Budgeting

1. Budgeting Money Management

2. THE BASIC ECONOMIC PROBLEM: • Limited Resources • And • Unlimited Wants And Needs

3. FINANCIAL PLANNING STEPS: Set Goals Analyze Information Create A Plan Implement The Plan Monitor and Modify The Plan (Evaluate) Set New Goals (Continue Process)

4. FINANCIAL PLANNING PROCESS DECISION-MAKING PROCESS Set Goals Identify the Goal Analyze Information Gather Information Create A Plan Analyze Outcomes Examine Alternatives Implement the Plan Alternative Choices Monitor and Modify the Plan Make A Decision Set New Goals Evaluate Results Set New Goals

5. Goals + Decisions + Action = Results

6. MY SMART GOALS Worksheet For • Short-Term, Medium-Term and Long-Term. • Complete Two Goals For Each Time Frame. • Short-Term-achievable in 0-3 months. • Intermediate or Medium-Term-achievable in 3-12 months. • Long-Term-achievable from 1 year or greater.

7. T006-01.01 • Limited Resources • And • Unlimited Wants And Needs • T006-01.02 THE BASIC ECONOMIC PROBLEM: • Set Goals • Analyze Information • Create A Plan • Implement The Plan • Monitor and Modify • The Plan • (Evaluate) • Set New Goals • (Continue Process) • T006-01.03 FINANCIAL PLANNING STEPS: FINANCIAL PLANNING PROCESS DECISION-MAKING PROCESS • H006-01.01 • MY SMART GOALS Worksheet For • Short-Term, Medium-Term and Long-Term. • Complete Two Goals For Each Time Frame. • Short-Term-achievable in 0-3 months. • Intermediate or Medium-Term-achievable in 3-12 months. • Long-Term-achievable from 1 year or greater. Set Goals Identify the Goal Analyze Information Gather Information Create A Plan Analyze Outcomes Examine Alternatives Alternative Choices Implement the Plan Make A Decision Monitor and Modify the Plan Set New Goals Evaluate Results Set New Goals Goals + Decisions + Action = Results T006-01.04 • is helpful in setting goals when budgeting Balance Sheet • is helpful in establishing budget categories Cash Flow Statement T006-01.05 T006-01.06 T006-01.07 • a plan for saving and spending • helps achieve financial goals • helps avoid credit problems • must be evaluated from time to time • is essential for consumers, businesses and governments Budget T006-01.08 T006-01.09 • occur regularly • same amount each time Fixed Expenses • differ each time Variable Expenses T006-01.10 Monthly Budget H006-01.02 Personal Financial Budget Format H006-01.03 Personal Spending Record Of: ___________________ Used To Summarize Actual Income And Expenses In Order To Project A Quarterly Budget WEEK OF: ___________________________________ H006-01.04 Page 1 of 2 SAMPLE CASH BUDGET Directions: Jerry owns Jerry's Painting Company. Jerry's Painting Company paints home and business interiors and exteriors. The company usually has these types of cash receipts: interior and exterior sales (as shown below). The company usually has the types of expenses shown below. • H006-01.04 • Page 2 of 2 • STEP BY STEP EXPLANATION OF THE BUDGET • FOR JERRY'S PAINTING COMPANY • Step 1. Complete the heading. • Step 2. Total the estimated cash receipts for each month. Brady ruled and totaled the cash receipts columns. For example, Brady added the two cash receipts amount for January, $7,200.00 plus $2,400.00, and entered the total, $9,600.00, on the total receipts line in the column for January. In the same way, he entered the totals for the other months in the proper columns. • Step 3. Total each type of estimated cash receipt. • Step 4. Total the estimated cash receipts for the period. • Step 5. Verify the estimated cash receipts. • Step 6. Total the estimated cash payments for each month. • Step 7. Total each type of estimated cash payment. • Step 8. Total the estimated cash payments for the period. • Step 9. Verify the estimated cash payments. • Step 10. Find the estimated balance for each month. • Step 11. Find the estimated balance for the period. • Step 12. Verify the balances. • H006-01.05 • Page 1 of 2 • Problem 1. It is March, and you are the record keeper for Tom’s Lawn Service. Tom wants to plan for the second quarter of the year. Estimations are as presented below. Complete the budget. • Directions: Complete the budget and answer these questions about the completed cash budget. • Which cash payments are fixed cash payments? • Which cash payments are variable cash payments? • What are the total estimated cash receipts from interior sales for the quarter? • What are the total estimated cash payments for repairs for the quarter? • In what month (s) is there a positive cash flow? • In what month (s) is there a negative cash flow? • Is the cash flow for the entire quarter positive or negative? H006-01.05 Page 2 of 2 Problem 2. You are the record keeper for Bill's Computer Services, a business that installs and services computer systems for businesses and government agencies. The owner, Bill Turner, has estimated the cash receipts and cash payments for the company for the first quarter of next year. He has asked you to complete the cash budget. Directions. Complete the cash budget above and answer the questions below: 1. Which cash payments are fixed cash payments? 2. Which cash payments are variable cash payments? 3. What are the total estimated cash receipts from business sales for the quarter? 4. What are the total estimated cash payments for taxes for the quarter? 5. In what month (s) is there a positive cash flow? 6. In what month (s) is there a negative cash flow? 7. Is the cash flow for the entire quarter positive or negative? H006-01.05 Key Page 1 of 2 Problem 1 Answer Key Answers: 1. Rent, utilities, office expenses, insurance 2. Wages, supplies, repairs, taxes, equipment 3. $11,600.00 4. $500.00 5. April and June 6. May 7. Positive H006-01.05 Key Page 2 of 2 PROBLEM 2 ANSWER KEY Answers: 1. Wages, rent, insurance, telephone, supplies 2. Utilities, taxes, equipment, other 3. $19,700.00 4. $3,550.00 5. January and March 6. February 7. Positive H006-01.06 PROBLEM 3-BUDGET VARIANCE Directions. Complete the budget variance report below and answer each question. Answer the questions below: 1. Which cash receipts had a positive variance? 