Financial Planning & Budgeting

• Financial planning considers income and expenses.

Disposable Income

• The money remaining after taxes and deductions is available for spending or saving.

Money Options

• Received money can be spent, saved, or invested.

Economic Planning

• Financial planning aids it by preventing wasteful spending and organizing financial resources.

Budgeting

• The first budgeting step is understanding financial resources.

Budget Defined

• A budget is a spending and saving plan based on expected income and expenses.

Economic Goals

• Short-term goals span 0-3 months, intermediate goals 3-12 months, and long-term goals exceed a year.

Expenses

• Fixed expenses remain constant.
• Variable expenses fluctuate (e.g., groceries).

PYF Principle

• "Pay Yourself First" prioritizes saving before other expenses.

Balanced Budget

• Total income equals total expenses.

Budget Outcomes

• Estimating incomes and expenses can result in a balanced budget or a budget deficit.

Unbalanced Budgets

• Can be addressed three ways: increasing income, cutting expenses, or borrowing/using savings.

Cost Management

• Variable costs are the easiest to change for immediate budget impact.

Personal Records

• Essential personal records include income and expense records, net worth statements, personal property inventory, tax records, and other documents.

Expense Records

• Keep records of charity contributions and medical bills.

Assets Defined

• Assets are items of value a person owns.

Asset Location

• Assets are listed on a net worth statement.

Liabilities Defined

• Liabilities are debts owed to others.

Types of Liabilities

• Short-term and long-term liabilities exist.

Net Worth

• Determined by total assets minus total liabilities.

Solvent Defined

• Solvency occurs when assets exceed liabilities.

Insolvency

• Insolvency is expected during life as assets take time to build up.

Personal Property Defined

• Personal property includes anything of value that you own.

Personal Property Examples

• Examples include cars, clothing, and furniture.

Non-property

• Real estate or land are not personal property.

Depreciating Asset

• Personal property depreciates because it loses value over time.

Tax Records

• Tax records should be kept for 3 years.

Tax Record Examples

• W-2 and 1099 forms.

IRS Audits

• The IRS can audit a filing for up to 3 years.

Contract Defined

• A contract is a legally enforceable agreement between parties.

Legal Agreement Examples

• Morgage loans and rental agreements are common examples.

Types of Contracts

• Expressed and implied contracts exist.

Contract Elements

• Four essential elements: agreement, consideration, capacity, and legality.

Agreements

• Reached when a valid offer is made and accepted.

Required Offer Features

• An offer must be clear and definite.

Consideration Defined

• Something of value exchanged for something else of value.

Contractual Capacity

• Requires legal age and sound mind.

Enforceable Contracts

• Must have a lawful purpose.

State Validation

• State validation of contracts falls under the statute of frauds.

Contract Responsibilities

• Clearly write all terms, dates, amounts, and numbers.

Promissory Note Defined

• A written promise to pay a specified amount to another person by a specific date.

Promissory Note Roles

• The maker (borrower) and the payee (lender).

Promissory Note Usage

• Used when borrowing a large sum from a financial institution.

Warranty Defined

• A statement assuring product or service quality and performance.

Warranty Types

• Written and implied warranties.

Guarantee

• Another name for a warranty.