COURSE

Personal Finance 7086

UNIT D

Protecting and Managing Resources

ESSENTIAL STANDARD: OBJECTIVE:

8.00 8.02

C3 B2

12% 3%

Apply procedures for managing personal finances. Understand personal financial planning.

ESSENTIAL QUESTIONS: x What are the steps in financial planning? x What are the benefits of financial planning? x What are the basic types of financial statements, and how is each used? x How do income and expense statements compare with spending plans? UNPACKED CONTENT Financial Planning y Used for planning ways to reach financial goals y A continual, cyclical process of tracking, then anticipating, income and expenses y 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 Note that three types of financial statements, shown above in bold font, are needed for financial planning. y Benefits Learn to live within ones means Helps avoid financial difficulties Have resources for ones 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 y Balance sheet Shows assets, liabilities, and net worth of an individual or family Reason needed: need to know financial status in order to plan finances

7086 Personal Finance

Unit D: Managing and Protecting Resources

Summer 2010 Page 396

OBJECTIVE:

8.02

B2

3%

Understand personal financial planning.

UNPACKED CONTENT Financial Statements, continued y Income and expense statement Also known as cash flow statement A list of all income and expenses for a specified 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 y Spending plan Also known as a budget or a 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 y Comparison of income and expense statement with spending plan Criteria Income and expense statement Past---a historical record of what was earned and spent Spending plan

Time orientation

Future ---a projection of anticipated earnings and expenditures Used to estimate finances for a future time period y Helps one live within means y Helps plan where to spend money y Helps track income and expenditures y Reduces the likelihood of having to use credit and go into debt

Basic use

Used as a foundation for planning ones finances y Shows if living within means y Shows where money was spent y Shows when too much is being spent on a certain category of expenses y Shows if additional income is needed to meet necessary expenses Is used to develop a spending plan

Specific uses

Where fits in financial l i

Becomes the income and expense statement at end of ifi d ti i d

7086 Personal Finance

Unit D: Managing and Protecting Resources

Summer 2010 Page 397