copyright 2007 thomson south-western chapter 4 financial decisions and planning
TRANSCRIPT
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Copyright 2007 Thomson South-Western
Chapter 4
Financial Decisions and Planning
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Slide 2
Meeting Wants and Needs
• Basic needs
• Other needs
• Wants
4-1 Resources and Choices
An expensive car is a product that fills customers’ wants.
PR Newswire PORSCHE CARS NORTH AMERICA, INC.
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Slide 3
Financial Resources
• Financial resources are money or other assets used to acquire goods and services
• Many people do not have enough resources to meet all their needs and wants
• People must decide how to use their scarce resources
4-1 Resources and Choices
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Slide 4
Personal Income and Expense Statement
4-1 Resources and Choices
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Slide 5
Personal Balance Sheet
4-1 Resources and Choices
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Slide 6
Making Financial Choices
• Buying decisions play an important part in managing your money
• A trade-off involves giving up a particular benefit or item to get another that you think is more desirable
• Opportunity cost is the benefit or item you give up (do not buy)
4-1 Resources and Choices
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Slide 7
Decision-Making Process
• Define the need or problem• List options available• Compare the options• Make a decision• Take action to apply the decision• Reevaluate your choices after some time has
passed
4-1 Resources and Choices
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Slide 8
Building Communications Skills
Reading Vocabulary • Reading is a basic communications skill
• Your vocabulary is the words you know and understand how to use
• Improving your vocabulary will help you better understand the material you read
4-1 Resources and Choices
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Slide 9
Purpose of Budgeting
• Budget – A spending and saving
plan
– Based on expected income and expenses
– Allows you to compare financial resources with financial needs
4-2 Budgeting
A budget can be created using a spreadsheet.
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Slide 10
Building a Budget
• Estimate income
• Plan savings
• Estimate expenses– Variable expenses– Fixed expenses
4-2 Budgeting
Eating at a fancy restaurant is entertainment, a variable expense.
• Balance the budget
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Slide 11
Personal Budget
4-2 Budgeting
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Slide 12
Budget Analysis
• Income, savings, and expenses will not be exactly as budgeted
• Differences between planned and actual amounts are called variances– Favorable variances
– Unfavorable variances
• Looking at variances can help you budget better in the future
4-2 Budgeting
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Slide 13
Budget Variances Report
4-2 Budgeting
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Slide 14
Recordkeeping Methods
• Keeping good records will help you prepare better budgets – Manual records
– Computerized records
You can keep financial records on a handheld computer using programs such as Microsoft® Money.
4-2 Budgeting
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Slide 15
Technology Corner
Internet Research • The Internet can be used to research and
compare products and prices
• Search engines allow you to search using keywords
Enter a word or term and click Search.
Search
• Search results provide links to Web pages
4-2 Budgeting
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Slide 16
Success Skills
Dealing With Conflict• Conflicts will occur sooner or later
• When faced with a conflict– Take a time out to consider the situation– State the problem briefly to show that you
understand it– Suggest talking later if the other person is angry– Focus on the problem and be objective– Be willing to compromise to reach a resolution
4-2 Budgeting
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Slide 17
Financial Planning
• A financial plan contains
– Personal goals
– Financial goals
– Steps to take for achieving goals
– A timeline for achieving goals
4-3 Personal Financial Planning
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Slide 18
One Goal in a Financial Plan
4-3 Personal Financial Planning
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Slide 19
Financial Planning Process
• Gather information
4-3 Personal Financial Planning
• Personal income and expensestatements
• Personal balance sheet • Personal budget• Current bank account
statements• Investment account statements• Financial contracts• Other documents related to your
finances
• Checkbooks• Insurance policies• Current paycheck stub• Tax returns• Will• Trusts
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Slide 20
Financial Planning Process
• Analyze information– Review income and expenses
– Review your balance sheet
– Consider changing goals or spending habits
• Set goals– Personal goals
– Financial goals
4-3 Personal Financial Planning
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Slide 21
Financial Planning Process
• Develop a timeline– Consider how soon you want to achieve each
goal
– Consider steps must you take to achieve each goal
• Implement and evaluate the plan– Work toward achieving goals
– Review and adjust the plan at least once a year
4-3 Personal Financial Planning
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Slide 22
Focus on...
Phishing• Is a type of Internet scam
– You are asked by e-mail to provide personal information such as a bank account number
– Your data may be used to commit identity theft or other crimes
• To protect yourself, do not send personal data in reply to e-mails that appear to be from a bank or business
4-3 Personal Financial Planning
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Slide 23
Ethics
Financial Planners and Commission Earnings • A financial planner
– Provides financial advice to individuals– May also buy and sell products on commission
• Financial planners are unethical if they buy or sell products just to earn a commission
• Choose a financial planner you can trust to deal fairly
4-3 Personal Financial Planning