BUDGETS AND BUDGETS AND RECORD RECORD KEEPING!!!KEEPING!!!BUSINESS FINANCEBUSINESS FINANCE

CHAPTER 8CHAPTER 8

GOALSGOALS

Describe the budgeting process and Describe the budgeting process and prepare personal budgets.prepare personal budgets.

Explain the purpose of record keeping Explain the purpose of record keeping and be able to prepare a personal net and be able to prepare a personal net worth statement and a personal property worth statement and a personal property inventory.inventory.

Did you know???Did you know???

The average teen in the U.S. spends $3,500 The average teen in the U.S. spends $3,500 each year.each year.

10% of North American teenagers use their 10% of North American teenagers use their parents credit cards.parents credit cards.

25% of 18 and 19 year olds have their own 25% of 18 and 19 year olds have their own credit card.credit card.

Teens in 1996 spent a projected $103 BILLIONTeens in 1996 spent a projected $103 BILLION U.S. citizens generally save less than 5% of U.S. citizens generally save less than 5% of

their gross income.their gross income.

NEEDS VS. WANTSNEEDS VS. WANTS

WantsWants Desirable, make life more comfortableDesirable, make life more comfortable

NeedsNeeds Must have for survivalMust have for survival

Hard to distinguish between because Hard to distinguish between because of advertising.of advertising.

Decision-Making Process Decision-Making Process ExampleExample

1.1. Identify Goal:Identify Goal: Buy a car within 6 months for Buy a car within 6 months for under $1,500under $1,500

2.2. Gather Information:Gather Information: Advice, dealer info., Advice, dealer info., Consumer ReportsConsumer Reports

3.3. Examine Alternative:Examine Alternative: Used Subaru, Ford, Used Subaru, Ford, Chevy…Chevy…

4.4. Analyze Outcomes:Analyze Outcomes: Subaru in good shape, Ford Subaru in good shape, Ford needs expensive repairsneeds expensive repairs

5.5. Make Decision:Make Decision: (If alternatives, start process from (If alternatives, start process from step 2 again) … Subarustep 2 again) … Subaru

6.6. Evaluate Results:Evaluate Results: Purchase Subaru Purchase Subaru

GOALS + GOALS + DECISIONS + DECISIONS +

ACTION = ACTION = RESULTSRESULTS

Goals and ObjectivesGoals and Objectives

ObjectiveObjective Achievement Achievement DateDate

Estimated Estimated CostCost

Weekly Weekly Amount to Amount to

SaveSave

TransportationTransportation 2 weeks2 weeks $10.00$10.00 $5.00$5.00

FoodFood 2 weeks2 weeks $15.00$15.00 $7.50$7.50

TicketTicket 2 weeks2 weeks $15.00$15.00 $7.50$7.50

MiscellaneousMiscellaneous 2 weeks2 weeks $5.00$5.00 $2.50$2.50

Short term goal (less than 3 months): Go to a football game

Definitions You Need to Definitions You Need to Know!!!Know!!!

BudgetsBudgets – Guide that helps you understand – Guide that helps you understand how and where you are spending your money.how and where you are spending your money. Match your expected income to your expected Match your expected income to your expected

expenses.expenses. Disposable IncomeDisposable Income – Money after taxes, – Money after taxes,

social security, and other required and optional social security, and other required and optional deductions have been withheld from your deductions have been withheld from your gross pay.gross pay.

Financial PlanFinancial Plan – Orderly program for – Orderly program for spending, saving, and investing the money spending, saving, and investing the money you earn.you earn.

