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AOT 133 – Professional DevelopmentChapter 2 – OutlineFinancial ManagementPersonal Financial Management – the process of controlling personal income and expenses.Income – money coming in; handling your income is even more important as your income grows.Expense – money going out; this is money spent.Practice healthy financial management by creating good spending and saving habits.Personal Financial Management Affects Work PerformanceProper financial management includes management your money, keeping your debt under control, and maintaining a positive credit report.Personal finances impact all areas of your life; lack of personal finance management can negatively impact your work situation.Employers rationalize that if you cannot manage your personal finances, you may not be a responsible employee, nor can you be trusted with company resources.Your PaycheckLearn to practice self-control; financial success begins with discipline and planning.Create both long- and short-term goals for saving your money.Money ManagementBudget – a detailed financial plan used to allocate money for a specific time period; reflects goals and specifies where your money goes in order to reach these goals.Cash management is the key to good budgeting.A good cash management practice is to track every single transaction; physically record all deposits and withdrawals made with your ATM card, debit card, or checking account when they occur.Take time to seriously consider where your money is going and if the expense is necessary or if it is an impulse purchase.The first step in creating a budget is to identify goals; effective goals must be in writing and should provide direction for creating your budget. Attach financial goals to your personal goals.Determine your income and expenses and identify your monthly income and expenses.Gross Income – the amount of money in a paycheck before paying taxes or other Income – the amount of money you have after all taxes and deductions are paid.After identifying your monthly income, determine your expenses and track every penny over a few months, and adjust your personal budget monthly in accordance.Fixed Expenses – expenses that do not change from month to month, like rent or mortgage.Flexible Expense – expenses that change from month to month, like food or utilities.Money Wasters – small expenditures that you may not realize are consuming a larger portion of your income than you expected. (i.e.: buying coffee at a coffee shop as opposed to making it at home.)Debt ManagementDebt – money owed to a creditor; all types of loans and credit cards.Loan – a large debt that is paid in smaller amounts over a period of time and has interested added to the payment.Interest – the cost of borrowing money; the extra money that is paid to a Worth – the amount of money that is yours after paying off debt; determined by comparing your assets and liabilities. You increase your net worth by decreasing your liabilities (debts) and increasing your assets.Assets – what you own; items that are worth money, like a car or home.Liability – an obligation to pay what you owe to a creditor.General steps to get out of debt:Do not create additional debt.Prioritize your debt.After you have paid off one loan, apply the extra cash to the next debt on your priority list.Wise Use of CreditThe best way to stay out of a debt hole is to manage your credit. Build and maintain good credit; good credit aids in purchasing large items like a car or home.Use credit cards as a tool for establishing good credit; spend wisely and pay off the balance each month. Only use the card for things you can afford and always make credit payments on time. Do not take cash advances against your credit card.Pay as much of your monthly balance as you can; don’t get in the habit of making only a minimum payment.When applying for credit, lenders consider your character, capacity, collateral, and condition. Character reflects your past attitude towards paying your bills on time. Capacity is your ability to repay the loan. Collateral is the assets you own that are used as security to pay the debt.Understand the fine print of loan documents prior to signing the loan agreement.Credit ReportsCredit Report – a detailed credit history on an individual which contains personal identification information; details balances and payments on current and past credit cards and loans, summarized in the form of a credit score, which calculates the risk of lending you money. The most common score is the Fair Isaac Corporation (FICO) score.There are three reporting agencies: Equifax, Experian, and TransUnion. Your FICO score is a combination of these agency ratings.Under federal law, you are entitled to a free copy of your credit report from these agencies once every twelve months; regularly monitor your credit by requesting a free copy from each reporting agency at different times throughout the year.Savings and InvestmentsA good rule of thumb is to have at least five months’ income saved for emergencies and unexpected expenses.Make a commitment to take a specific percentage from your paycheck and place it in a savings account; identify unnecessary expenditures to convert to savings.Keep your savings in a financial institution where it can earn interest.Automatic Deduction Plan – funds that are automatically deducted from your paycheck and placed in your savings account; makes saving money easier.A traditional savings account typically pays a lower interest rate, but you can add and take funds from it at will.A CD (certificate of deposit) pays a higher rate than traditional savings, but you cannot add or remove funds from the account. (Funds can be removed prior to maturity for a penalty fee.)Saving money means you are setting away funds for both short- and long-term goals.Investing will increase the value of your money and is generally a long term endeavor; do not invest all of your money nor invest it all in one place.Identity TheftIdentity theft is when another individual uses your personal information to obtain credit in your name.If you become a victim of identity theft, first file a police report. Contact your bank, credit card companies, and phone provider. Contact the Social Security Administration Fraud Department and all three credit report agency fraud lines. Document everyone you talk to and everything you do for future reference.Tips to avoid identity theft:Do not share your SSN with anyone without verifying the authenticity of the company and individual requesting the information.Document all important numbers, such as license, credit cards, and bank accounts, and keep them in a safe place.Routinely review details on all bills, bank statements and credit reports.Opt-out of credit card and marketing lists.If you receive a phone call from a collection agency and you do not have bad credit, do not ignore the call; someone may have taken credit in your name. ................
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