Chapter 8

Budgets and Financial Records

Budgeting and Record KeepingLegal Documents and Filing

Systems

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Lesson 8.1 Budgeting and Record Keeping

Describe and prepare personal budgets. Explain the purpose of record keeping. Prepare a personal net worth statement

and a personal property inventory.

Importance of Financial Planning

Disposable income—money you have left to spend or save after taxes haves been paid

Financial plan—a set of goals for spending, savings, and investing the money you earn

Financial Planning Helps You to:

Determine and evaluate options for your money

Prioritize your options so your money goes as far as possible

Avoid careless and wasteful spendingOrganize your income so you can achieve your

financial goalsAvoid money worries by planning your saving,

spending, and borrowing to live within your means

Achieving Your Financial Goals

First step is to prepare a budget Budget is a spending and saving plan

based on your expected income and expenses

Money coming in must equal money going out

Preparing a Budget

Estimate your income.Decide how much to save.Estimate your expenses.Balance your budget.

IncomeWork $320Allowance 20Lunch money 40

Total income $380Total expenses $280

Simple Budget

ExpensesLunches $ 80Supplies 20Snacks 40Entertainment 120

SavingsTo credit union $100

Total expenses plus savings $380

Monthly Budget

Fixed expenses Costs you are obligated to pay on a regular

basis (i.e., rent or mortgage, car payment) Should equal no more than 50-60% of net

pay

Variable expenses Costs that vary in amount and type,

depending on events and the choices you make (i.e., eating out, vacations)

Personal Records

4 types of personal records a person should keep:

1. Records of income and expenses (W-2 forms, bank statements, investment statements, receipts for charitable contributions, medical expenses, etc.)

2. Net worth statement3. Personal property inventory4. Tax records

Records of income and expenses Examples include W-2

forms, bank statements, investment statements, receipts for charitable contributions, medical expenses, etc.

Net Worth Statement

Assets

– Liabilities

Net worth

Net worth statement is a list of items of value (assets), amounts of money owed to others,or debts (liabilities), and the difference between the two, which is a person’s net worth.

Personal Property Inventory

A personal property inventory is a list of all valuable items a person owns, along with their purchase prices and approximate current values

ItemYear

PurchasedPurchase

PriceApproximate

Current Value

Tax Records

Keep copies of tax returns, W-2 forms and other tax receipts for at least three years

© South-Western Educational Publishing

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Lesson 8.2 Legal Documents and Filing Systems

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

Describe negotiable instruments and warranties.

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

Types of Contracts

A contract is a legally enforceable agreement between two or more parties

Express contracts Oral Written

Implied contracts

Elements of an Enforceable Contract

AgreementConsiderationContractual capacityLegalityGenuine assentLegal form

Consumer Responsibilities in Agreements

Understand agreement. Keep a copy of the

agreement. Be sure the agreement

is dated correctly. Be sure all blank spaces

are filled in or marked out.

Be sure all terms agreed upon are written clearly.

Be sure all dates, amounts, and other numbers are correct and clearly written.

Be sure proper disclosure is made by the seller.

Be sure all cancellations and adjustments are made in accordance with the contract.

Negotiable Instruments

Must be in writing and signed by the makerMust contain an unconditional promise to

pay a definite amount of moneyMust be payable on demand or on a fixed or

determinable future dateMust be payable to the order of a particular

person or to the holder of the noteMust be delivered to the payee

Warranties

GuaranteeLimited warranty

Filing Systems for Personal Records

Paper filing systemElectronic record keeping

Spreadsheet Database

Home Filing System

WarrantiesWarranties

UtilitiesUtilities

MedicalMedical

TravelTravel

TaxesTaxes

SubscriptionsSubscriptions

InsuranceInsurance

HouseholdHousehold

EntertainmentEntertainment

AutomobileAutomobile