• Single-parent ______-headed families often have ____ _______, less savings
• After separation and divorce, income often falls while _____ _____________
Financial Decisions in a Changing World
• Other forces impacting financial decisions:– __________factors– __________ factors– ___________factors– ____________ factors
• Financial planning and saving help people cope with economic challenges
The Economy and Your Finances
• During ______economic______,– consumers and business owners
are___________– most people who want _____can find
them– _______and __________ rise– people save and ________for the
future
continued
The Economy and Your Finances
• During a_________,– people
are_____________– people fear or
experience ___ ______incomes stagnate
– people spend less; _______ ________
continued
The Economy and Your Finances
• During___________,– ______ ______ _________than income– money buys_______– people cannot buy or save as much
Demographics and Your Finances
• Demographic _______that impact the economy and people’s finances– An aging population – Changing job market– Rising educational requirements for
jobs – More young adults living with their
parents
Culture and Your Finances
• _________ethnic, cultural, religious diversity, especially in ______areas
• More relationships and marriages between people of different backgrounds
• Cultural and ethnic _________can affect financial decisions
Technology and Your Finances
• New technology can have financial impacts
• Example: _____________ advances led to longer lives and the ______for more__________ continued
Technology and Your Finances
• Positive impacts of advanced technology:– New markets in which to buy and
sell– Wider _________of goods and services– _______ __________ goods and
services– New_______– New money management________– Easy ________to information
continued
Technology and Your Finances
• _______created by advanced technology:– Offshore____________—businesses
move factories and jobs to other countries to benefit from cheap labor and weaker government regulations
– American workers competing for jobs with lower-paid workers may ______ ___, benefits, or take pay cuts
Working Through Financial Problems
• To __________ a financial_______,– get the best ________and job training
possible– Keep _____under __________– Create ________ _______; save
regularly– _______taking excess ________– Get ___________protection– _______finances with household
members
Unexpected Crisis
• Some crises ________ ____ _________ or prepared for in advance
continued
Unexpected Crisis
• Causes of a family crisis include– job loss– separation and divorce– death– disability– serious illness– natural disaster
continued
Unexpected Crisis
• To cope with a family crisis– discuss problem with adult members
of household– list your resources– minimize negative financial
consequences– get the help of professionals
Keeping Important Documents
• Keep documents and papers necessary for financial and legal transactions
• Develop a recordkeeping system
Key Lists to Keep Current and Available
• _______and _________ accounts• Credit card and _______accounts• ______Personal identification
numbers)• ___________and investment
records• _______and trusts• _________policies• Loan________, including mortgage continued
Key Lists to Keep Current and Available
• ______records• Property ______and titles• ____________plans and employee
benefits documents• ______Security and Medicare
records• ________, possessions, and _________• Product information and_________• Instructions for management of
your affairs
Scheduling Bills
• Set aside a specific _____to put _____as they arrive
• If you don’t receive an expected bill, _______the business right away
• Keep track of _____dates • Set a ______ ______for bill paying• Pay bills ___the ______they are due
Keeping Budgeting Records
• Your files should contain records related to income, spending, and savings
• Keep _________for – _______expenses– __________you may want to________– purchases that may need
________service
Central Ideas of the Chapter
• Enjoying financial security throughout life is an achievable goal.
• Budgets and other financial planning tools can help people achieve financial security.
Glossary of Key Terms
• budget. A spending plan for the use of money over time based on goals and expected income.
• cash flow statement. A summary of the amount of money received as well as the amount paid out for goods and services during a specific period.
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Glossary of Key Terms
• demographics. The statistical characteristics of the population.
• expense. The cost of a good or service a person buys.
• family crisis. A major problem that impacts the future of the family and its lifestyle.
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Glossary of Key Terms
• family life cycle. The stages of change a family passes through from formation to aging.
• financial literacy. The understanding of the basic knowledge and skills needed to manage financial resources.
• fixed expense. A set cost that must be paid each budged period.
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Glossary of Key Terms
• income. Any form of money a person receives from various sources.
• liability. A financial obligation that a person currently owes or will owe in the future.
• net worth. The difference between what a person owns and owes.
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Glossary of Key Terms
• net worth statement. A written record of a person’s current financial situation.
• philanthropy. The act of giving money, goods, or services for the good of others.
• recordkeeping. The process of setting up and maintaining an organized system for your financial affairs.
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Glossary of Key Terms
• variable expense. A cost that changes both in the amount and time it must be paid.
• wealth. An abundance of assets that are accumulated over time.
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