Chapter 4 Financial Decisions and Planning What Are

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Chapter 4 Financial Decisions and Planning

Chapter 4 Financial Decisions and Planning

What Are Needs and Wants? • Needs are things you must have. o Examples:

What Are Needs and Wants? • Needs are things you must have. o Examples: food, clothing, shelter • Wants are things people desire. o Examples: new cars, vacations, luxury items • Financial resources are used to acquire goods and services. 4 -1 Resources and Choices Slide 2

How Are Income and Wealth Measured? • Personal cash flow statement lists cash inflows

How Are Income and Wealth Measured? • Personal cash flow statement lists cash inflows and outflows. o Inflows = income o Outflows = expenses • Personal net worth statement shows a person’s net worth based on assets and liabilities. o Assets = money or items of value o Liabilities = debts 4 -1 Resources and Choices Slide 3

How Is Wealth Measured? PERSONAL NET WORTH STATEMENT Assets Cash and checking account Liabilities

How Is Wealth Measured? PERSONAL NET WORTH STATEMENT Assets Cash and checking account Liabilities $ 452. 56 Car loan $1, 100. 00 Savings account 500. 00 Credit card debt 200. 98 Savings bond 300. 00 Total liabilities $1, 300. 98 Baseball card collection 100. 00 Computer, i. Pod, games 300. 00 Car, current value Total assets 3, 000. 00 $4, 652. 56 Net Worth Assets minus liabilities Total liabilities and net worth 3, 351. 58 $4, 652. 56 Net Worth 4 -1 Resources and Choices Slide 4

How Can You Make Good Financial Choices? Decision-Making Process 1. Define the need. 2.

How Can You Make Good Financial Choices? Decision-Making Process 1. Define the need. 2. List options for meeting the need. 3. Compare the options. o Consider the opportunity cost—the value of your next best option. 4. Make a decision. 5. Take action based on your decision. 6. Reevaluate your choice. 4 -1 Resources and Choices Slide 5

Building Communications Skills Reading Vocabulary • Try to learn the meaning of a word

Building Communications Skills Reading Vocabulary • Try to learn the meaning of a word by seeing how it is used in a sentence. • Divide a long word into parts. • Look up a word in the dictionary. • Look up a word in the glossary. • Practice using new words in conversation or writing. 4 -1 Resources and Choices Slide 6