Intro to bus

Financial Planning = Planning, budgeting, and keeping good records provide the road map that leads to financial
security.
Financial plan = A set of goals for spending, saving, and investing money
Income = Can be earned from working or unearned from investments/savings.
1. Gross income = Income before deductions
2. Disposable income = the money you have left to spend or save after taxes and other deductions are
taken.
Budget = a spending and saving plan based on your expected income and expenses. A budget helps you plan
your spending and saving so that you won’t have to borrow money or use credit to meet your daily needs.
Steps in Preparing a Budget
1. Estimate your income.
2. Estimate your expenses.
3. Decide how much to save.
4. Balance your budget.
Parts of a budget:
1. Income: earned or unearned.
a. Money coming in (earnings plus borrowing) must equal money going out (spending plus saving).
2. Expenses: Fixed and Variable
a. Fixed expenses are costs that do not change from month to month.
b. Variable expenses are costs that vary in amount and type, depending on the choices you make.
c. Money spent should reveal your values, choices, and priorities.
3. Cash Surplus: Total income minus total expenses
a. To be saved or invested
b. Please note: Cash Surplus = $ in Savings + $ in Investment
****So... Cash surplus – investment = savings; AND... Cash Surplus – Savings = investment

4. Balanced budget = (Total income) = (Total Expenses + cash surplus)
a. If the budget is not balanced: Reduce expenses (either Fixed or Variable or both)
b. Get a second job or a better-paying job
Assessing lifestyle based on budget items
1. Look at what % of your income you spend of each category
a. Rent/mortgage
b. Fixed expenses
c. Entertainment
d. Gifts
e. Etc.
2. Formula is always: ($amount spent on category/total income)*100
a. Example: Income is $2,500/month; rent is $1,100/month
b. (1,100/2,500) * 100 = 44% That is, 44% of take-home pay goes to pay the rent!
Net Worth Statement = A net worth statement shows a person’s net worth based on his or her assets and
liabilities. Net Worth = Assets minus liabilities
1. Assets = items of value that a person owns – can be sold for cash value
2. Liabilities = Money or debts owed to others.
3. Net Worth = the money left over after selling your assets and paying off your liabilities
a. Can be negative
Net worth statements are used by lenders/banks to decide how much, if any, you are able to borrow and be
able to pay back. We will cover this concept in greater depth in the Credit Unit.