Setting Up a BudgetSetting Up a Budget

1.1. Estimate your total expected income.Estimate your total expected income.

2.2. Decide how much of your income you Decide how much of your income you want to save.want to save.

3.3. Estimate your total expensesEstimate your total expenses Fixed – Expenses that remain constantFixed – Expenses that remain constant Variable – Expenses that change Variable – Expenses that change

according to needs and short term goalsaccording to needs and short term goals

Personal RecordsPersonal Records

Four types you will want to keepFour types you will want to keep1.1. Records of income and expensesRecords of income and expenses

2.2. Personal Property InventoryPersonal Property Inventory

3.3. Tax recordsTax records

4.4. Statement of Net WorthStatement of Net Worth

Records of Income and Records of Income and ExpensesExpenses

IncomeIncome W2 – Shows money earned and deductions W2 – Shows money earned and deductions

taken outtaken out Statements from banks of interest earned on Statements from banks of interest earned on

savingssavings

ExpenseExpense ReceiptsReceipts BillsBills

Personal Property Personal Property InventoryInventory

Current list of what you own and its valueCurrent list of what you own and its value Why?Why?

Fire, theft, or other property damageFire, theft, or other property damage To keep track of what you own and how you are To keep track of what you own and how you are

spending your moneyspending your money

Tax ReturnsTax Returns

Tax returns and W2 statementsTax returns and W2 statements Receipts verifying income and expenses Receipts verifying income and expenses

listed on tax returns for 3 years after listed on tax returns for 3 years after return is filed.return is filed. AuditsAudits

Statement of Net WorthStatement of Net Worth

Difference between assets and liabilitiesDifference between assets and liabilities Needed when applying for a loanNeeded when applying for a loan

Assets – Items of valueAssets – Items of value Solvent – Assets greater than liabilitiesSolvent – Assets greater than liabilities

Liabilities – Money that is owed to others Liabilities – Money that is owed to others debtdebt Unsolvent - Liabilities greater than assetsUnsolvent - Liabilities greater than assets

Goals - Lesson 8.2Goals - Lesson 8.2

Discuss the elements of legal contracts Discuss the elements of legal contracts and your responsibilities regarding and your responsibilities regarding contracts.contracts.

Describe negotiable instruments and Describe negotiable instruments and warranties.warranties.

Discuss ways to set up a filing system for Discuss ways to set up a filing system for personal records.personal records.

Contracts and Contracts and AgreementsAgreements

ContractContract A legally enforceable agreementA legally enforceable agreement

Formal AgreementsFormal Agreements WrittenWritten You sign your name consenting to the conditions You sign your name consenting to the conditions

of the agreementof the agreement Examples:Examples:

1.1. Charge accountsCharge accounts2.2. Rental agreementsRental agreements3.3. Mortgage Mortgage 4.4. Promissory notesPromissory notes

Agreements cont’dAgreements cont’d

Oral agreements are also enforceable.Oral agreements are also enforceable. Informal AgreementsInformal Agreements

1.1. Driver’s LicenseDriver’s License

2.2. Car RegistrationCar Registration

3.3. Pet LicensingPet Licensing

4.4. Work ResponsibilitiesWork Responsibilities

5.5. Parenting Parenting

Valid, Void, and Voidable Valid, Void, and Voidable ContractsContracts

Valid – Must contain all of the these elementsValid – Must contain all of the these elements Mutual assent – Agreement to all terms Mutual assent – Agreement to all terms

of the contract by all parties of the contract by all parties Consideration – Anything of value Consideration – Anything of value

exchanged as part of a contractexchanged as part of a contract Competent parties – people who are Competent parties – people who are

legally capable of giving binding assent.legally capable of giving binding assent. Lawful objectives – Must be lawful.Lawful objectives – Must be lawful. Agreed upon time period – Must be Agreed upon time period – Must be

specificspecific Legal form – Must contain all necessary Legal form – Must contain all necessary

informationinformation

Cont’dCont’d

Void – missing all or some of the Void – missing all or some of the essential elementsessential elements

Voidable - party decided to avoid from Voidable - party decided to avoid from the transaction, or disaffirms the the transaction, or disaffirms the agreementagreement

The Rights of a MinorThe Rights of a Minor You are protected by law as a minorYou are protected by law as a minor

Contracts made with minors are voidable. Contracts made with minors are voidable. (Ability to cancel obligations) .(Ability to cancel obligations) .

Age of Majority Age of Majority Either when the minor turns eighteen (or the Either when the minor turns eighteen (or the

state’s age of majority, whichever is greater), state’s age of majority, whichever is greater), the minor loses the right to disaffirm and the the minor loses the right to disaffirm and the contract becomes VALID. contract becomes VALID.