2. Which cash payments had no variance? 3. Which cash payments had a negative variance? 4. Which cash payment had the largest positive variance? 5. Was the actual cash balance greater or less than the budgeted cash balance? H006-01.06 Key PROBLEM 3 ANSWER KEY Answers: 1. Home sales 2. Wages, mortgage payment, insurance, taxes, and telephone 3. Gas and electric, roofing supplies, and equipment 4. Office expenses 5. Greater H006-01.07 PROBLEM 4-BUDGET VARIANCE Directions. Complete the budget variance report below and answer the questions. Questions: 1. Which cash receipts had no variance? 2. Which cash payments had no variance? 3. Which cash payments had a negative variance? 4. Which cash payment had the largest negative variance? 5. Was the actual cash balance greater or less than the budgeted cash balance? Balance Sheet • is helpful in setting goals when budgeting Cash Flow Statement • is helpful in establishing budget categories H006-01.07 Key PROBLEM 4 BUDGET VARIANCE ANSWER KEY ANSWERS: 1. Sales of pulp 2. Rent and insurance 3. Office expenses, equipment repair, and taxes 4. Taxes 5. Less H006-01.08 Page 1 of 2 PRINCIPLES OF BUSINESS & PERSONAL FINANCE UNIT E VOCABULARY QUIZ-PART I NAME: ________________________________ DATE: _________________ Instructions. Match the below terms with their definitions by writing your answers in the space provided in the left column. Needs Wants Values Short-Term Goal Medium Term Goal Long-Term Goal Delayed Gratification Variable Expenses Fixed Expenses Financial Planning Process Decision Making Financial Planning Steps Decision Making Steps Cash Inflow Goal Assets _______________________1. are ones that do not change from one period to another and are in exact amounts. ___________________ ____2. is the process of defining goals, developing a plan to achieve them, and putting the plan into action. ___________________ ____3. is the process of considering and analyzing information related to personal and financial goals to determine an action plan. ___________________ ____4. consists of (1) setting goals; (2) analyzing information; (3) creating a plan; (4) implementing the plan; and (5) monitoring and modifying the plan. ___________________ ____5. consist of (1) Identifying the goal; (2) Gathering information; (3) Analyzing outcomes; (4) Examining alternatives; (5) Making a decision; and (6) Evaluating Results. ___________________ ____6. consists of money coming in to an individual or net pay. ___________________ ____7.is a specific statement of what you want to achieve, giving direction to your plan of action. ________________________8. consist of things of value or something that you own, such as a car, stereo system, etc. ________________________9. consist of something basic for your survival such as food, clothing and shelter. _______________________10. consist of something you desire to make your life more comfortable. _______________________11. is a belief or idea that you consider important or desirable. _______________________12. is one that is less than a 3-month time frame; focuses on immediate satisfaction. H006-01.08 Page 2 of 2 Needs Wants Values Short-Term Goal Medium Term Goal Long-Term Goal Delayed Gratification Variable Expenses Fixed Expenses Financial Planning Process Decision Making Financial Planning Steps Decision Making Steps Cash Inflow Goal Assets _______________________13. is one that focuses on a 3-month to 1-year period. _______________________14. is one that focuses on more than 1 year of time and requires delayed gratification. _______________________15. is the willingness to give up something you want now in return for something better later. _______________________ 16,change from time to time and you have more control over them. H006-01.08 Key Page 1 of 2 ANSWER KEY PRINCIPLES OF BUSINESS & PERSONAL FINANCE UNIT E VOCABULARY QUIZ-PART I NAME: ______________________________ DATE: _________________ Instructions. Match the below terms with their definitions by writing your answers in the space provided in the left column. Needs Wants Values Short-Term Goal Medium Term Goal Long-Term Goal Delayed Gratification Variable Expenses Fixed Expenses Financial Planning Process Decision making Financial Planning Steps Decision Making Steps Cash Inflow Goal Assets 1. Fixed Expenses are ones that do not change from one period to another and are in exact amounts. 2. Financial Planning Process is the process of defining goals, developing a plan to achieve them, and putting the plan into action. 3. Decision Making is the process of considering and analyzing information related to personal and financial goals to determine an action plan. 4. Financial Planning Steps consist of (1) setting goals; (2) analyzing information; (3) creating a plan; (4) implementing the plan; and (5) monitoring and modifying the plan. 5. Decision making Steps consist of (1) Identifying the goal; (2) Gathering information; (3) Analyzing outcomes; (4) Examining alternatives; (5) Making a decision; and (6) Evaluating Results. 6. Cash Inflow consists of money coming into an individual or net pay. 7 Goal is a specific statement of what you want to achieve, giving direction to your plan of action. 8. Assets consist of things of value or something that you own, such as a car, stereo system, etc. 9. Needs consist of something basic for your survival such as food, clothing and shelter. 10. Wants consist of something you desire to make your life more comfortable. 11. Values are a belief or idea that you consider important or desirable. 