UNDERSTAND PERSONAL FINANCIAL PLANNING.

Standard 8.02

Essential Questions

What are the steps in financial planning? What are the benefits of financial

planning? What are the basic types of financial

statements, and how is each used? How do income and expense

statements compare with spending plans?

Financial Planning

Used for planning ways to reach financial goals

A continual, cyclical process of tracking, then anticipating, income and expenses

Steps in the process of financial planning Identify financial goals Prepare a balance sheet

showing what you own and what you owe

Track income and expenditures for a set time period, usually a month, and record in an income and expense statement

Analyze amount of money earned and how it was spent

Prepare a spending plan with anticipated income and expenses to meet financial goals during the next time period

At the end of the time period, revise financial goals, if needed, and use the actual income and expenses to again analyze income and how it was spent

Prepare your next spending plan

Benefits

Learn to live within one’s means Helps avoid financial difficulties Have resources for one’s desired

standard of living Reduces the need to use credit Increases sense of security Lessens anxiety about money matters Stay in control of finances Become financially independent

Financial Statements

Balance Sheet Income & Expense Statement

Shows assets, liabilities, and net worth of an individual or family

Reason needed: need to know financial status in order to plan finances

Also known as cash flow statement A list of all income and expenses for

a specific time period A historical type of record that serves

as the basis for a spending plan Shows whether individual/family was

able to live within his/her/their means Shows where income was spent Shows when expenses exceed

income and areas of excess expense Shows if income was sufficient to

meet expenditures

Financial Statements

Spending Plan

Also known as a budget or financial plan

A tool used to plan income and expenses for a future time period

Used to track income and expenditures

Used to evaluate spending at the end of a time period

Criteria Income and expense statement Spending plan

 Time orientation

 Past---a historical record of what was earned and spent

 Future ---a projection of anticipated earnings and expenditures  

Basic use Used as a foundation for planning one’s finances

Used to estimate finances for a future time period 

Specific uses Shows if living within means Shows where money was spent Shows when too much is being spent on

a certain category of expenses Shows if additional income is needed to

meet necessary expenses

Helps one live within means Helps plan where to spend money Helps track income and expenditures Reduces the likelihood of having to use

credit and go into debt 

Where fits in financial planning  

Is used to develop a spending plan Becomes the income and expense statement at end of specified time period