Elements of an Elements of an Enforceable ContractEnforceable Contract

1.1. Agreement (offer and acceptance)Agreement (offer and acceptance)

2.2. Consideration (value)Consideration (value)

3.3. Contractual Capacity (ability of the Contractual Capacity (ability of the parties to enter into agreements)parties to enter into agreements)

4.4. Legality (Legal thing to do)Legality (Legal thing to do)

Contracts that must be in Contracts that must be in writingwriting

Contracts for purchase and sale of real Contracts for purchase and sale of real estateestate

Contracts that cannot be performed in Contracts that cannot be performed in less than one yearless than one year

Contracts for the purchase and sale of Contracts for the purchase and sale of goods over a certain pricegoods over a certain price

Consumer Consumer Responsibilities in Responsibilities in AgreementsAgreements1.1. Fill in all blank spaces or indicate N/A for items that are not Fill in all blank spaces or indicate N/A for items that are not

applicable.applicable.2.2. Write all terms clearly.Write all terms clearly.3.3. Enter dates, amounts, and other numbers correctly and Enter dates, amounts, and other numbers correctly and

clearly.clearly.4.4. Be sure the seller has supplied all relevant information, Be sure the seller has supplied all relevant information,

including rate of interest, total finance charges, and cash including rate of interest, total finance charges, and cash payment pricepayment price

5.5. Understand all terms contained in the agreement. DO Understand all terms contained in the agreement. DO NOT SIGN IT UNTIL YOU HAVE READ IT!!!NOT SIGN IT UNTIL YOU HAVE READ IT!!!

6.6. Check that no changes have been made after you have Check that no changes have been made after you have signed it. Your initials at the bottom of each page will signed it. Your initials at the bottom of each page will prevent substitution of pages.prevent substitution of pages.

7.7. Keep a copy of the agreement.Keep a copy of the agreement.

Negotiable InstrumentsNegotiable Instruments Negotiable InstrumentNegotiable Instrument

An unconditional written promise to pay a An unconditional written promise to pay a specified sum of money upon demand of the specified sum of money upon demand of the holder. holder. Examples:Examples:1.1. Checks Checks 2.2. Promissory notes (used when borrowing a large Promissory notes (used when borrowing a large

sum of money from a financial institution)sum of money from a financial institution) Maker – creates and signs the noteMaker – creates and signs the note Payee – the person to whom the note is made Payee – the person to whom the note is made

payablepayable Co-signer – person who promises to pay the note if Co-signer – person who promises to pay the note if

the maker fails to. (Young people with little credit are the maker fails to. (Young people with little credit are asked to provide a co-signer on their first loan. ) asked to provide a co-signer on their first loan. )

WarrantiesWarranties

WarrantyWarranty Also called a guarantee.Also called a guarantee. A statement about a product’s qualities or A statement about a product’s qualities or

performance that the seller assures the performance that the seller assures the buyer are true.buyer are true. Some warranties are impliedSome warranties are implied

Tennis ball Tennis ball

Filing Systems for Filing Systems for Personal RecordsPersonal Records Paper Filing SystemPaper Filing System

Simple and easy to useSimple and easy to use Record all income received and expendituresRecord all income received and expenditures Keep receiptsKeep receipts Keep system neat and orderly; information easy to Keep system neat and orderly; information easy to

find and use.find and use. Electronic Record KeepingElectronic Record Keeping

ConvenientConvenient Spreadsheet – performs tasks such as graphs and Spreadsheet – performs tasks such as graphs and

tables.tables. Database – organizes data for easy search and Database – organizes data for easy search and

retrieval.retrieval. Disadvantage of Electronic = Software Disadvantage of Electronic = Software

applications must be learned before they work as applications must be learned before they work as intended. intended.

BUDGETS AND BUDGETS AND RECORD RECORD KEEPING!!!KEEPING!!!BUSINESS FINANCEBUSINESS FINANCE

CHAPTER 8CHAPTER 8

8.1 GOALS8.1 GOALS

Describe the budgeting process and Describe the budgeting process and prepare personal budgets.prepare personal budgets.