12. Short-Term Goal is one that is less than a 3-month time frame; focuses on immediate satisfaction H006-01.08 Key Page 2 of 2 Needs Wants Values Short-Term Goal Medium Term Goal Long-Term Goal Delayed Gratification Variable Expenses Fixed Expenses Financial Planning Process Decision making Financial Planning Steps Decision Making Steps Cash Inflow Goal Assets 13. Medium Term Goal is one that focuses on a 3-month to 1-year period. 14. Long-Term Goal is one that focuses on more than 1 year of time and requires delayed gratification. 15. Delayed Gratification is the willingness to give up something you want now in return for something better later. 16. Variable Expenses change from time to time and you have more control over them. H006-01.09 Page 1 of 2 PRINCIPLES OF BUSINESS & PERSONAL FINANCE UNIT E VOCABULARY QUIZ-PART II NAME: _______________________________________DATE: _________________ PART II VOCABULARY QUIZ Instructions. Match the below terms with their definitions by writing your answers in the space provided in the left column. Balance Sheet Budget Cash Flow Statement Discretionary Income Expenditures Gross Pay Income Liabilities Money Management Net Income Net Worth Personal Spending Record Smart Goals Opportunity Cost Savings Pay Yourself First H006-01.09 Page 2 of 2 Balance Sheet Budget Cash Flow Statement Discretionary Income Expenditures Gross Pay Income Liabilities Money Management Net Income Net Worth Personal Spending Record Smart Goals Opportunity Cost Savings Pay Yourself First H006-01.09 Key Page 1 of 2 ANSWER KEY PRINCIPLES OF BUSINESS & PERSONAL FINANCE UNIT E VOCABULARY QUIZ-PART II NAME: __________ DATE: _________________ Instructions. Match the below terms with their definitions by writing your answers in the space provided in the left column. Balance Sheet Budget Cash Flow Statement Discretionary Income Expenditures Gross Pay Income Liabilities Money Management Net Income Net Worth Personal Spending Record Smart Goals Opportunity Cost Savings Pay Yourself First 1. Gross pay is the total amount of income from your wages or salary before payroll deductions. 2. Income is any money coming in. 3. Liabilities consist of money owed to creditors. 4. Money Management is how you handle money coming in and money going out. 5. Net income (or net pay or take-home) is gross pay minus deductions. 6. Net worth (or owner's equity is assets minus liabilities. 7. Personal Spending Record consists of source records for keeping up with income and expenses. 8. Smart Goals are ones that are specific, measurable, attainable, realistic and time-bound. 9. Values consist of a belief or idea that you consider important or desirable. 10 Opportunity cost is choosing one option over another one. 11. Savings is usually money you set aside for short-term goals. 12. Pay Yourself First is the setting aside of money for future use or other investments. H006-01.09 key Page 2 of 2 Balance Sheet Budget Cash Flow Statement Discretionary Income Expenditures Gross Pay Income Liabilities Money Management Net Income Net Worth Personal Spending Record Smart Goals Opportunity Cost Savings Pay Yourself First 13. Balance Sheet (or statement of net worth) provides a summary of one's financial condition. Hint, it is a listing of assets, liabilities and net worth (Assets minus Liabilities). 14. Budget is a plan for managing money during a given period of time and consists of savings and spending. 15. Cash flow statement is simply a measure of the money you receive and the money you spend. 16. Discretionary Income consists of money left over from net income after all expenses. 17 Expenditures ( or cash outflows) money paid for goods and services. PRINCIPLES OF BUSINESS & PERSONAL FINANCE E. MONEY MANAGEMENT COMPETENCY: 006 Explain the importance of money management among government, business, and the consumer. OBJECTIVE: 6.02 Apply the steps in the decision-making process. I. MAKING DECISIONS A. Importance of making decisions B. Why study decision-making? II. STEPS IN MAKING DECISIONS A. When a decision gives you trouble. B. Hints for making better decisions. III. SPECIAL POINTS TO KEEP IN MIND ABOUT CAREER DECISIONS A. Keep asking questions. B. Keep things moving. C. Evaluate, Evaluate! IV. DECISION MAKING APPLICATIONS A. Decision-Making Career Application. B. Decision-Making Facts and Review Application. COURSE: Principles of Business and Personal Finance UNIT TITLE: Money Management COMPETENCY: 006 Explain the importance of money management among government, business, and the consumer. OBJECTIVE: 6.02 Apply the steps in the decision-making process. H006-.02.01 Page 1 of 2 DECISIONS I. INTRODUCTION. Every day you make lots of choices--from the time the alarm goes off in the early morning until you crawl into bed late at night. You choose such things as where to go, what to do, and whom to see. Life is a series of decisions. Decisions are situations requiring you to make a choice. No decision is more important than your career decision. This unit will help students to understand decision-making: what it is, the things that can get into its way, and the methods. II. MAKING DECISIONS. Have you ever seen the domino effect? Thousands of dominoes are arranged to form a pattern. Then the first domino in line is pushed over. This domino hits the next one, and on and on, until all of the dominoes have been knocked down. The domino effect is a chain reaction. The action of one domino affects the action of the next domino. The first domino has an impact on the hundreds of other dominoes. In this way, decisions are similar to dominoes. One decision affects the next decision. Your present decisions affect future decisions. The decisions you are now facing will have an impact on your life for many years. H006-02.01 