Chapter 8 Chapter 8 BUDGETS AND BUDGETS AND

FINANCIAL RECORDSFINANCIAL RECORDS

Lesson 8.1 Budgeting and Lesson 8.1 Budgeting and Record KeepingRecord Keeping

I.I. Importance of Financial Importance of Financial PlanningPlanningA. Budgeting is the first step to financial securityB. Disposable income—the money you have left to spend or save after taxesC. Financial plan—set of goals for spending, saving, and investing the $ you earn

II.II. Preparing a budgetPreparing a budget

AA.. BudgetBudget—a spending and saving —a spending and saving plan plan based on expected based on expected income/expensesincome/expenses

1. 1. Money coming in (income) Money coming in (income) = = money going out money going out (expenses)(expenses)

2.2. Budget must balanceBudget must balance

B.B. Steps in preparing a budgetSteps in preparing a budget

1.1. Estimate your total expected Estimate your total expected incomeincome

2.2. Decide how much you want to Decide how much you want to save—to set aside for future save—to set aside for future

needs needs (10%)(10%)

3.3. Estimate your expenses (lunch, Estimate your expenses (lunch, fees, clothes, entertainment)fees, clothes, entertainment)

4.4. Balance your budget; adjust Balance your budget; adjust amounts to make them matchamounts to make them match

C.C. A Typical Monthly Budget A Typical Monthly Budget (p.177)(p.177)

1.1. Include take-home pay, interest, Include take-home pay, interest, earnings on investmentsearnings on investments

2.2. Fixed expensesFixed expenses—costs you are —costs you are obligated to pay at specific times obligated to pay at specific times (rent/mortgage, car loan, utilities, (rent/mortgage, car loan, utilities, insurance) 50—60% of take home insurance) 50—60% of take home paypay

3.3. Variable expensesVariable expenses—costs that —costs that vary vary in amount and type in amount and type (groceries, (groceries, entertainment, clothes)entertainment, clothes)

III.III. Personal RecordsPersonal Records

A.A. Records of Income and Records of Income and ExpensesExpenses

1.1. W-2 formsW-2 forms 2.2. Bank statementsBank statements 3.3. Receipts (charity, medical Receipts (charity, medical

bills, work-related bills, work-related expenses)expenses)

4.4. Store in a safe place for Store in a safe place for future future referencereference

B.B. Net Worth Statement includesNet Worth Statement includes

1.1. Assets—items of value that Assets—items of value that a a person ownsperson owns

2.2. Liabilities (debts)—money Liabilities (debts)—money owed to othersowed to others

3.3. Net worth—the difference Net worth—the difference between assets and between assets and

liabilitiesliabilities

Net WorthNet Worth

4.4. Solvent—when your Solvent—when your assets>liabilities (favorable)assets>liabilities (favorable)

5.5. Insolvent—when your Insolvent—when your liabilities>assets (poor financial liabilities>assets (poor financial

position)position) 6.6. Need your net worth info Need your net worth info

when when you you apply for creditapply for credit

C.C. Personal Property InventoryPersonal Property Inventory

1.1. A list of all valuable items A list of all valuable items you you own, along with their own, along with their purchase purchase prices and prices and approximate current approximate current valuesvalues

2.2. Useful in the event of fire, Useful in the event of fire, theft, or theft, or property damageproperty damage

3.3. Photograph each item and Photograph each item and store in store in safe deposit boxsafe deposit box

D.D. Tax RecordsTax Records

1.1. Keep records for at least 3 Keep records for at least 3 yearsyears

2.2. IRS has legal right to audit IRS has legal right to audit your tax returns and your tax returns and

supporting records for three supporting records for three years from years from date of filingdate of filing

How do teens spend their own How do teens spend their own money? Top 5 items:money? Top 5 items:GuysGuys

FoodFood 30%30% SodaSoda26%26% CandyCandy 24%24% ClothesClothes 21%21% MusicMusic 19%19%

GirlsGirls ClothesClothes 43%43% CandyCandy 34%34% SodaSoda32%32% FoodFood 31%31% Salty Snacks Salty Snacks

22%22% LunchLunch 22%22%

Source: NOPWorld 2003 Survey based on teens ages 13 to 17

Let’s Create a Budget!Let’s Create a Budget!

