CHAPTER
16
SLIDE 1
CHAPTER
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
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
16-1 Personal Financial
Statements
Goal 1 Explain the basics of money
management.
Goal 2 Create a personal balance sheet.
Goal 3 Develop a personal cash flow
statement.
© 2012 Cengage Learning. All Rights Reserved.
SLIDE 2
CHAPTER
16
SLIDE 3
KEY TERMS
● money management
● personal assets
● net worth
● cash flow statement
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Principles of Business, 8e
CHAPTER
MONEY MANAGEMENT
BASICS
16
SLIDE 4
● Refers to the day-to-day financial activities
associated with using limited income to satisfy
your unlimited needs and wants
● Involves getting the most for your money
through careful planning, saving, and spending
● Involves making and using a plan for spending
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
SUCCESSFUL MONEY
MANAGERS
16
SLIDE 5
● Set goals
● Make wise decisions
● Buy wisely
● Live within their income
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Principles of Business, 8e
CHAPTER
16
SLIDE 6
Checkpoint 
● What are some characteristics of a wise
money manager?
● Wise money managers get the most from
their limited incomes through careful
planning, saving, and spending.
● They set goals, make wise decisions, buy
wisely, and live within their incomes.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
16
SLIDE 7
PERSONAL BALANCE SHEET
● Assets
● Liabilities
● Net Worth
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Principles of Business, 8e
CHAPTER
16
SLIDE 8
Checkpoint 
● What are three main categories of a
personal balance sheet?
● Assets
● Liabilities
● Net worth or owner’s equity
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Principles of Business, 8e
CHAPTER
PERSONAL CASH FLOW
STATEMENT
16
SLIDE 9
● Cash inflows
● Cash outflows
● Compare inflows
and outflows
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Principles of Business, 8e
CHAPTER
16
SLIDE 10
Checkpoint 
● What do cash outflows represent?
● Cash outflows represent amounts spent for
food, clothing, transportation, and other
living expenses.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
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.
© 2012 Cengage Learning. All Rights Reserved.
SLIDE 11
CHAPTER
16
SLIDE 12
KEY TERMS
● fixed expenses
● variable expenses
● allowance
● budget variance
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Principles of Business, 8e
CHAPTER
16
SLIDE 13
BUDGET ACTIVITIES
●
●
●
●
●
●
Live within your income
Achieve your financial goals
Buy wisely
Avoid credit problems
Plan for financial emergencies
Develop good money management skills
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
16
SLIDE 14
Checkpoint 
● What are the main purposes of a
budget?
● The main purposes of a budget are to help
you live within your income, achieve
financial goals, buy wisely, avoid credit
problems, plan for financial emergencies,
and develop good money management
skills.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
16
SLIDE 15
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
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Principles of Business, 8e
CHAPTER
SAMPLE FAMILY BUDGET
FOR ONE MONTH
© 2012 Cengage Learning. All Rights Reserved.
16
SLIDE 16
Principles of Business, 8e
CHAPTER
16
SLIDE 17
Checkpoint 
● What are eight commonly used budget
categories?
●
●
●
●
●
●
●
●
Savings
Food
Clothing
Household
Transportation
Health and personal care
Recreation and education
Gifts and contributions
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Principles of Business, 8e
CHAPTER
CHARACTERISTICS OF
AN EFFECTIVE BUDGET
16
SLIDE 18
● Must be realistic
● Should be flexible
● Should be evaluated regularly
● Must be well planned and clearly
communicated
● Should have a simple format
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Principles of Business, 8e
CHAPTER
16
SLIDE 19
BUDGETING FORMATS
● Software program
● Handwritten
● Checkbook
● Unwritten
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Principles of Business, 8e
CHAPTER
SAMPLE INCOME AND
EXPENSE RECORD
© 2012 Cengage Learning. All Rights Reserved.
16
SLIDE 20
Principles of Business, 8e
CHAPTER
16
SLIDE 21
Checkpoint 
● What are five characteristics of an
effective budget?
● Realistic
● Flexible
● Evaluated regularly
● Well planned and clearly communicated
● Simple format
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
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.
© 2012 Cengage Learning. All Rights Reserved.
SLIDE 22
CHAPTER
16
SLIDE 23
TYPE OF TAXES
● Taxes on purchases
● Taxes on property
● Taxes on wealth
● Taxes on earnings
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Principles of Business, 8e
CHAPTER
16
SLIDE 24
TAXES ON PURCHASES
● Sales tax
● A sales tax is a state or local tax on goods and
services that is collected by the seller.
● Food and prescription drugs are often exempt.
● Excise tax
● An excise tax is imposed on specific goods and
services.
● For example, all states impose an excise tax on
gasoline.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
16
SLIDE 25
TAXES ON PROPERTY
● Real estate property tax
● This tax is based on the value of land and
buildings.
● Most property tax revenue is used to pay for
schools and local government services.