Page 2 of 2 III. Why Study Decision-Making? You might be saying to yourself right now, "I have been making decisions all my life. It's no big deal. Why do I have to learn about something I already know how to do?" the answer is very simple: you want to do it better. Decision-making is a skill. As with other skills, some people are more successful at decision-making than others. Most of your decisions affect many areas of your life. It is to your benefit to make decisions as skillfully as possible. Some decisions are much easier to make than others. For example, do you want eggs or cereal for breakfast? That decision should be fairly easy to make. Other decisions are more difficult. You have only enough money to pay for one movie, but there are three movies in town you want to see. All are leaving town at the end of the week. Which one do you choose? The more things you must consider, the more difficult a decision can become. As you have learned, a career decision means considering a large number of factors. You will be investing many years of your life in the career you choose. Although many people change careers several times, you want all your choices to be happy ones. H006-02.02 Page 1 of 2 STEPS IN MAKING DECISIONS Almost all decisions require the same steps. By spending time with each, you will make more careful decisions. However, these steps are only guidelines. You may find that the steps overlap or that you need to spend more time on one step than another. Adjust them as needed so they work best for you. H006-02.02 Page 2 of 2 Based on the information you have about each choice, try to imagine as clearly as possible what it would be like to carry it through. Look at the advantages and disadvantages of each choice. Try to learn which choice seems to have the best chance of meeting your need, which choice is second best, which is third, and so on. The first step in the decision- making process is to define the need that requires a decision. Be as specific as possible. Narrow the area of the need so you can focus on one need. STEP 4. COMPARE THE CHOICES STEP 1. DEFINE YOUR NEED OR WANT Analyzing your resources. By now you should have a good idea of your aptitudes, abilities, values, and so on. In other words, what do you have or what can you obtain that will help you meet your need? STEP 2. ANALYZE YOUR RESOURCES. An alternative is a choice. After the alternatives have been examined and compared, choose the one that seems to meet your needs the best. Keep in mind that none of the choices may stand way above the others. The difference between the final two alternatives may be small. Also, keep in mind that your selected choices may be changed as you gathered additional information. Hint, no decision is ever final. • Each step in the decision-making process may require some backtracking. Your goal may not be clear enough, or you may discover a new alternative that better meets your needs. • H006-02.03 • Page 1 of 2 • DECISION-MAKING STEPS • CASE STUDY • As an example, let's look at Jeff, who has mechanical abilities and works with his hands. He enjoys repairing small engines. The career areas that interested him are hospitability and recreation and transportation. • Step 1. Define your Need or Want. • Jeff needed to select a career that suited him. • Step 2. Analyze Your Resources. • After all his research, Jeff decided he had proven abilities in small engine repair. His grades in school were only average, except for shop class. He often got Bs and As on shop projects. He also did well in math when it was used in the shop, but not otherwise. Jeff was also good in sports and was on wrestling, baseball, and swimming teams at school. • Step 3. Identify Your Choices. • Jeff was interested in transportation because of his mechanical abilities. He also chose to learn about hospitality and recreation because he liked sports and working with people. After Jeff talked to people in his community and used his library resources, he identified three possible careers: a pitcher for a softball team sponsored by a large company, a sports activities director for a resort, and a welder. • Step 4. Compare the Choices. • Jeff reviewed his choices. He made a list of things both for and against each choice. All three jobs paid enough. The pitching job was seasonal, and he would have to do other work for the company off-season. As he got older, his value as a player would be less. The activities director job would be year-round as long as the resort offered winter sports. He wouldn't, however, have much chance to enjoy the winter sports. He enjoyed welding, but he would not be working with people. He would have to go to vocational school to earn a welding certificate. • Step 5. Choosing the Best Alternative. • Jeff's first choice was sports director. His second choice was welder. He wished he could somehow combine the two, but at this point he saw no way to do it. • H006-02.03 • Page 2 of 2 • Step 6. Make a Plan to Get Started. • Jeff was in his junior year of school. He made a plan for the coming summer and the next school year. He would try to get a resort job in the summer, and he would sign up for as many sports as possible during school. He selected those a resort might offer. Just in case he changed his decision, Jeff also took advanced shop classes his last year in high school. • Step 7. Evaluating Your Decision. • Jeff worked as a caddy at the resort the following summer. Whenever possible, he observed the sports director and tried to imagine himself doing the same work. He noticed the director spent more time in an office than he did working with people. • Then one day, when Jeff was hunting for a golf ball, he discovered a machine shop at the back of the resort behind some trees. The resort had its own repair crew