Explain the purpose of record keeping Explain the purpose of record keeping and be able to prepare a personal net and be able to prepare a personal net worth statement and a personal property worth statement and a personal property inventory.inventory.

Did you know???Did you know???

The average teen in the U.S. spends _______ The average teen in the U.S. spends _______ each year.each year.

_______ of North American teenagers use _______ of North American teenagers use their __________ credit cards.their __________ credit cards.

________ of 18 and 19 year olds have their ________ of 18 and 19 year olds have their _______ credit card._______ credit card.

Teens in ______ spent a projected Teens in ______ spent a projected ____________________________________

U.S. citizens generally save _____ than _____ U.S. citizens generally save _____ than _____ of their _________ income.of their _________ income.

NEEDS VS. WANTSNEEDS VS. WANTS

WantsWants _____________, make life more comfortable_____________, make life more comfortable

NeedsNeeds Must have for ___________Must have for ___________

Hard to distinguish between because Hard to distinguish between because of ___________.of ___________.

Decision-Making Process Decision-Making Process ExampleExample

1.1. Identify Goal:Identify Goal: Buy a car within _________ for Buy a car within _________ for under ____________under ____________

2.2. Gather Information:Gather Information: Advice, ________ info., Advice, ________ info., Consumer _____________Consumer _____________

3.3. Examine ____________:Examine ____________: Used _________, Used _________, Ford, Chevy…Ford, Chevy…

4.4. Analyze Outcomes:Analyze Outcomes: Subaru in _______ shape, Subaru in _______ shape, Ford needs ___________ repairsFord needs ___________ repairs

5.5. Make Decision:Make Decision: (If alternatives, _______ process (If alternatives, _______ process from step _____ again) … Subarufrom step _____ again) … Subaru

6.6. Evaluate Results:Evaluate Results: __________ Subaru __________ Subaru

GOALS + GOALS + _________________ + _________________ +

ACTION = ACTION = __________________________________

Goals and ObjectivesGoals and Objectives

ObjectiveObjective Achievement Achievement DateDate

Estimated Estimated CostCost

Weekly Weekly Amount to Amount to

SaveSave

__________________________ 2 weeks2 weeks ________________ $5.00$5.00

FoodFood 2 weeks2 weeks $15.00$15.00 ________________

________________________ 2 weeks2 weeks ________________ $7.50$7.50

MiscellaneousMiscellaneous 2 weeks2 weeks ________________ $2.50$2.50

Short term goal (less than _________): Go to a football game

Definitions You Need to Definitions You Need to Know!!!Know!!!

BudgetsBudgets – _______ that helps you understand – _______ that helps you understand _____ and understand you are spending your _____ and understand you are spending your money.money. Match your __________ income to your expected Match your __________ income to your expected

____________.____________. Disposable __________Disposable __________ – Money after – Money after

_______, social security, and other required _______, social security, and other required and __________ deductions have been and __________ deductions have been withheld from your _______ pay.withheld from your _______ pay.

Financial PlanFinancial Plan – Orderly program for – Orderly program for __________, saving, and _________ the __________, saving, and _________ the money you earn.money you earn.

Setting Up a BudgetSetting Up a Budget

1.1. Estimate your total expected ________.Estimate your total expected ________.

2.2. Decide how much of your income you Decide how much of your income you want to _________.want to _________.

3.3. Estimate your total _________Estimate your total _________ Fixed – Expenses that remain __________Fixed – Expenses that remain __________ Variable – Expenses that ___________ Variable – Expenses that ___________

according to ________ and short term according to ________ and short term goalsgoals

Personal RecordsPersonal Records

Four types you will want to keepFour types you will want to keep1.1. Records of _________ and expensesRecords of _________ and expenses

2.2. Personal __________ InventoryPersonal __________ Inventory

3.3. Tax __________Tax __________

4.4. Statement of _________ WorthStatement of _________ Worth

Records of Income and Records of Income and ExpensesExpenses

IncomeIncome _______ – Shows money earned and _______ – Shows money earned and

_____________ taken out_____________ taken out Statements from _______ of interest earned Statements from _______ of interest earned

on ___________on ___________

ExpenseExpense __________________________ ________________________

Personal Property Personal Property InventoryInventory

Current list of what you ______ and its Current list of what you ______ and its __________________ Why?Why?