● Personal property tax
● This tax is based on the value of personal
property such as boats, cars, and trucks.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
16
SLIDE 26
TAXES ON WEALTH
● Estate tax
● This tax is based on the value of a person’s property
at death.
● Inheritance tax
● This tax is based on the value of items received from
a deceased person.
● Gift tax
● This tax applies to gifts of any kind of property,
including money, when the value of the gift exceeds a
certain dollar amount.
● Generally the donor is responsible for the gift tax.
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Principles of Business, 8e
CHAPTER
16
SLIDE 27
TAXES ON EARNINGS
● Social Security tax
● This tax is based on earnings and is used to
finance retirement and disability benefits.
● Income tax
● This tax is based on earnings and other
sources of income and is a source of revenue
for governments.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
WHEN AND WHERE YOU
PAY TAXES
16
SLIDE 28
● Part of everyday living
● Triggered by events
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Principles of Business, 8e
CHAPTER
16
SLIDE 29
INCOME TAX PAYMENTS
● Withholding
● Estimated payments
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Principles of Business, 8e
CHAPTER
PREPARING THE FEDERAL
INCOME TAX RETURN
Step 1:
Step 2:
Step 3:
Step 4:
Step 5:
Step 6:
Step 7:
16
SLIDE 30
Determine gross income
Calculate adjusted gross income
Subtract deductions
Determine exemptions
Compute taxable income
Taxes owed
Make tax payments or ask for a
refund or credit
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
COMPLETING THE FEDERAL
INCOME TAX RETURN
16
SLIDE 31
● Filing status
● Tax forms
● Avoiding common filing errors
● Filing taxes online
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Principles of Business, 8e
CHAPTER
TAX PREPARATION
ASSISTANCE
16
SLIDE 32
● IRS services
● Tax publications
● Online sources
● Tax preparation software
● Tax preparation services
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Principles of Business, 8e
CHAPTER
16
SLIDE 33
EFFECTIVE TAX STRATEGIES
● Home ownership
● Tax-exempt investments
● Tax-deferred investments
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
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.
© 2012 Cengage Learning. All Rights Reserved.
SLIDE 34
CHAPTER
16
SLIDE 35
KEY TERMS
● financial plan
● individual retirement account (IRA)
● estate planning
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Principles of Business, 8e
CHAPTER
DEVOLPING A FINANCIAL
PLAN
16
SLIDE 36
● 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
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Principles of Business, 8e
CHAPTER
ADVANTAGES OF
FINANCIAL PLANNING
16
SLIDE 37
● Your financial uncertainties will be reduced.
● You will gain more control of your financial
activities.
● Your family and household members will know
more in case they need to assume control of
your finances.
● Earning, spending, protecting, and saving your
resources will be more systematic.
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Principles of Business, 8e
CHAPTER
FINANCIAL PLANNING
PROCESS
16
SLIDE 38
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
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
16
SLIDE 39
FINANCIAL INVENTORY
● Careful review of your finances
● Personal balance sheet
● Personal cash flow statement
● Information about current financial position
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
CURRENT FINANCIAL
POSITION
●
●
●
●
●
●
●
16
SLIDE 40
Income
Savings
Investments
Property
Living expenses
Insurance
Money owed
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
PERSONAL FINANCIAL
FILING SYSTEM
© 2012 Cengage Learning. All Rights Reserved.
16
SLIDE 41
Principles of Business, 8e
CHAPTER
16
SLIDE 42
FINANCIAL LIFE CYCLE
● Teen years
● Twenties
● Later
● Retirement
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
USING A FINANCIAL
PLANNER
16
SLIDE 43
● 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?
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
16
SLIDE 44
Checkpoint 
● List five recommended steps for
financial planning.
● Analyze your current financial condition.
● Develop financial goals that are responsive
to your vision.
● Create your financial plan.
● Implement the plan.
● Revise your financial plan.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
IMPLEMENT A FINANCIAL
PLAN
16
SLIDE 45
● Insure current income
● Disability income insurance
● Unemployment insurance
● Plan for future income
● Social Security
● Pensions
● Retirement accounts
● Annuities
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
16
SLIDE 46
Checkpoint 
● What are common sources of income during
retirement?
●
●
●
●
●
●
●
Social Security
Pensions
Individual retirement accounts
Roth IRAs
401 (k) plans
Keogh plans
Annuities
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
REVIEW YOUR FINANCIAL
PLAN
16
SLIDE 47
● Revise financial goals
● Review financial activities
● Remember to save and share
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e
CHAPTER
16
SLIDE 48
Checkpoint 
● What activities are involved when
reviewing a financial plan?
● When reviewing a financial plan, one
should revise short- and long-term financial
goals on a regular basis, make changes in
spending and saving habits as needed, and
engage in estate planning to build assets
and arrange to distribute property after
death.
© 2012 Cengage Learning. All Rights Reserved.
Principles of Business, 8e