Unit E Money Management

1
Unit E Money Management

• 6.01 - Explain why budgeting is essential for
  government, business, and consumers

2
Need for Effective Money Management

• Basic economic problem
• Limited financial resources and unlimited
  wants/needs.
• Applies to consumers, businesses and governments

3
Need for Effective Money Management

• Careful planning is necessary to provide a way to
  get the most for your money.
• Balance sheet (or statement of net worth)
• reports current financial condition and is
  helpful in setting goals when budgeting.
• Cash flow statement
• will report cash inflow and expenditures and is
  helpful in establishing budget categories.
• Realistic goals must be established. Lifestyle
  choices will affect these goals.

4
Financial Planning Process

• Set Goals
• Analyze Information
• Create a Plan
• Implement the Plan
• Monitor and Modify the Plan (Evaluate)
• Set New Goals (Continue Process)

5
Decision Making Process

• Identify the goal
• Gather information
• Examine alternatives
• Analyze outcomes
• Make decision
• Evaluate results
• Set new goals

Goals Decisions Action Results
6
Importance of Budgeting for Consumers

• Budget is plan for saving and spending.
• Fixed Expenses
• occur regularly
• same amount each time
• Variable Expenses
• differ each time

7
Importance of Budgeting for Consumers

• Helps achieve financial goals.
• Will help avoid credit problems.
• Good financial records must be maintained.
• Need for good accounting/record-keeping system.
• Checking account can help individuals.
• Must be evaluated from time to time.

8
Importance of Budgeting for Businesses

• Setting goals
• short term and long term.
• Meeting obligations and avoiding credit problems.
• A good accounting system must be used.
• Many businesses fail in the first three years due
  to financial problems.

9
Importance of Budgeting for Government

• Budget provides for services needed/demanded by
  the public.
• Congress must approve the federal budget before
  the start of the fiscal year on October 1.
• State legislature must approve the state budget
  before the start of the fiscal year
• Unwise budgeting can lead to a federal (or state)
  deficit and national (or state) debt.

10
Unit E Money Management

• 6.02 - Apply the steps in the decision-making
  process

11
Making Decisions

• You choose such things as where to go, what to
  do, and whom to see.
• Decisions are situations requiring you to make a
  choice.
• Life is a series of decisions.

12
Making Decisions

• Domino Effect
• Thousands of dominoes are arranged in a pattern.
• The first domino in line is pushed over.
• This domino hits the next one, and on and on,
  until all of the dominoes have been knocked down.
• The domino effect is a chain reaction.
• The action of one domino affects the action of
  the next domino and the hundreds of other
  dominoes.

13
Making Decisions

• Decisions are similar to dominoes.
• One decision affects the next decision.
• Your present decisions affect future decisions.
• The decisions you are now facing will have an
  impact on your life for many years.

14
Making Decisions

• Decision-making is a skill.
• As with other skills, some people are more
  successful at decision making than others.
• Most of your decisions affect many areas of your
  life. It is to your benefit to make decisions as
  skillfully as possible.

15
Making Decisions

• Some decisions are much easier to make than
  others.
• For example, do you want eggs or cereal for
  breakfast?
• The more things you must consider, the more
  difficult a decision can become.
• A career decision means considering a large
  number of factors.
• You will be investing many years of your life in
  the career you choose.

16
Decision-Making Process

• Define Your Need or Want (Identify Goal)
• Be as specific as possible.
• Analyze Your Resources (Gather Info)
• Aptitudes, abilities, and values.
• What do you have or what can you obtain that will
  help you meet your need?
• Identify your Choices (Examine Alternatives)
• At least two choices or alternatives exist
  whenever a decision has to be made.
• What are those choices?

17
Decision-Making Process

• Compare the Choices (Analyze Outcomes)
• Look at advantages and disadvantages of each
  choice.
• Which choice seems to have the best chance of
  meeting your need, which choice is second best,
  which is third, and so on.
• Choose Best Alternative (Make Decision)
• An alternative is a choice.
• The difference between the final two alternatives
  may be small.
• Selected choice may be changed as you gathered
  additional information.
• No decision is ever final.

18
Decision-Making Process

• Make a plan to get Started
• Complete unless you know how you will get from
  where you are now to where you want to be.
• Evaluating Decision (and Set New Goals)
• Judge decision for its worth, quality, or
  goodness.
• Once your plan is put to use, you will begin to
  see if your decision was the best one.
• Evaluate it.
• If the outcomes are good, you will continue. If
  the outcomes are not good, then you will need to
  make a new decision.