to maintain equipment. After work, Jeff returned to the shop and talked to the supervisor. He asked if he could work in the shop on days when he didn't caddy. The supervisor agreed, and Jeff soon had two jobs. • When the summer was over, Jeff made a new career decision. He decided that one day he would have his own repair shop in a resort town. He would specialize in sports equipment, such as boats and snowmobiles. • Jeff believed his new career plan would meet his needs even better. His best skills---mechanical ones--would be put to use. By running his own shop he would work with customers every day. His work would put him in contact with sports. Additionally, working in a resort town would mean that he was near sports activities he enjoyed and could take part in during his free time. • Thinking About the Case Study • 1. Did Jeff go through all of the steps in the decision-making process at one time? • 2. Can you think of decisions other than career decisions where you could use the decision-making process that Jeff used? • T006-02.01 • WHEN A DECISION GIVES YOU TROUBLE • Decisions give you trouble because of one of the following reasons. Most of these "reasons" are actually a lack of self-confidence in disguise. • You think you can't do something because of your age, gender, or race. For example, you can't do a certain job because "you're too young." • You expect too much of yourself. You think you must be able todo a thing perfectly or you can't do it at all. • Your family expects too much of you. • Your family’s finances can’t support what you want to undertake. • Your friends pressure you to do what they want to do. • Your friends or family make fun of what you want to do. • You are afraid of failure. • You are afraid of change. • You do not feel sure of yourself in new situations. • You put things off. • You expect too little from yourself. You think you can't do something and won't even try. • T006-02.02 • HINTS FOR MAKING BETTER DECISIONS • Be aware of the decisions you make every day. If a decision did not turn out well, try to figure out why. Did you follow the decision-making steps? • Practice the decision-making steps. The more decisions you make using the steps, the better you will become. • Recognize the obstacles that get in your way. Are the obstacles things you could have overcome if you had tried a little harder? • Check your way of looking at things. Do you look for good things to happen, or do you tend to have a "sour" outlook? • Accept the outcome. If you made the best decision you could and things did not work out, accept the facts and move on. • Be willing to change your decision. Decisions aren't set in concrete. Sometimes the conditions for a decision change and a new decision is necessary. • Remember, most decisions have both a positive and a negative outcome. However, a satisfying or positive decision has more good than bad results. Decisions that are satisfying are the ones that get you closest to what you want. • Don’t depend on luck. The idea is to get control of your life and of what happens to you. The more thorough you are in getting the facts you need and in planning ahead, the less you will need to rely on lucky breaks. • T006-02.03 • KEEP ASKING QUESTIONS • Don't think that just because you have made a decision or career choice you should stop asking questions. Job fields constantly change. They may differ somewhat from state to state. A job may seem less satisfying than you thought it would be. Why is this? Some questions to keep in mind might be: • Is the work boring? Will it always be? • Does it give me a feeling of accomplishment? • Do I want to do this type of work for 15 or 20 years? • Am I interested enough to spend the time and money for education and training? • How am I better off choosing this career rather than another? • Are my skills being put to good use? Do others in the field think I can handle the work? • Is this career available where I live now, or will I need to relocate? • T006-02.04 When you evaluate something, you judge its worth, quality, or goodness. Once your plan is put to use, you will begin to see if your decision was the best one. You will evaluate it. If the outcomes are good, you will continue. If the outcomes are not good, then you will need to make a new decision. STEP 6. MAKE A PLAN TO GET STARTED STEP 5. CHOOSING THE BEST ALTERNATIVE Complete unless you know how you will get from where you are now to where you want to be. Planning does that for you. STEP 3. IDENTIFY YOURCHOICES At least two choices or alternatives exist whenever a decision has to be made. What are those choices? STEP 7. EVALUATING YOUR DECISION H006-02.04 Page 1 of 2 STUDENT CAREER APPLICATION Decision Making Blues Listed below are the steps Joe took when trying to make a decision about arranging transportation for a new job. Unfortunately, Joe omitted one important decision-making step and did not handle two other decision-making steps well. Read the background information and decision-making steps. Identify the three errors in the spaces provided on the next page. Background Information Joe and his family lived in a large town where there were a number of possibilities for teenagers to hold part-time jobs after school and on weekends. Joe found a job he would really like to have, but he has to work out some way to get to work after school and on Saturdays. Both of his parents work, so they aren't available to provide transportation during the week. Previous to this, Joe has been able to walk to school. When he needed to go places that were farther away, he got rides with friends' parents or took a bus. Decision-Making Steps Joe Took 1. I need to find a way to get to my job after school and on Saturdays. 