Chapter

© 2010 South-Western, Cengage Learning

Budgets andFinancial Records

8.18.1 Budgeting and Planning

8.28.2 Legal Agreements andRecord Keeping

8

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Chapter 8

Learning Target:

Explain the purpose/benefits of understanding and utilizing financial planning.

Create a personal budget.

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Chapter 8

Financial Planning BasicsHelps us….PlanBudgetKeeping good records

A financial plan is a set of goals for spending, saving, and investing the money your receive.

© 2010 South-Western, Cengage Learning

What is a Budget?

A list (typed or written) of what you will or expect to spend your money on

A tool utilized to help individuals stay out of financial trouble

Something everyone should create, monitor and update for themselves on a monthly basis

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What does a Budget compare?

INCOME

EXPENSES (Fixed – Variable)

Giving us a “MONTHLY TOTAL”

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Chapter 8

Monthly Budget

Fixed expenses are costs that do not change from month to month.

Variable expenses are costs that vary in amount and type, depending on the choices you make.

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Chapter 8

Getting Started Income = money coming “IN”

Gross Income Net Income Disposable income

$ you don’t have “earmarked”Money Going “OUT”

Expenses = money going “OUT” Bills or Financial Obligations

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Chapter 8

Preparing a Budget A budget is a spending and saving plan based on your

expected income and expenses.

PROS Helps you plan Helps you save money Less Stress Keeps you organized

CONS Takes Time

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Chapter 8

Steps in Preparing a Budget

1. Estimate your income.

2. Estimate your expenses.

3. Decide how much to save.

4. Select your budgeting tool.

5. Balance your budget.

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Chapter 8

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 $100

Total expenses plus savings

$380

Simple Budget

The budget balances.

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Chapter 8

Anisa Newkirk

January 1, 20—

Assets Liabilities

Checking account $500 Loan on car $1,800

Savings account 800 Loan from parents 100

Car value 3,000 Total liabilities $1,900

Personal property 5,000 Net Worth

Total assets $9,300 Assets minus liabilities $7,400

Total liabilities and net worth $9,300

Net Worth Statement

These two numbers must be the same.

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Chapter 8

Personal Records Good personal records makes budgeting and long-

range planning easier.

Your records also make it easier to prepare income tax returns, credit applications, and other financial forms.

You should keep five types of personal records: Income and expenses records Net worth statement Personal property inventory Tax records Other miscellaneous documents

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Chapter 8

Income and Expenses Records Examples of income records

W-2 forms Statements from banksStatements from investment companies

Examples of income records Receipts listing charitable contributionsMedical billsReceipts for work-related expenses

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Chapter 8

Net Worth Statement A net worth statement shows a person’s net worth

based on his or her assets and liabilities.

Assets are items of value that a person owns.

Money or debts you owe to others are called liabilities.

When you subtract your liabilities from your assets, the difference is known as net worth.

Assets – Liabilities = Net worth

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Chapter 8

Personal Property Inventory A personal property inventory is a list of the valuable

items you own, along with their purchase prices and approximate current values. Vehicle Camper/Boat Bike Clothing Furniture Appliances Lawnmower Tools Keepsakes

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Chapter 8

Personal Property InventoryAnisa Newkirk: January 2, 20—

ItemYear

PurchasedPurchase

PriceApproximate 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

(continued)

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Chapter 8

Tax Records All taxpayers should keep copies of their tax records

for at least three years after they file their tax return.

Tax records Tax Return itself W-2 forms 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.

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Chapter 8

Other Miscellaneous Documents

Lists of credit card numbersCar titlesInsurance policiesBirth certificatesMarriage certificatesPassports

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Chapter 8

Personal Record Keeping

As you begin to accumulate financial records and legal documents, you should have a good filing system.

A filing system allows you to:OrganizeStoreRetrieve

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Chapter 8

Paper Filing System

FoldersLabelsFile cabinet

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Chapter 8

Electronic Record Keeping

The advantages of computerized systems include the following:

Ease of updating informationEase of record storage and retrievalSpeed of making new computations and

comparisons

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Chapter 8

Software ProgramsMany software programs can help you

keep better records.

A spreadsheet is a computer program that organizes data in columns and rows and can perform calculations using the data.

A database is a computer program that organizes data for easy search and retrieval.