19
Decision-Making Process

• Each step in the decision-making process may
  require some backtracking.
• Your goal may not be clear enough, or you may
  discover a new alternative that better meets your
  needs.

20
Decision-Making Troubles

• Decisions may give you trouble because of one of
  the following reasons.
• Most of these reasons are actually a lack of
  self- confidence in disguise.
• You think you cant do something because of your
  age, gender, or race.
• Ex. You cant do a certain job because youre
  too young.
• You expect too much of yourself (perfectionist).
• Your family expects too much of you.
• Your familys finances cant support what you
  want to undertake.
• Your friends pressure you to do what they want to
  do.
• Your friends/family make fun of what you want to
  do.

21
Decision-Making Troubles

• You are afraid of failure.
• You are afraid of change.
• You do not feel sure of yourself in new
  situations.
• You put things off (procrastination).
• You expect too little from yourself. You think
  you cant do something and wont even try.

22
Hints for Better Decision-Making

• Be aware of the decisions you make every day.
• If a decision did not turn out well, try to
  figure out why.
• Did you follow the decision-making steps?
• Practice the decision-making steps.
• The more decisions you make using the steps, the
  better you will become.
• Recognize the obstacles that get in your way.
• Are the obstacles things you could have overcome
  if you had tried a little harder?

23
Hints for Better Decision-Making

• Check your way of looking at things.
• Do you look for good things to happen, or do you
  tend to have a negative outlook?
• Accept the outcome.
• If you made the best decision you could and
  things did not work out, accept the facts and
  move on.
• Be willing to change your decision.
• Decisions arent set in concrete. Sometimes the
  conditions for a decision change and a new
  decision is necessary.

24
Hints for Better Decision-Making

• Most decisions have both positive and negative
  outcomes.
• Satisfying or positive decisions have more good
  than bad results.
• Decisions that are satisfying are the ones that
  get you closest to what you want.
• Dont depend on luck.
• The idea is to get control of your life and of
  what happens to you.
• The more thorough you are in getting the facts
  you need and in planning ahead, the less you will
  need to rely on lucky breaks.

25
Hints for Better Decision-Making

• Keep asking questions.
• Almost all decisions require the same steps.
• By spending time with each, you will make more
  careful decisions.
• These steps are only guidelines.
• You may find that the steps overlap or that you
  need to spend more time on one step than another.
• Adjust them as needed so they work best for you.

26
Career Decisions

• Dont think that just because you have made a
  decision or career choice you should stop asking
  questions.
• Job fields constantly change.
• They may differ somewhat from state to state.
• A job may seem less satisfying than you thought
  it would be. Why is this?

27
Career Decisions

• Is the work boring? Will it always be?
• Does it give me a feeling of accomplishment?
• Do I want to do this type of work for 15 or 20
  years?
• Am I interested enough to spend the time and
  money for education and training?
• How am I better off choosing this career rather
  than another?
• Are my skills being put to good use?
• Do others in the field think I can handle the
  work?
• Is this career available where I live now, or
  will I need to relocate?

28
Unit E Money Management

• 6.03 The Budgeting Process

29
The Budgeting Process

• Set financial goals
• Short-term and long-term
• A balance sheet (or statement of net worth) and
  cash flow statement (or income statement) help in
  establishing goals
• The choice of lifestyle will affect the goals

30
The Budgeting Process

• Plan the budget categories
• The cash flow statement can help establish
  categories and allowances for each category.
• Fixed expenses are costs that occur regularly and
  for the same amount
• Rent
• Insurance

31
The Budgeting Process

• Variable expenses are costs that differ each
  time.
• Food
• Clothing
• Utilities
• Entertainment
• Savings are an essential category.
• Necessary for long-term goals
• Helpful for unexpected expenses such as medical
  care

32
The Budgeting Process

• Maintain financial records.
• A checking account will help in maintaining
  financial records
• A computer and spreadsheet software will be
  helpful

33
The Budgeting Process

• Evaluate the budget
• Compare actual expenditures with budget
  allowances
• Adjust budget when necessary
• Change in family situation
• Change in lifestyle choices
• Inflation, inaccurate budgeting estimates

34
Characteristics of an Effective Budget

• Realistic
• Should reflect current income
• Expenses should be reasonable according to income
• Flexible
• The budget should allow for unexpected expenses
• Savings are essential for flexibility
• Evaluate regularly

35
Characteristics of an Effective Budget

• Planned and communicated to all affected by
  budget
• Budget should be written
• Written budget should be accessible
• Simple format

36
Unit E Money Management

• 6.04 - Analyze the relationship between inflation
  and purchasing power

37
Inflation

• Inflation is a rise in the prices of goods and
  services, as happens when spending increases
  relative to the supply of goods on the market-in
  other words, too much money chasing too few
  goods.
• Moderate Inflation is a common result of economic
  growth.
• Hyperinflation is caused when prices rise at 100
  a year or more.

