personal finance. financial security enjoying financial security throughout life is an achievable...

Personal Finance

Financial Security Enjoying financial security throughout

life is an achievable goal Budgets and other financial planning

tools can help you achieve financial security

Facts A person with a high school education

will earn just over 1 million dollars in a lifetime

What is a lifetime? Working from the time you are 18, until

you retire at around age 62 That’s 44 years

Facts A person with a college education can

be expected to earn more than 2 million dollars in the same time period

No matter how much you make, if your resources are not used wisely, your needs will not be met

Financial Planning Ongoing process Takes you from where you are now to

where you want to be financially It’s a way to control your financial

resources and your future The goal of financial planning is to reach

goals that are important to you and feel financially secure

Financial Security The ability to meet essential needs

without taking on more debt than you can repay

Financial security comes when you plan

Financial Literacy Understanding of the basic knowledge

and skills needed to manage financial resources

You are aware of financial management options

Budget A spending plan for the use of money

over time based on goals and expected income

Purpose is to take control of your money and spending

Steps To Prepare A Budget1. Establish financial goals: direct your money to those things you

consider most important Keep in mind financial goals change

2. Estimate and total your income: Determine your budget period-weekly,

biweekly or monthly Biweekly-every other week Income-any form of money you receive-

allowance, paycheck Estimate your income during a typical

budget period

Example: if you receive a weekly allowance from your parents, you should have a weekly budget

3. Estimate and total your expenses: Expense-the cost of goods or services

you buy

Fixed Expense A set cost that must be paid each

budget period

PYF Pay Yourself First Determine how much you want to save

each month automatically route your specified

savings contribution from each paycheck at the time it is received, before paying anything else

The golden rule of personal finance

Other Fixed Expenses Rent or mortgage payments Insurance Car payments Loan payments These expense tend to increase in amount

as you move into adult years As a rule, these expenses must be paid

when due Important to list first in your list of expenses

Variable Expense A cost that changes both in amount and

time it must be paid Food Clothing Medical expenses Entertainment

Discretionary Expenses Most teenagers receive basic

necessities from their families So, you spend your money on

discretionary expenses Music Snacks Computer games Movies

For adults, discretionary expenses are: Vacations Gifts Expensive clothing Other unnecessary things Wants

Savings Allows you to have cash available when

an unexpected expense occurs Car repairs Unexpected medical bills Home repairs Job loss

Charitable Giving The act of giving money, goods or

services for the good of others

4. Analyze Current Income and spending: Its easy to over or under estimate

income and spending Are your income figures accurate Subtract your expenses from your

income Do you have money left over, do you

come out negative, or are you even?

Negative and Even You will have to find ways to increase

income or cut expenses

5. Prepare a Trial Budget A plan reduces the temptation to

spend carelessly Keep these records so you can review

your financial situation

6. Put Your Budget Into Action Once you set up your budget, save and

spend according to your plans You will have two columns for planned

and actual expenses When an actual expense is greater than

what you planned for, identify the cause If your estimate was too low, adjust your

budget

7. Evaluate your budget periodically: Financial plans change with significant

events in your life College Starting a new job Leaving home Getting married Having children

If you monitor your finances carefully, you income will work well for you over the years