Fire, ________, or other property __________.Fire, ________, or other property __________. To keep track of what you _____ and how you To keep track of what you _____ and how you

are ____________ your moneyare ____________ your money

Tax ReturnsTax Returns

Tax returns and _______ statementsTax returns and _______ statements Receipts verifying _______ and Receipts verifying _______ and

expenses listed on tax returns for _____ expenses listed on tax returns for _____ years after return is filed.years after return is filed.

______________________

Statement of Net WorthStatement of Net Worth

Difference between ________ and liabilitiesDifference between ________ and liabilities Needed when applying for a _________Needed when applying for a _________

Assets – Items of _______Assets – Items of _______ Solvent – Assets __________ than Solvent – Assets __________ than

liabilitiesliabilities Liabilities – Money that is _______ to others Liabilities – Money that is _______ to others

____________________ Unsolvent - _______ greater than assetsUnsolvent - _______ greater than assets

Goals - Lesson 8.2Goals - Lesson 8.2

Discuss the elements of legal contracts Discuss the elements of legal contracts and your responsibilities regarding and your responsibilities regarding contracts.contracts.

Describe negotiable instruments and Describe negotiable instruments and warranties.warranties.

Discuss ways to set up a filing system for Discuss ways to set up a filing system for personal records.personal records.

Contracts and Contracts and AgreementsAgreements

ContractContract A ___________ enforceable agreementA ___________ enforceable agreement

Formal AgreementsFormal Agreements WrittenWritten You sign your name __________ to the conditions You sign your name __________ to the conditions

of the agreementof the agreement Examples:Examples:

1.1. __________________________________________________________________2.2. __________________________________________________________________3.3. __________________________________________________________________4.4. __________________________________________________________________

Agreements cont’dAgreements cont’d

Oral agreements are also __________ .Oral agreements are also __________ . Informal AgreementsInformal Agreements

1.1. ________________________________________________

2.2. ________________________________________________

3.3. ________________________________________________

4.4. ________________________________________________

5.5. ________________________________________________

Valid, Void, and Voidable Valid, Void, and Voidable ContractsContracts

Valid - Contains all of the _________ elementsValid - Contains all of the _________ elements Mutual assent – _______________________Mutual assent – _______________________ Consideration - ________________________Consideration - ________________________ Competent parties - ____________________Competent parties - ____________________ Lawful objectives - _____________________Lawful objectives - _____________________ Agreed upon time period - _______________Agreed upon time period - _______________ Legal form - _________________________Legal form - _________________________

Void – missing _____________ or _________ Void – missing _____________ or _________ of the essential elementsof the essential elements

Voidable - _________ party decided to Voidable - _________ party decided to __________ from the transaction__________ from the transaction

The Rights of a MinorThe Rights of a Minor You are ___________ by law as a minorYou are ___________ by law as a minor

Contracts made with minors are ___________ . Contracts made with minors are ___________ . (Ability to cancel __________ ) .(Ability to cancel __________ ) .

Age of Majority Age of Majority Either when the minor turns ____________ (or the Either when the minor turns ____________ (or the

state’s age of majority, whichever is __________ ), state’s age of majority, whichever is __________ ), the minor loses the right to ___________ and the the minor loses the right to ___________ and the contract becomes __________ . contract becomes __________ .

Shield vs. SwordShield vs. Sword Minors must use their rights as a __________ to Minors must use their rights as a __________ to

protect those who would take advantage, not as a protect those who would take advantage, not as a __________ to take advantage of others.__________ to take advantage of others.