38
Inflation

• A prolonged increase in the general price level.
• It is used as an economic indicator to measure
  the growth of the economy.
• Inflation was a serious problem in the 1970s and
  early 1980s, reaching a level of 14 inflation.
• Inflation reduces consumers ability to buy goods
  and services

39
(No Transcript)
40
Benefits of Inflation

• Economists suggest that inflation at the rate of
  2-3 is healthy for the economy.
• 1. Wages rise more slowly than prices.
• 2. Producers make more profit and can hire more
  workers.
• 3. Unemployment is lower.
• 4. Newly employed workers spend more money and
  stimulate the economy.
• 5. The United States usually has mild to moderate
  inflation

41
Disadvantages of Inflation

• If earnings do not keep up with inflation,
  consumers will have a lower standard of living.
• 1. Affects those on a fixed income (retirees,
  unemployed)
• 2. When inflation is moderately high, most
  workers will be affected

42
Disadvantages of Inflation

• Increasing inflation reduces the consumers
  ability to buy goods and services.
• 1. Money does not buy as much (the value of the
  dollar goes down).
• 2. Consumers purchase only necessary goods.
• 3. Consumers cut back on their spending.

43
Disadvantages of Inflation

• 4. Rising interest rates discourage consumers and
  businesses from borrowing money.
• a. Sales of durable goods fall.
• b. Consumers make do with current homes, cars,
  etc.
• c. Business owners do not borrow to expand.
• 5. Workers ask for higher wages businesses raise
  prices to pay for the increases.

44
Disadvantages of Inflation

• As consumers stop spending, business sales fall
  and the owner must cut back.
• 1. Some businesses may have to lay off workers.
• 2. People who lose their jobs will be able to buy
  fewer goods and services.

45
Disadvantages of Inflation

• Careful financial management is crucial in
  dealing with inflation.
• 1. Careful budgeting helps consumers cope with
  limited economic resources.
• 2. Wise decision-making is also necessary to
  combat the effects of inflation.
• a. Comparison shopping, not impulse buying.
• b. Change lifestyle as needed.

46
Disadvantages of Inflation

• 3. Savings and investments must keep up with or
  ahead of inflation so that the money saved does
  not lose value.

47
Unit E Money Management

• 6.05 Consumer Spending and Individual Standard
  of Living

48
Standard of Living

• A measure of how well people live.
• It depends on the kinds and quality of goods and
  services people can afford.
• Individuals use their earnings to buy the goods,
  which are needed to maintain and improve their
  standard of living

49
SPENDING AFFECTS THE STANDARD OF LIVING

• Wise spending is probably more important than the
  amount of earnings in determining the standard of
  living.
• Informed consumers get more for their money and
  raise their standard of living.
• Wise and efficient shopping and conservation of
  resources help increase the standard of living.
• Limited money can be stretched.
• Time can be saved and allow for more leisure
  activities.

50
SPENDING AFFECTS THE STANDARD OF LIVING

• Use of consumer decision-making process helps
  increase the standard of living by providing more
  goods and services for your money.
• Comparison shopping is helpful.
• Avoiding impulse buying, especially for major
  purchases, is important.

51
SPENDING AFFECTS THE STANDARD OF LIVING

• Wise use of credit is important to a high
  standard of living.
• Use credit only when necessary and be sure to
  figure the cost of credit.
• Use for major purchases, such as automobiles,
  refrigerators.
• Use when traveling, but be sure to pay in a
  timely manner.
• Goods purchased may not be the "best buy" and may
  cost more than a similar product that would serve
  just as well.

52
SPENDING AFFECTS THE STANDARD OF LIVING

• Impulse buying can lead to goods and services
  that are not really necessary and waste the
  consumer's money.
• Using credit unwisely can lead to the individual
  spending too much money on interest and other
  costs of credit.