2. It would be easier if my bike was working, but it needs some major repairs that I can't pay for now. 3. I guess I'll ride the bus and ask my parents to pick me up after work. 4. That's what I'll have to do…take the bus and ask my parents to pick me up. 5. I'll check the bus schedule and ask my parents if they can pick me up after work and on Saturdays. 6. I'll try it for a few weeks and see how it works out. H006-02.04 Page 2 of 2 The three decision-making errors were: 1.______________________________________________________________________________________________________________________________________________________________________________________________________________________ 2.______________________________________________________________________________________________________________________________________________________________________________________________________________________ 3.______________________________________________________________________________________________________________________________________________________________________________________________________________________ H006-02.04 Key STUDENT CAREER APPLICATION ANSWER KEY 1. Step 2. Analyzing resources, of the decision-making process was omitted. Examples of other resources available: friends working at the same place whose parents could provide transportation; another job which is more conveniently located; borrowing money to get the bike repaired and paying back from wages. 2. Step 3. When identifying choices, Step 3 of the decision-making process, only one choice was cited. More choices could have been named if analyzing resources in Step 2 were carried out. Looking at only one choice does not allow you to identify the best option. 3. Step 3. In comparing choices, he didn't think through the advantages and disadvantages of the choice made. Also, there were no choices to compare. H006-02.05 DECISION-MAKING FACT AND IDEA REVIEW ACTIVITY Morris, a second semester junior, and his parents agreed he could make all of his decisions for a month. Morris knew his parents didn't approve of his late hours this week but he was having fun. He arrived at math class to hear the teacher announce a test for tomorrow. Morris felt uneasy because he hadn't completed any math assignments. The math test reminded him of the history test next period. He had forgotten about it. After class he caught up with Vicky. He and Vicky made arrangements to study that evening. She reminded him of the financial aid form deadline at 3 o'clock that afternoon. With all the time he'd spent running around with his friends, he'd forgotten to get his parents' signature. Morris needed the money the financial aid would have provided him. Morris was on his way home when he stopped to talk to friends. After leaving his friends he remembered an errand he was supposed to do, but by the time he arrived at the cleaners, they were closed and he couldn't get the cleaning he had promised his mother he would pick up for her. 1. Explain the domino effect as it happened to Morris. 2. Using one of Morris' decisions, project the outcome of the decision if Morris had used the decision-making steps. Which steps did he neglect to follow? H006-02.05 Key DECISION-MAKING FACT AND IDEA REVIEW ACTIVITY ANSWER KEY 1. Answers will vary but should reflect an understanding of how each decision can affect other decisions. 2. Answers will vary but should reflect an understanding of -the decision-making process steps. CONTENT/TEACHING OUTLINE E. MONEY MANAGEMENT COMPETENCY: 006 Explain the importance of money management among government, business, and the consumer. OBJECTIVE: 6.03 Create and analyze an individual plan for managing personal finances. I. THE BUDGETING PROCESS A. Set financial goals. 1. Short-term and long-term 2. A balance sheet (or statement of net worth) and cash flow statement (or income statement) help in establishing goals 3. The choice of lifestyle will affect the goals B. Plan the budget categories 1. The cash flow statement can help establish categories and allowances for each category. 2. Fixed expenses are costs that occur regularly and for the same amount a. Rent. b. Insurance. 3. Variable expenses are costs that differ each time. a. Food. b. Clothing. c. Utilities. d. Entertainment. 4. Savings are an essential category. a. Necessary for long-term goals. b. Helpful for unexpected expenses such as medical care. C. Maintain financial records. 1. A checking account will help in maintaining financial records. 2. A computer and spreadsheet software will be helpful. D. Evaluate the budget. 1. Compare actual expenditures with budget allowances. 2. Adjust budget when necessary. a. Change in family situation. b. Change in lifestyle choices. c. Inflation, inaccurate budgeting estimates. II. CHARACTERISTICS OF AN EFFECTIVE BUDGET A. Realistic. 1. Should reflect current income. 2. Expenses should be reasonable according to income. B. Flexible. 1. The budget should allow for unexpected expenses. 2. Savings are essential for flexibility. C. Evaluate regularly. D. Planned and communicated to all affected by budget. 1. Budget should be written. 2. Written budget should be accessible. E. Simple format COURSE: Principles of Business and Personal Finance UNIT TITLE: Money Management COMPETENCY: 006 Explain the importance of money management among government, business, and the consumer. OBJECTIVE: 6.03 Create and analyze an individual plan for managing personal finances. Teac her Tip Teacher Tip CONTENT/TEACHING OUTLINE E. MONEY MANAGEMENT COMPETENCY: 006 Explain the importance of money management among government, business, and the consumer. OBJECTIVE: 6.04 Analyze the relationship between inflation and purchasing power. I. INFLATION A. A prolonged increase in the general price level. B. It is used as an economic indicator to measure the growth of the economy. C. Inflation was a serious problem in the 1970’s and early 1980’s, reaching a level of 14% inflation. II. BENEFITS OF INFLATION A. Economists suggest that inflation at the rate of 2-3% is healthy for the economy. 