Elements of an Elements of an Enforceable ContractEnforceable Contract

1.1. Agreement ( _______ and _________ )Agreement ( _______ and _________ )

2.2. Consideration ( __________ )Consideration ( __________ )

3.3. Contractual Capacity (ability of the Contractual Capacity (ability of the ________ to enter into ____________ )________ to enter into ____________ )

4.4. Legality ( ____________ to do)Legality ( ____________ to do)

Contracts that must be in Contracts that must be in writingwriting

Contracts for __________ and ________ Contracts for __________ and ________ of real estateof real estate

Contracts that __________ be performed Contracts that __________ be performed in less than ___________ year in less than ___________ year

Contracts for the purchase and sale of Contracts for the purchase and sale of ________ over a ____________ price________ over a ____________ price

Consumer Consumer Responsibilities in Responsibilities in AgreementsAgreements1.1. Fill in all _________ spaces or indicate _________ .Fill in all _________ spaces or indicate _________ .

2.2. Write all __________ clearly.Write all __________ clearly.3.3. Enter __________ , ___________ , and other Enter __________ , ___________ , and other

___________ correctly and clearly.___________ correctly and clearly.4.4. Be sure the ___________ has supplied all relevant Be sure the ___________ has supplied all relevant

information, including rate of _________ , total information, including rate of _________ , total __________ charges, and cash ____________ price__________ charges, and cash ____________ price

5.5. Understand all ____________ contained in the agreement. Understand all ____________ contained in the agreement. DO NOT SIGN IT UNTIL YOU HAVE ___________ IT!!! DO NOT SIGN IT UNTIL YOU HAVE ___________ IT!!!

6.6. Check that no ___________ have been made Check that no ___________ have been made ___________ you have signed it. Your ___________ at ___________ you have signed it. Your ___________ at the bottom of ___________ page will prevent the bottom of ___________ page will prevent ___________________ of pages.___________________ of pages.

7.7. Keep a ____________ of the agreement.Keep a ____________ of the agreement.

Negotiable InstrumentsNegotiable Instruments Negotiable InstrumentNegotiable Instrument

An ________________ written promise to pay a An ________________ written promise to pay a ____________ sum of money upon demand of the ____________ sum of money upon demand of the _____________ . _____________ . Examples:Examples:

1.1. ____________________________________________

2.2. ______________________ (used when borrowing a ______________________ (used when borrowing a large sum of __________ from a __________ institution)large sum of __________ from a __________ institution) Maker – creates and _________ the noteMaker – creates and _________ the note Payee – the person to whom the note is made __________Payee – the person to whom the note is made __________ Co-signer – person who _____________ to pay the note if Co-signer – person who _____________ to pay the note if

the ___________ fails to. ( ___________ people with little the ___________ fails to. ( ___________ people with little __________ are asked to provide a co-signer on their first __________ are asked to provide a co-signer on their first _______________ . ) _______________ . )

WarrantiesWarranties

WarrantyWarranty Also called a ___________________ .Also called a ___________________ . A statement about a ____________ qualities or A statement about a ____________ qualities or

performance that the ______________ assures the performance that the ______________ assures the buyer are _____________ .buyer are _____________ . Some warranties are ______________Some warranties are ______________

Tennis ball - __________________________Tennis ball - __________________________

_____________________________________________________________________________________________________________________________________________________________________________________ ._____________________________ .

Filing Systems for Filing Systems for Personal RecordsPersonal Records ___________ Filing System___________ Filing System

Simple and ________ to useSimple and ________ to use Record all __________ received and expendituresRecord all __________ received and expenditures Keep _____________Keep _____________ Keep system __________ and orderly; information Keep system __________ and orderly; information

easy to _______________ and _______________ .easy to _______________ and _______________ . _______________ Record Keeping_______________ Record Keeping

______________ and convenient______________ and convenient Spreadsheet – performs tasks such as Spreadsheet – performs tasks such as

_____________ and __________________________ and _____________ Database – organizes data for _________ search and Database – organizes data for _________ search and

retrieval.retrieval. Disadvantage of Electronic = ____________ Disadvantage of Electronic = ____________

applications must be ____________ before they applications must be ____________ before they work as ______________ . work as ______________ .