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Statement of Financial Position

Statement of Financial Position. Advanced Level. Today in Personal Finance. Please get a copy of the note packet and define the 5 terms in your own words When you are done, please go to the computer closest to you

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Statement of Financial Position

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  1. Statement of Financial Position Advanced Level

  2. Today in Personal Finance • Please get a copy of the note packet and define the 5 terms in your own words • When you are done, please go to the computer closest to you • Go to Mrs. Fieser’s website and locate the PPT “Calculating Net Worth” and complete the note-taking guide. Put it in presentation mode in order to complete! • When you are finished, come to my desk to get the net worth calculation activity. You will need to download the excel template from my website. • When you are finished, complete the word grid and then come and get the “Net Worth Knowledge” Quiz • Next class, you will learn about the Statement of Income and Expense

  3. Who is wealthier? Income = $30,000 Income = $85,000 Net Worth = $35,000 Net Worth = $50,000 Let’s learn more to answer this question!

  4. Indicates the monetary value of all possessions that a person or household owns, minus the total amounts owed to others The measure of financial wealth

  5. Net Worth vs. Income Money received such as wages earned from working for pay Depends on how a person manages their income A person may have high income and low net worth or vice versa

  6. How do you determine What your net Worth is? Statement of Financial Position - A financial statement that describes an individual or family’s financial condition on a specified date by showing assets, liabilities, and net worth Shows a person’s net worth Similar to a net worth statement or balance sheet

  7. Three components • Assets • Liabilities • Net Worth

  8. What is an asset? Cash Asset - Everything a person owns with monetary value Value of personal possessions

  9. Monetary Assets Cash Monetary assets - Can be quickly and easily converted into cash Money in checking and savings accounts

  10. Tangible Assets Tangible assets - Personal property that was purchased to create a lifestyle or improve your life (also known as use or lifestyle assets) Homes Automobiles Electronics

  11. How do you determine the value of tangible assets? What you could realistically sell that asset for today, not what you originally paid Websites available to estimate the value of automobiles Derek purchased a car for $12,000 two years ago The current market value = $8,500 He records $8,500 on his Statement of Financial Position Research the place you would sell the item to determine what similar items are selling for Listed on the Statement of Financial Position

  12. Investment Assets Investment assets – Financial assets purchased with the hope that they will generate income and appreciate in value to make it possible to sell at a higher price in the future Value of retirement accounts Stocks

  13. What are liabilities? Loans (mortgage, automobile, student) Liabilities – A debt or obligation owed to others Balance on a credit card

  14. What is recorded in the Liabilities Section? • Amount you owe if you were to pay the amount owed in full today If monthly payments are continued to be made Automobile loan If paid in full today Record on statement $180/ month $6,300 $5,490 $5,490

  15. Liabilities vs. Expenses Money owed to others Money spent Total amount owed Bills paid on a regular basis Monthly payment to repay that automobile loan - $180/month Automobile loan - $5,490 owed

  16. Calculating Net Worth

  17. Net Worth – Your Personal Financial Thermometer Provides a number that can objectively measure your “financial temperature” Determine what amount of net worth you desire and then set goals to reach that amount

  18. How can you increase net worth? Assets Evaluate how you manage your money Liabilities

  19. Money Management Tools • Work together to help you objectively evaluate your past, present, and future financial decisions Statement of Financial Position Income & Expense Statement Spending Plan What is my future money management plan? What is my financial position today? How have I managed my money in the past? • Reach net worth level desired

  20. Your present self impacts your future self • Keep your net worth in mind when making financial decisions How will this financial decision affect my future net worth?

  21. So who is wealthier? Income - $30,000 Net Worth - $50,000 Income - $85,000 Net Worth - $35,000

  22. When would a person need or want to create a Statement of Financial Position? When making decisions regarding assets or liabilities Once per year May have to create a statement for a financial professional Must be written to be most effective – use any written method that works for you

  23. Summary Assets – Liabilities = Net Worth Net worth is an objective measure of wealth Net worth is your “financial thermometer” to objectively measure your financial position To increase net worth you will have to increase assets or decrease liabilities

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