1. Chapter D
Managing Personal Finances

2. Step 1: Take an Inventory of your
Financial Assets
• Develop a balance sheet
• List assets on one side and liabilities on the
other
• If liabilities exceed the value of your assets you
don’t have very good financial security.
• Create an income statement.
• Think about how much money you will need to
save to reach all of your goals.

3. Step 2: Keep Track of All Your Expenses
• Keep records of expenses.
• List everything you spend.
• Develop spending categories.
• Miscellaneous or impulse category.
• Develop categories based off what's most
important

4. Step 3: Prepare a Budget
• Choose how much to allow for expenses.
• Ex cell phone use, eating out, entertainment.
• What you spend reduces what you save later.

5. Step 4: Pay off Debts
• Start with the ones with highest interest rate
• Check credit statements and other mailing
carefully.

6. Step 5: Start a Savings Plan
• Save money each month in a separate account
for large purchases.
• Best way to save is to pay yourself first.
• Take out money for savings and figure out what
to do with the rest.

7. Step 6: Borrow Only to Buy Assets That
Increase in Value
• Save about six months in advance for
contingencies
• Only the most unexpected of expenses should
cause you to borrow.

8. Building a Financial Base
Including: Investing in real
estate, saving money, and
managing credit.

9. Success in a capitalist system
• Must have capital to invest.
▫ Sacrifice.
▫ Living frugal.
▫ Save money.

10. Investments- Benefits of Home Ownership
• Investment you live in.
• Mortgage payments fixed.
• Forces people to save.
• Great asset when applying for
business loans.
• Seed money.
• Real estate flip-n-sell.
Interest.com

11. Benefits of Home Ownership- Tax Deductions
• Tax deductible:
-Interest on mortgage
payments.
-Real estate taxes.
“What’s that?! The Federal
Government helps home
owners?!”

12. Where To Put Savings
• Not just the bank.
• Stock market.
- Okay to take risk.
- Low prices = time to
buy.

13. Managing Credit- Credit Cards
• Important to financial system.
• Paying off credit cards:
▫ Pay in full before gain interest.
▫ DO NOT BUY THINGS YOU CANNOT AFFORD TO PAY OFF
QUICKLY (finance charges).
▫ “Give backs” (CardRatings.com)
FICO stands for Fair Isaac Corporation, which is the company that created the industry
standard credit scores used by almost all lenders. FICO has been in business since the 1950s
but began building the famous FICO score in the mid 1980s.

14. Dangers- Credit Cards
• Debt piles up.
• Not good to have if you:
▫ Don’t stick to financial plans.
▫ Cannot follow a budget.
Example:
-Card balance of 10,000 at a
16% interest rate. If you pay
4% in your monthly
payments it will take you 14
years to pay it off.
- Interest would be 5,000.

16. Protecting Your Financial Base
Buying Insurance

17. Life Insurance - insurance providing for a payment of a sum
of money to a named beneficiary upon death of the
policyholder or to the policyholder if still living after a certain
age.
Types of Life Insurance:
•Term Insurance- Pure insurance protection for a given number of years.
•Whole Life Insurance- Insurance that combines pure insurance and savings.
• Variable Life Insurance - Whole life insurance that invest the cash value of the
policy in stocks or other high-yielding securities.

18. Annuity- a contract to make regular
payments to a person for life or for a fixed
period.
• Two Kinds of Annuities:
- Fixed and Variable
Other Insurances you also need. . .
•Health
•Disability
•Homeowner’s/Renter’s
•Automobile/Liability