Lesson 8.2Lesson 8.2

Legal Legal Documents and Documents and Filing SystemsFiling Systems

I.I. Contracts and AgreementsContracts and Agreements

A.A. ContractContract—a legally —a legally enforceable enforceable agreement agreement between two or more between two or more partiesparties1.1. Express contract can be oral or Express contract can be oral or

written, terms of agreement written, terms of agreement are in are in words (credit plans, words (credit plans, mortgages, rental mortgages, rental agreements)agreements)

ContractContract

2.2. Be sure to read everything in the Be sure to read everything in the agreement before you sign itagreement before you sign it

3.3. Implied contract—unwritten Implied contract—unwritten agreement; agree to certain agreement; agree to certain things by doing other things things by doing other things

(driving—will follow traffic laws)(driving—will follow traffic laws)

B.B. Elements of an Enforceable Elements of an Enforceable ContractContract

1.1. A contract must be binding—A contract must be binding—all all who enter into the contract who enter into the contract must must be legally obligated to be legally obligated to abide by its abide by its termsterms

2.2. To be legally binding, To be legally binding, enforceable enforceable agreements, agreements, contracts must contracts must include:include:

ContractsContracts

a.a. AgreementAgreement—valid offer is —valid offer is made made and acceptedand accepted

i.i. Both offer and acceptance Both offer and acceptance must must express voluntary intent express voluntary intent to be to be bound by the agreementbound by the agreement

ii.ii. Genuine agreement does not Genuine agreement does not exist exist when there is a mistake, when there is a mistake, fraud, fraud, duress (threats), or undue duress (threats), or undue

influenceinfluence

ContractContract

b.b. ConsiderationConsideration—anything of —anything of value value exchanged as part of a exchanged as part of a contract, contract, each party receives each party receives something of something of valuevalue

ContractContract

c.c. Contractual CapacityContractual Capacity——refers to refers to the competence the competence (legal ability) of (legal ability) of the the parties parties to enter into a to enter into a contract. Minors contract. Minors have limited have limited contractual contractual competence to protect competence to protect them them from being taken advantage from being taken advantage ofof

ContractsContracts

d.d. LegalityLegality—contract must be —contract must be lawfullawful

ContractsContracts

AgreementAgreement ConsiderationConsideration Contractual CapacityContractual Capacity LegalityLegality

ContractsContracts

3.3. NotarizedNotarized—receive a seal that —receive a seal that says says the person signed a the person signed a document of document of his/her own free willhis/her own free will

C.C. Consumer Responsibilities Consumer Responsibilities in Agreementsin Agreements

1.1. Fill in all blank spaces or Fill in all blank spaces or write N/Awrite N/A

2.2. Write all terms clearlyWrite all terms clearly

3.3. Enter dates, amounts, other Enter dates, amounts, other numbers correctly and clearlynumbers correctly and clearly

4.4. Be sure seller has provided Be sure seller has provided all all relevant info—interest rate, relevant info—interest rate, total total finance charges, cash finance charges, cash payment payment price, etcprice, etc

ResponsibilitiesResponsibilities

5.5. Understand all terms in Understand all terms in agreement—ask questions before agreement—ask questions before

you sign it. Your signature you sign it. Your signature states states you have read and you have read and understood understood the the contract.contract.

6.6. Check that no changes have Check that no changes have been been made after you signed itmade after you signed it

7.7. Keep of a copy of the Keep of a copy of the agreementagreement

II.II. Negotiable InstrumentsNegotiable Instruments

A.A. Negotiable instrumentNegotiable instrument—an —an unconditional written promise to unconditional written promise to

pay pay a specified sum of a specified sum of money money upon demand of the upon demand of the holder holder (checks, promissory (checks, promissory notes)notes)

B.B. Promissory note is a written Promissory note is a written promise to pay, is legal documentpromise to pay, is legal document

1.1. Maker—person who creates Maker—person who creates and and signs the notesigns the note

22 .. Payee—the person to whom Payee—the person to whom the the note is made payablenote is made payable

3.3. Co-signer—a person who Co-signer—a person who promises promises to pay the note if the to pay the note if the maker fails maker fails to payto pay

III.III. WarranteesWarrantees

A.A. AKA guarantee—statement AKA guarantee—statement about about a product’s quality or a product’s quality or performance performance that the seller that the seller assures the buyer assures the buyer are are truetrue

B.B. All products contain implied All products contain implied warrantees—a product is warrantees—a product is

supposed to do what it is made supposed to do what it is made to to dodo

IV.IV. Filing Systems for Personal Filing Systems for Personal RecordsRecords A.A. Paper Filing System includes Paper Filing System includes

folders, labels, filing cabinet folders, labels, filing cabinet

B.B. Electronic Record Keeping—can Electronic Record Keeping—can update info easilyupdate info easily

1.1. Spreadsheet—program that Spreadsheet—program that organizes data in columns and organizes data in columns and

rowsrows

2.2. Database—program that Database—program that organizes organizes date for search and date for search and retrievalretrieval

The End!The End!