Chapter 8 Budgets and Financial Records 8 1
Chapter 8 Budgets and Financial Records 8. 1 Budgeting and Planning 8. 2 Legal Agreements and Record Keeping © 2010 South-Western, Cengage Learning
Learning Target: n Explain the purpose/benefits of understanding and utilizing financial planning. n Create a personal budget. Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 2
Financial Planning Basics Helps us…. n Plan n Budget n Keeping good records A financial plan is a set of goals for spending, saving, and investing the money your receive. Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 3
What is a Budget? n A list (typed or written) of what you will or expect to spend your money on n A tool utilized to help individuals stay out of financial trouble n Something everyone should create, monitor and update for themselves on a monthly basis © 2010 South-Western, Cengage Learning
What does a Budget compare? n INCOME n EXPENSES (Fixed – Variable) Giving us a “MONTHLY TOTAL” © 2010 South-Western, Cengage Learning
Monthly Budget n Fixed expenses are costs that do not change from month to month. n Variable expenses are costs that vary in amount and type, depending on the choices you make. Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 6
Getting Started n Income = money coming “IN” n Gross Income n Net Income n Disposable income n$ you don’t have “earmarked” n. Money Going “OUT” n Expenses = money going “OUT” n Bills or Financial Obligations Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 7
Preparing a Budget n A budget is a spending and saving plan based on your expected income and expenses. PROS n Helps you plan n Helps you save money n Less Stress n Keeps you organized CONS n Takes Time Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 8
Steps in Preparing a Budget 1. 2. 3. 4. 5. Estimate your income. Estimate your expenses. Decide how much to save. Select your budgeting tool. Balance your budget. Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 9
Simple Budget Evan Anderson—Budget for September Income Expenses Part-time job $320 Daily lunches $ 80 Allowance 20 Supplies 20 Birthday gift 40 Clothes 40 Total Income $380 Entertainment 140 Total expenses $280 Savings Credit union account The budget balances. Total expenses plus savings $100 $380 Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 10
Net Worth Statement Anisa Newkirk January 1, 20— Assets Checking account Savings account Liabilities $500 800 Car value 3, 000 Personal property 5, 000 Total assets $9, 300 Loan on car $1, 800 Loan from parents Total liabilities 100 $1, 900 Net Worth Assets minus liabilities $7, 400 Total liabilities and net worth $9, 300 These two numbers must be the same. Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 11
Personal Records n Good personal records makes budgeting and longrange planning easier. n Your records also make it easier to prepare income tax returns, credit applications, and other financial forms. n You should keep five types of personal records: n n n Income and expenses records Net worth statement Personal property inventory Tax records Other miscellaneous documents Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 12
Income and Expenses Records n Examples of income records n W-2 forms n Statements from banks n Statements from investment companies n Examples of income records n Receipts listing charitable contributions n Medical bills n Receipts for work-related expenses Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 13
Net Worth Statement n A net worth statement shows a person’s net worth based on his or her assets and liabilities. n Assets are items of value that a person owns. n Money or debts you owe to others are called liabilities. n When you subtract your liabilities from your assets, the difference is known as net worth. Assets – Liabilities = Net worth Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 14
Personal Property Inventory n A personal property inventory is a list of the valuable items you own, along with their purchase prices and approximate current values. n Vehicle n Camper/Boat n Bike n Clothing n Furniture n Appliances n Lawnmower n Tools n Keepsakes Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 15
(continued) Personal Property Inventory Anisa Newkirk: January 2, 20— Year Purchased Purchase Price Approximate Current Value Sphinx XTL DVD Player with big-screen TV 2008 $ 3, 200 $1, 300 Bedroom furniture (bed, dresser, lamp, clock) 2006 2, 000 1, 200 Clothing, jewelry ------ 3, 000 500 MBD motor bike 2005 1, 800 1, 000 CD collection, CD burner, digital camera, scanner 2006 2, 000 1, 000 $12, 000 $5, 000 Item Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 16
Tax Records n All taxpayers should keep copies of their tax records for at least three years after they file their tax return. n Tax records n Tax Return itself n W-2 forms n Any receipts verifying income and expenses that was listed on the tax return. NOTE - Keep your tax records in a safe place in case of an audit. Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 17
Other Miscellaneous Documents n Lists of credit card numbers n Car titles n Insurance policies n Birth certificates n Marriage certificates n Passports Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 18
Personal Record Keeping n As you begin to accumulate financial records and legal documents, you should have a good filing system. n A filing system allows you to: n Organize n Store n Retrieve Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 19
Paper Filing System n Folders n Labels n File cabinet Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 20
Electronic Record Keeping n The advantages of computerized systems include the following: n Ease of updating information n Ease of record storage and retrieval n Speed of making new computations and comparisons Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 21
Software Programs n Many software programs can help you keep better records. n A spreadsheet is a computer program that organizes data in columns and rows and can perform calculations using the data. n A database is a computer program that organizes data for easy search and retrieval. Chapter 8 © 2010 South-Western, Cengage Learning SLIDE 22
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