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Successful Money Management and Financial Planning

Learn how to effectively manage your money and create a solid financial plan for your future. Understand personal financial statements, budgeting techniques, and the importance of taxes in your life. Take control of your finances today!

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Successful Money Management and Financial Planning

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  1. C H A P T E R 16 Money Management and Financial Planning 16-1 Personal Financial Statements 16-2 Budgeting Techniques 16-3 Taxes in Your Life 16-4 Your Financial Future

  2. KEY TERMS • money management- the daily financial activities that meet the wants and needs of a person with a limited income. • personal assets- anything of financial value • liabilities- debt- anything you owe • net worth- personal assets minus personal liabilities • cash flow statement- the monthly inflow of income versus the outflow of expenses

  3. SUCCESSFUL MONEY MANAGERS • Set goals • Make wise decisions • Buy wisely • Live within their income

  4. PERSONAL BALANCE SHEET • Assets • Liabilities • Net Worth

  5. PERSONAL CASH FLOW STATEMENT • Cash inflows • Cash outflows • Compare inflows and outflows

  6. 16-2 Budgeting Techniques Goal 1 Identify purposes of a budget. Goal 2 Describe steps for preparing a budget. Goal 3 Describe characteristics of successful budgeting.

  7. THE BUDGET PROCESS • Set financial goals • Plan budget categories • Maintain financial records • Evaluate your budget • BUDGET CATEGORIES • Savings • Food • Clothing • Household • Transportation • Health and personal care • Recreation and education • Gifts and contributions

  8. KEY TERMS • fixed expenses- monthly expenses that do not change from month to month (example- rent or house payment) • variable expenses- monthly expenses that change from month to month (example- electricity bill, grocery bills) • allowance- the amount of money you plan to use for a certain budget category • budget variance- the changes from month to month of income or expenses

  9. SAMPLE FAMILY BUDGET FOR ONE MONTH

  10. 16-3 Taxes in Your Life Goal 1 Identify the types of taxes paid by consumers. Goal 2 Describe the steps when filing a federal income tax return. Goal 3 Explain tax-assistance sources. Goal 4 Identify common tax-planning strategies.

  11. TAXES • Taxes- a charge imposed by a government to finance public services 4 AREAS OF TAXATION • Taxes on purchases • Taxes on property • Taxes on wealth • Taxes on earnings

  12. PREPARING THE FEDERAL INCOME TAX RETURN Step 1: Determine gross income Step 2: Calculate adjusted gross income Step 3: Subtract deductions Step 4: Determine exemptions Step 5: Compute taxable income Step 6: Taxes owed Step 7: Make tax payments or ask for a refund or credit

  13. Income & Deductions • Earned Income- Wages from a job • Investment Income- Income from investments such as stocks, bond, and mutual funds. • Tax Deductions- Items you can write off from your taxes (example- child care)

  14. 16-4 Your Financial Future Goal 1 Describe the financial planning process. Goal 2 Explain actions for implementing a financial plan. Goal 3 Identify actions for reviewing a financial plan.

  15. KEY TERMS • financial plan- a report that summarizes your current financial condition while preparing for future expenses. • individual retirement account (IRA)- an account set up for retirement that has tax benefits (tax deferred or tax free earnings)

  16. DEVOLPING A FINANCIAL PLAN • A financial plan is a report that • Summarizes your current financial condition • Acknowledges your financial needs • Sets a direction for your future financial activities • Financial planning includes • Evaluating one’s financial position • Setting financial goals • Guiding activities and resources toward reaching those goals

  17. FINANCIAL PLANNING PROCESS 1. Analyze your current financial condition 2. Develop financial goals that are responsive to your vision 3. Create your financial plan 4. Implement the plan 5. Revise your financial plan

  18. PERSONAL FINANCIAL FILING SYSTEM

  19. USING A FINANCIAL PLANNER • Questions to ask when choosing a financial planner: • What experience and training do you have? • Are you willing to supply references from past clients? • How are your fees determined?

  20. REVIEW YOUR FINANCIAL PLAN • Revise financial goals • Review financial activities • Remember to save and share

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