CHAPTER 3 PART 1

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LEARNING OBJECTIVES

 Recognizes
relationships among financial documents and
money management activities
 Create a system for maintaining personal financial
records.
 Create and implement a budget
 Calculate savings needed to achieve financial goals
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Planning for Successful Money Management

 “Each month I have too much month and not enough money. If the month were
only 20 days long, budgeting would be easy.” Most of us have heard a
comment like this when it comes to budgeting and money management.
 Your daily spending and saving decisions are at the center of financial
planning. You must coordinate these decisions with your needs, goals, and
personal situation. When people watch a baseball or a football game, they
usually know the score. In financial planning, knowing the score is also
important.
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 Maintaining financial records and planning your financial

records and planning your spending are essential to
successful personal financial management.
 The time and effort you devote to these recordkeeping
activities will yield benefits.
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What Is Money Management?

 Money management refers to how you handle all aspects of your

finances, from making a budget for where each paycheck goes to
setting long-term goals to picking investments that will help you to
reach those goals. Money management is not just about saying "no"
to any purchase, but developing a plan that allows you to say "yes"
to the things that are most important to you. Any amount of money
can prove to be too little if you don't have good money management
skills.
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Opportunity Cost and Money Management

 Consumers can choose from more than 25,000 items in a supermarket, more than 11,000
periodicals, and as many as 500 cable television stations. Daily selection making is a fact of life,
and trade-offs are associated with each choice made. Selecting an alternative means you give up
something else. In terms of money management decisions, example of trade-off situations, or
opportunity costs, include the following:
 Spending money on current living expenses reduces the amount you can use for saving and investing for
long-term financial security.
 Saving and investing for the future reduce the amount you can spend now.
 Buying on credit results in payments later and a reduction in the amount of future income available for
spending
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Opportunity Cost and Money Management

 Using savings for purchases results in lost interest earnings and an inability to use savings
for other purposes.
 Comparison shopping can save you money and improve the quality of your purchases but
uses up something of value you cannot replace: your time.

 As you plan and implement various money management activities, you need to assess financial
and personal costs and benefits associated with financial decisions.
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Money Management Activities

 Storing and maintaining personal financial records and documents

 Creating personal financial statements (balance sheets and cash flow
statements of income and outflows)
 Creating and implementing a plan for spending and saving
(budgeting)
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A system for Personal Financial Records

 Expert once predicted that computers would result in fewer

paper documents. Today, however, computers seem to be
generating more paperwork than ever.
 Much of that paperwork relates to financial matters.
 Invoices, credit card statements, insurance policies, and tax
records are the basis of financial record keeping and personal
economic choices.
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An organized system of financial records
provides a basis for

 Handling daily business affairs, including payment of bills on time

 Planning and measuring financial progress
 Completing required tax reports
 Making effective investment decisions
 Determining available resources for current and future buying
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Most financial records are kept in one of three
places:

 A home file, a safe deposit box, or a home computer.

 A home file should be used to keep records for current needs and documents
with limited value.
 Your home file may be a series of folders, a cabinet with several drawers, or
event a cardboard box.
 Whatever method you use, it is most important that your home file be
organized to allow quick access to required documents and information.
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 Important financial records and valuable articles should be kept in a location

that provides better security than a home file.
 A safe deposit box is a private storage area at a financial institution with
maximum security for valuables and difficult-to-replace documents.
 Access to the contents of a safe deposit box requires two keys. One key is issued
to you; the other key is kept by the financial institution where the safe deposit
box is located.
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How long should you keep personal finance
records?

 The answer to this question differs for various documents.

 Records such as birth certificates, wills, and Social Security data
should be kept permanently.
 Records on property and investments should be kept as long as you
own these items.
 Copy of tax returns and supporting data should be saved for six
years.
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Home File

1. Personal and Employment Records

• Current Resume
• Employee Benefit Information
• Birth Certificate
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2. Money Management Records

 Current Budget
 RecentPersonal Financial Statements (Balance Sheet,
Income Statement)
 List of Financial Goals
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3. Financial Services Records

Checkbook, unused checks
Bank statements, cancelled checks
Saving statements
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4. Credit Records
 Unused credit cards
 Payment books
 Receipts, monthly statements
 List of credit account numbers and telephone numbers
issuers
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5. Consumer Purchase & Automobile Records

 Warranties
 Receipts of major purchases
 Owner’s manual for major appliances
 Automobile service and repair records
 Automobile registration
 Automobile owner’s manual
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6. Housing Records
Lease (if renting)
Property tax records
Home repair, home improvement receipts
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7. Insurance Records
 Original insurance policies
 List of insurance premium amounts and due dates
 Medical information (health history, prescription drug
information)
 Claim reports
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8. Investment Records
 Records of stock, bond, and mutual fund purchases
and sales
 List of investment certificate numbers
 Brokerage statements
 Dividend records
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9. Estate Planning and retirement Records

 Will
 Pension Plan Information
 Trust Agreements
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Safe Deposit Box

 Birth, marriage and death certificates

 Certificate of deposits
 List of checking and savings account numbers and financial institutions
 Mortgage papers
 Title deed
 Automobile Tile
 List of insurance policy
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Personal Computer System

 Current and past budgets

 Summary of checks written and other banking transactions
 Past income tax returns
 Account summaries and performance results of investments
 Computerized version of wills, estate plans and other
documents