Budgets & Financial
Records
Chapter 8
Lesson 8.1 – Budgeting and Record Keeping
Lesson 8.2 – Legal Documents and Filing Systems
Importance of Financial Planning
 Financial planning begins with budgeting and good record
keeping.
 A financial plan is an orderly program for spending, saving,
and investing the money you earn.
 Disposable income is the money you have left to spend or save
after taxes have been paid.
Financial planning helps you. . .
 Determine and evaluate your options for using your money.
 Make sure you use your limited funds for the things you want
most.
 Prevent careless and wasteful spending.
 Organize your financial resources so that you can maintain a
plan of personal financial fitness.
 Avoid money worries by planning your saving, spending, and
borrowing to stay within your financial means.
Budgeting
 A budget is a spending and savings plan based on your
expected income and expenses.
 Income must equal (or exceed) expenses
 Budgeting helps you plan your spending and saving so you
won’t have to borrow money to meet your daily needs.
Steps in Preparing a Budget
1.
Estimate total expected income

2.
Plan your budget for a specific period of time.
Decide how much your want to save

Experts recommend saving 10% of disposable income
3.
Estimate your expenses
4.
Balance your budget

Adjust your plan to make sure it balances
A Typical Monthly Budget
 Example on page 210 in book
 Income
 Savings
 Expenses
 Fixed expenses – costs you are obligated to pay at specific times
 Variable expenses – costs that vary in amount and type
 Practice budget worksheet
Personal Records
 Good records make budgeting and long-range planning
easier
 These records are basis for income tax returns, credit
applications, and other financial forms
 Four types of personal records you should keep:
1.
2.
3.
4.
Income and expense records
Statement of net worth
Personal property inventory
Tax records
Records of Income and Expenses
 Income
 W-2 Forms
 Bank statements
 Statements from Investment Companies
 Expenses
 Charitable contributions
 Medical bills
 Work-related expenses
 Other expense receipts
Statement of Net Worth
 Lists assets and liabilities
 Difference is your net worth
 If your assets are greater than your liabilities, you are solvent
 If your assets are less than your liabilities, you are insolvent
Personal Property Inventory
 List of all valuable items you own
 Should list their purchase price and approximate current values
 Personal property includes:
 Clothing
 Furniture
 Appliances
 Anything of value inside of your home
 Important to safeguard the inventory
Tax Records
 Should keep copies of:
 Tax returns
 W-2 forms
 Receipts verifying income and expenses
 Keep records for three years
Legal Documents
 Contracts
 A legally enforceable agreement between two or more parties
to do or not to do something
 Credit Plans
 Mortgages
 Rental agreements
Agreements
 Express agreements
 Can be oral or written, terms have been agreed upon between
the parties in words
 Written agreements
 Implied agreements
 Unwritten agreement where you have agreed to something
simply by doing it
Elements of Contract
 Agreement
 Consideration
 Contractual Capacity
 Legality
 Genuine Assent
 Legal Form
Valid, Void and Voidable Contracts
 Valid
 Contracts that contain all the essential elements
 Legally enforceable
 May become unenforceable if time limit for filing suit runs out
 Void
 Contracts that re missing one or more elements
 Not enforceable in a court of law
 Voidable
 Contract that can legally be avoided by one of the parties
 If that party chooses avoidance, or disaffirms, it will not be enforced
Consumer Responsibilities
1.
Understand all clauses and terms contained in the agreement.
2.
Keep a copy of the agreement.
3.
Be sure the agreement is dated correctly.
4.
Be sure all blank spaces are filled in or marked out and that no
changes have been made after you have signed it.
5.
Be sure all terms agreed upon are written clearly.
6.
Be sure all dates, amounts, and other numbers are correct and written
clearly.
7.
Be sure proper disclosure is made by the seller.
8.
Be sure all cancellations and adjustments are made in accordance
with the contract.
Negotiable Instruments
 An unconditional written promise to pay a specified sum of money
upon demand of the holder.
 To be collectible it must:
1.
Be in writing and signed by the maker.
2.
Must contain an unconditional promise to pay a definite amount
of money.
3.
Must be payable upon demand or on a fixed future date.
4.
Must be payable to the order of a particular person or the holder
of the note.
5.
Must be delivered to the payee.
More on Negotiable Instruments
 Most common form – a check
 Another form – promissory note
 Maker – the person who creates and signs the note
 Payee – the person to whom the note is made payable
 Co-signer – a person who promises to pay the note if the
maker fails to pay
Warranties
 Also called a guarantee
 Statement about a product’s qualities or performance that
the seller assures the buyer are true.
 May be in writing or assumed
 ALL products contain implied warranties
Filing Systems for Personal Records
 Paper Filing System
 Electronic Record Keeping
 Spreadsheets
 Databases