1. Wages rise more slowly than prices. 2. Producers make more profit and can hire more workers. 3. Unemployment is lower. 4. Newly employed workers spend more money and stimulate the economy. 5. The United States usually has mild to moderate inflation. III. DISADVANTAGES OF INFLATION A. If earnings do not keep up with inflation, consumers will have a lower standard of living. 1. Affects those on a fixed income (retirees, unemployed). 2. When inflation is moderately high, most workers will be affected. B. Increasing inflation reduces the consumers' ability to buy goods and services. 1. Money does not buy as much (the value of the dollar goes down). 2. Consumers will purchase only necessary goods. 3. Consumers will have to cut back on their spending. 4. Rising interest rates discourage consumers and businesses from borrowing money. a. Sales of durable goods fall. b. Consumers "make do" with current homes, cars, etc. c. Business owners do not borrow to expand. 5. Workers ask for higher wages; businesses raise prices to pay for the increases. C. As consumers stop spending, business sales fall and the owner must cut back. 1. Some businesses may have to lay off workers. 2. People who lose their jobs will be able to buy fewer goods and services. D. Careful financial management is crucial in dealing with inflation. 1. Careful budgeting helps consumers cope with limited economic resources. 2. Wise decision-making is also necessary to combat the effects of inflation. a. Comparison shopping, not impulse buying. b. Change lifestyle as needed. 3. Savings and investments must keep up with or ahead of inflation so that the money saved does not lose value. COURSE: Principles of Business and Personal Finance UNIT TITLE: Money Management COMPETENCY: 006 Explain the importance of money management among government, business, and the consumer. OBJECTIVE: 6.04 Analyze the relationship between inflation and purchasing power. Use of Technology Teacher Tip Use of Technology Use of Technology Teacher Tip T006-04.01 A prolonged increase in the general price level Inflation T006-04.02 Inflation Reduces Consumers’ Ability to Buy Goods and Services T006-04.03 Money does not buy as much Consumers cut back on their spending As prices go up H006-04.01 Budget Spreadsheet Activity Jonas Nadia has a monthly salary of $1,200. He shares an apartment with a roommate and his share of the rent is $250 per month. He has a $300 per month car payment and insurance premiums of $100 per month. He saves $120 each month in his savings account. He estimates that his monthly share of the food is $200, and his portion of the monthly utility bill is $100. He estimates medical costs of $150 per month and clothing at $80 per month. How much can Jonas spend on entertainment per month? Use spreadsheet software to prepare a monthly budget for Jonas. Use a budget format similar to the budget format in your textbook. Print a copy with the values and another copy with the formulas. Save the file. H006-04.02 Page 1 of 2 “On Your Own” You and your roommate will be renting an apartment for the next year. Before you move in, you must determine the costs associated with moving in, and plan your own budget for each month. Step 1 Look in the classified ads for an apartment that interests you. Cut out the ad to turn in with your project. How much is the rent per month? How much is the security deposit? Step 2 Call the utility companies to determine the costs of starting service. Electricity/Natural Gas Water Telephone Cable TV What is the Total Amount you will need for moving in? Step 3 Estimate what your monthly utility bills will be for the apartment. You might talk to your parents/guardians or to the apartment manager. Electricity/Natural Gas Water Telephone Cable TV Step 4 Estimate what you will need to spend each month on food. Again you might talk to your parents for help. Food Step 5 Estimate what you spend each month on entertainment. Include movies, CDs, etc. Entertainment Step 6 Estimate what you will need to spend each month on medical expenses and clothing. Medical Expenses Clothing H006-04.02 Page 2 of 2 Step 7 Estimate your monthly car expenses, if any: Car payment Insurance Step 8 Do you have a savings plan? If not, start now! Savings Step 9 List any other expenses you might have that have not been listed. Furniture Appliances Step 10 THE BUDGET! Use the figures you have either obtained or estimated to prepare a monthly budget for yourself. Add you savings, fixed expenses and variable expenses to get your total expenses. (This should match your estimated total income. Does it?) Use spreadsheet software to prepare the budget. Print a copy with values and a copy with formulas. Save your spreadsheet as Budget2. DUE DATE____________________ H006-04.03 The Effects of Inflation Last year Jauntrice earned $650 per month. He had the following expenses. What was Jauntrice’s discretionary income? (Find the difference between his income and his necessary expenses.) Income minus Necessary Expenses equals Discretionary Income This year there is 6% inflation (an increase in prices of 6%) Jauntrice is still earning the same salary. Calculate Jauntrice’s new expenses and insert them in the table. What was Jauntrice’s discretionary income after the 6% inflation? (Find the difference between his income and his necessary expenses.) Income minus Necessary Expenses equals Discretionary Income How much less is Jauntrice’s discretionary income this year? _____________________ Since Jauntrice’s salary did not keep up with inflation, what has happened