BASICS OF

PERSONAL FINANCE
MANAGING YOUR
MONEY
You and everyone around you are consumers that
play an important role in the economic system.
UNDERSTANDING
CONSUMERS
A consumer is a person who purchases
goods and services for personal use.

Consumers must make educated decisions

when purchasing goods and services in
order to maximize the potential of their
income.

Income is the sum of all forms of earnings

received, especially on a regular basis, for
work or through investments.
 STEPS TO MAKING BUYING
DECISIONS
Many factors are involved in consumers’ buying decisions.

Steps to Making Buying Decisions:

Decide whether or not to buy an item

Invest time obtaining product information

Consider opportunity cost

Purchase item
 EXAMPLE
Ross needs a new computer for his first job out of college. He needs a
computer that is compatible with Google Applications. He is willing to
spend up to $600. Let’s use the Steps to Making Purchases to
determine what Ross should do.
Steps to Making Buying Decisions:
Ross has decided to purchase a laptop.

Ross should conduct research on different laptops for

$600 or less that use Google Applications.
Ross wants a laptop that will last him a long time because
he does not want to buy another computer within the
next two years.
Ross purchases a laptop for $450 and upgrades $100 for
a 10 year warranty.
 PLANNING AND
BUDGETING
Making and following a budget can help you organize
your financial life.
UNDERSTANDING
BUDGETS
A budget is a plan for future spending
and saving that keeps track of estimated
income and estimated expenses.

Basic budgeting terms:

Income: Sum of all earnings 

Expenses: Sum of all costs
Balance: Leftover money after all
expenses have been paid
Surplus: When your income exceeds
your expenses (good)
Deficit: When your expenses exceed
your income (bad)
MAKING A
BUDGET—AND
STICKING TO IT!
An important part of creating an
accurate budget is tracking exactly how
much money comes in and goes out
each month.

The best way to do this is by creating

a table.

Your table should include all of your

regular monthly expenses.
UNDERSTANDING BUDGETS
Let’s say that your monthly income is $800. You are looking to buy a new phone that costs
around $600. By creating a table, you can determine how much money is allocated to bills and
other necessities and where you need to budget in order to reach your goal.

Monthly Expenses Amount Balance

Phone Bill $50 $750

Car Insurance $250 $500

After all of your
expenses, you
have a $200
Groceries $100 $400
surplus!

Free Spending $200 $200

By reviewing the table, you can determine that it will take you about 3 months to save the money
needed to purchase a new phone. If you wanted to save money faster, you could allocate less
money to the “Free Spending” category and save it instead.
CREDIT
Credit allows consumers to receive a
good or service and pay for it later.

Recognizing credit terms:

A lender gives money to a borrower.
A credit rating evaluates how likely a
borrower is to repay a loan. The lower
the credit rating, the less likely a
borrower will repay a loan.

Sources of Credit:
Banks, savings and loans, credit unions, and
finance companies offer credit
Most common—credit cards
CREDIT 
Benefits:
Allows you to get what you want
sooner
Teaches financial discipline

Drawbacks:
Spending more than you can afford
Bankruptcy
Poor credit rating

Your Responsibilities as a Borrower:

Have a plan to make payments
Use budget skills
Understand credit agreement
 SAVING AND
INVESTING
Making and following a budget can help you organize
your financial life.
SAVING FOR
THE FUTURE
Your savings are income set aside for
later use.
Why save?
Money for large purchases
Emergency aid
Purchase luxury goods
AVOIDING
IMPULSE
BUYING
Setting financial goals can help you
spend money wisely.

Beware of impulse buying or the

buying of goods without planning to do
so in advance, as a result of emotions
or urge.