Chapter 28

Managing Personal Finances

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• Today, we will start Chapter 28 on Managing Personal Finances

Vocabulary

• Personal Financial Planning

• Goals• Opportunity Cost• Money management• Expense • Budget• Gross pay• Deductions• Net pay

• Income • Fixed expenses• Variable expenses• Budget variance• Surplus• Deficit

Making Financial Decisions

• Personal finance refers to all the things in

your __________ that involve money.

• Everyone has ___________ financial goals.

• The financial process has ______ steps.

Financial Planning Process

1. Determining Your Financial Situation2. Developing Your Financial Goals3. Identify Possible Courses of Action4. Evaluate Your Alternatives5. Implement a Financial Plan of Action6. Review and Revise Your Plan

Step 1: Determining Your Financial Situation

1. First, make a list of your ____________, monthly income, monthly expenses and __________.

2. A good way to estimate your expenses is to keep a careful ___________ of every amount you spend for one month.

Step 2:Developing Your Financial Goals

1. Think about your attitude towards __________.

2. What are your __________ and needs?

Step 3:Identify Possible Courses of Action

1. It is important to consider your options before making a decision.

Step 4:Evaluate Your Alternatives

1. Look at where you are in your _______, your present financial situation, and your personal values.

2. Consider the consequences and _______ of each decision you make.

Step 5:Implement a Financial Plan of Action

1. A plan of action is a list of ________ to achieve your financial goals.

Step 6:Review and Revise Your Plan

1. As you get _________, your finances and needs will change.

2. You should reevaluate and revise it every year.

Sources of Financial Information

• The ____________ is a good place to get information on social and economic conditions.

• Magazines can also help.

Understanding Risk

a) Inflation Riska) A __________ increase in the cost of goods

and services.

b) Interest Rate Riska) Interest rates ________ and fall.

c) Income Riska) Your __________ may rise or fall.

Understanding Risk

d) Personal Riskd) Some choices ____________ risk.

e) Liquidity Riskd) The ability to convert your financial resources

into cash easily without a loss in value.

Understanding Risk

f) An important part of financial planning is ________________ which risks you can afford to take and which ones you can’t.

g) ________________ of your assets is another way to minimize risk.

Consequences of Choices

• Choosing between the _____________ involves more than just knowing what you forgo.

• It also involves knowing what you ________.

Section 28.1 Review Key Concepts

1. What are some examples of long-range financial goals that consumers may have?

2. List the steps of the financial planning process.

3. Name some types of financial risk.

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The Importance of Budgeting

• Money ______________ is necessary for consumers, businesses and governments.

• Most people want more goods and services than they have _________ to buy.

• A budget helps them to set ______________ priorities.

The Importance of Budgeting

• A budget includes a record of your expected income, your planned expenses, and your planned savings over a certain period of __________.

• A good budget helps people set priorities for spending and saving and ___________ their money.

Preparing a Budget

• Planning a budget is a ______________-step process.

• Step 1: Set Your ___________ Goals1. A budget should help you decide which goals

you can_____________________ with the amount of money you have.

• Step 2: _____________ Your Income1. Start by recording your estimated income

for the next ________________.2. Include all sources of income that you

know you will ______________, such as take home pay and income on investments.

Preparing a Budget

• Step 3: Budget for Unexpected Expenses and Savings1. You have to plan for _____________ such

as food, rent, and clothing to satisfy your basic needs.

2. An expense is an amount of money used to _____________ or do something.

Preparing a Budget

3. You must also plan for ____________ expenses, such as medical visits or accidents.

4. Unexpected expenses could also include rises in __________ for items.

5. When you develop your budget, make sure that the ____________ income figure is the same as the total for ________ expenses and savings.

Preparing a Budget

• Step 4: Budget for Fixed Expenses1. The amount of a fixed expense might

sometimes change, but it is usually about the ___________ over long periods.

Preparing a Budget

• Step 5: Budget for Variable Expenses1. The amounts for these expenses usually

_____________ from month to month.

Preparing a Budget

• Step 6: Record What You Spend1. To find out how ___________ your

budget is, you will need to keep track of your expenses during one month and revise your budget if _______________.

Preparing a Budget

• Step 7: Review Spending and Saving Patterns1. Budgeting is a continual ______________.2. You need to review your budget each

________ and consider making __________.

Preparing a Budget