to his purchasing power? _________________________________________________________________________ _________________________________________________________________________ H006-04.02 Key The Effects of Inflation Last year Jauntrice earned $650 per month. He had the following expenses. What was Jauntrice’s discretionary income? (Find the difference between his income and his necessary expenses.) Income minus Necessary Expenses equals Discretionary Income This year there is 6% inflation (an increase in prices of 6%) Jauntrice is still earning the same salary. Calculate Jauntrice’s new expenses and insert them in the table. What was Jauntrice’s discretionary income after the 6% inflation? (Find the difference between his income and his necessary expenses.) Income minus Necessary Expenses equals Discretionary Income How much less is Jauntrice’s discretionary income this year? $33.00 Since Jauntrice’s salary did not keep up with inflation, what has happened to his purchasing power? His purchasing power has decreased by $33.00 CONTENT/TEACHING OUTLINE E. MONEY MANAGEMENT COMPETENCY: 006 Explain the importance of money management among government, business, and the consumer. OBJECTIVE:6.05 Explain how consumer spending affects and individual's standard of living. I. STANDARD OF LIVING A. A measure of how well people live. B. It depends on the kinds and quality of goods and services people can afford. C. Individuals use their earnings to buy the goods, which are needed to maintain and improve their standard of living. II. SPENDING AFFECTS THE STANDARD OF LIVING A. Wise spending is probably more important than the amount of earnings in determining the standard of living. 1. Informed consumers get more for their money and raise their standard of living. 2. Wise and efficient shopping and conservation of resources help increase the standard of living. a. Limited money can be stretched. b. Time can be saved and allow for more leisure activities. 3. Use of consumer decision-making process helps increase the standard of living by providing more goods and services for your money. a. Comparison shopping is helpful. b. Avoiding impulse buying, especially for major purchases, is important. B. Wise use of credit is important to a high standard of living. 1. Use credit only when necessary and be sure to figure the cost of credit. a. Use for major purchases, such as automobiles, refrigerators. b. Use when traveling, but be sure to pay in a timely manner. 2. Goods purchased may not be the "best buy" and may cost more than a similar product that would serve just as well. 3. Impulse buying can lead to goods and services that are not really necessary and waste the consumer's money. 4. Using credit unwisely can lead to the individual spending too much money on interest and other costs of credit. COURSE: Principles of Business and Personal Finance UNIT TITLE: Money Management COMPETENCY: 006 Explain the importance of money management among government, business, and the consumer. OBJECTIVE: 6.05 Explain how consumer spending affects an individual’s standard of living. T006-05.01 A measure of how well people live . . . Standard of Living Depends on kinds and quality of goods and services people can afford to buy H006-05.01 How Spending Affects Your Standard of Living H006-05.02 • Congratulations! You are about to become the owner of a new automobile! Because an automobile is such a major purchase, you must be an informed consumer. Research such publications as Consumer Reports or Car and Driver to obtain information before you make your decision. You may also obtain information from car dealerships, but remember; they are in business to sell you one of their cars! • You will be limited to vehicles which cost $25,000 or less. • Here are some of the features you should consider: • Maintenance record for the vehicle • Fuel efficiency (gas mileage) • Safety features (air bags, side impact bars, etc.) • Ability to obtain service locally • Maneuverability (4WD, FWD, etc.) • Seating capacity • Body style (2 door, 4 door, coupe, etc.) • Financing options • After researching possible vehicles (compare at least two different vehicles), write a one page paper describing why you chose that vehicle. Cite specific advantages of the vehicle. • Type a bibliography to list the resource materials you used. • REFERENCES • Brown, B. and Clow, J. Introduction to Business (5th edition), New York: Glencoe/McGraw Hill, 2003. • Eggland, S., Dlabay, L., Burrow, J., and Ristau,R. Introduction to Business, (4th edition), Mason, OH: ITP (South-Western), 2003. • Kapoor, J., Dlabay, L., Hughes, R., and Hoyt, W. Business and Personal Finance (1st edition) New York: Glencoe/McGraw Hill, 2002. • Schultheis, Kaliski and Passalacqua, Keeping Financial Records for Business, South-Western. • Ryan, Managing Your Personal Finances (4th edition). • Accounting, First-Year Course, Glencoe. • Everard and Burrow, Business Principles and Management (10th edition). • http://financialplan.about.com • http://www.newsengin.com/neFreeTools.nsf/ • http://www.datamasters.com • http://www.westegg.com/inflation/ • http://www.eh.net/hmit/inflation/inflationr.php • NEFE High School Dept. • 5299 DTC Boulevard, Suite 1300 • Greenwood Village, CO 80111 Informed Consumer

11. Budget • a plan for saving and spending • helps achieve financial goals • helps avoid credit problems • must be evaluated from time to time • is essential for consumers, businesses and governments

12. Fixed Expenses • occur regularly • same amount each time Variable Expenses • differ each time

13. Monthly Budget • Get a NEFE High School Financial Planning Guide [yellow books near the phone]. • Turn to Unit Three • You are to read page 27 – 32. • Don’t complete any of these worksheets, we’ll do them together in class.