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Investing and Personal Finance

Investing and Personal Finance. Unit 2: Budgeting Making the Most of Your Money. Organization of Financial Documents:. An organized system will help you: Determine your current financial status Pay your bills on time Complete required tax reports Plan for the future

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Investing and Personal Finance

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  1. Investing and Personal Finance Unit 2: Budgeting Making the Most of Your Money

  2. Organization of Financial Documents: An organized system will help you: • Determine your current financial status • Pay your bills on time • Complete required tax reports • Plan for the future • Make sound financial decisions related to your investments

  3. Organization of Financial Documents Your financial documents can be kept in: • A File Cabinet • A Safe-Deposit Box in a Bank or Fire Proof Safe • On a Computer (with backed up files) This guy did not back up his files!

  4. Organization of Financial Documents Home File Cabinet may contain: • Personal and Employment Records • Money Management Records • Budget • Financial Goals • Personal Balance Sheet • Financial Records • Checkbook • Bank Statements • Cancelled Checks

  5. Organization of Financial Documents • Tax records and copies of past tax returns (7 years) • Consumer records such as receipts and warranties • Housing records such as copy of title and home improvement lists • Insurance records such as policies and list of premium amounts • Investment records such as brokerage statements • Estate Planning and retirement records along with a copy of your will Home file cabinet may also contain

  6. Organization of Financial Documents A Safe-Deposit Box in a Bank or Fire Proof Safe may contain: • Birth and Marriage Certificates • Adoption Papers • Mortgage Loan/Lease Papers • Stock and Bond Certificates • Certificates of Deposit • Contracts • Valuable Collectibles • Fine Jewelry • Pictures of your home and belongings

  7. Organization of Financial Documents Home Computers A home computer, which is password-protected, with the proper software is a good way to keep track of your financial transactions. • Software program that will keep track of personal spending • Utilize electronic banking capabilities • Financial software assists with generating personal financial documents and statements

  8. Happy Friday!!! Please do not log onto the computer Take out last class assignment and notes How are YOU going to get yourself organized?

  9. Personal Financial Statements Personal financial statements can help you: • Determine what you own and what you owe • Measure your progress toward your financial goals • Track you financial activities • Organize information required to file your tax return or apply for credit

  10. Section 2 – Personal Financial Statements Personal Financial Statement A document that provides information about your current financial position and presents a summary of income and spending.

  11. Personal Financial Statements • A personal balance sheet is also known as a net worth statement. • Your net worth is the difference between the amount you own and the debts you owe OWN OWE

  12. HOW DO I KNOW MY NET WORTH? STEP 1 – Determine Assets Assets: Any items of value that you own, such as cash, real estate, personal possessions and investments Wealth: The property that has monetary value or an exchangeable value.

  13. HOW DO I KNOW MY NET WORTH? Your assets are an indication of your wealth • Liquid Assets • Real Estate • Personal Possessions • Investment Assets

  14. HOW DO I KNOW MY NET WORTH? Liquid Assets: Cash and items that can be quickly converted to cash. Example: • If you have $800 in a savings account and $72 in cash, your liquid assets are worth $872.

  15. HOW DO I KNOW MY NET WORTH? Real Estate: Land and any structures that are on it. The real estate portion of your balance sheet is the property’s market valueor the price in which the property would sell for. HARRISON HOUSE

  16. HOW DO I KNOW MY NET WORTH? Personal Possessions: Valuable belongings that are not real estate. Examples: Cars, laptop computers, rare coins, jewelry, art, etc. Investment Assets: Retirement accounts and Securities such as stocks and bonds. These items are usually for long term financial needs such as paying for college, buying a house or retirement.

  17. HOW DO I KNOW MY NET WORTH? STEP 2 – Determine Liabilities Liabilities: Debt that you owe Current Liabilities: Short term debts that have to paid in one year Examples: Credit card / charge accounts, insurance premiums, current taxes, utility bills and medical bills.

  18. HOW DO I KNOW MY NET WORTH? Long-Term Liabilities: Debts that do not have to fully repaid for at least a year. Examples: Home Improvement, Vehicles, College Tuition, and Mortgage Loans

  19. HOW DO I KNOW MY NET WORTH? STEP 3 – Calculate Net Worth Value of your assets – value of your liabilities = Net Worth Net worth: The amount you would have if all your assets were sold for the listed values and all debts were paid in full. The majority of your net worth may be in investments and real estate that cannot be quickly converted to cash.

  20. HOW DO I KNOW MY NET WORTH? Net Worth is an indication of your general financial situation. Insolvency: The inability to pay debts when they are due. If you are unable to pay all your debts, you are considered insolvent.

  21. HOW DO I KNOW MY NET WORTH? STEP 4 – Evaluate your Financial Situation • Net Worth is not money available to use but an indication of you financial position on a given date. • You can increase your net worth by: • Reducing your expenses • Reducing your spending and your debts • Increasing your savings • Increasing your investments

  22. Cash Flow Statement A document that provides a summary of your cash inflow and cash outflow during a particular period of time, usually a month or a year. The cash flow statement gives specific, significant information on where you received income and where you spent income.

  23. Cash Flow Statement STEP 1 – Record Your Income Record all sources of income – Net Pay or Take Home Pay STEP 2 – Record Your Expenses • Record all your fixed or variable expenses GROSS PAY = SALARY OR WAGES NET PAY = AFTER TAXES & DEDUCTIONS NET PAY = TAKE HOME PAY

  24. Fixed vs. Variable Expenses • Fixed Expenses – Expenses that do not vary from month to month • Examples: Rent, Mortgage, Car Payment, Cable, Internet, Train Ticket • Variable Expenses – Expenses that may change from month to month • Examples: Food, Utilities, Clothing, Medical Costs, Recreation

  25. Cash Flow Statement STEP 3 – Calculate Your Net Cash Flow • Calculate net cash flow, subtract your total expenses • Positive Cash Flow = Surplus or extra money • Negative Cash Flow = Deficit or spent more than you received As a general rule, a positive cash flow increases your net worth and a negative cash flow will decrease it.

  26. Section 3 – Budgeting for Financial Goals Budget A plan for spending and investing your money to meet your wants and needs.

  27. Seven Steps to Making a Budget STEP 1 – Set Your Financial Goals • Set your financial goals upon: • Your Lifestyle • What You Value • What you plan to do in the future • Your occupation will have a significant impact on your income and your ability to save and invest to reach your financial goals

  28. Seven Steps to Making a Budget STEP 2 – Estimate your Income • Take home pay (NET INCOME) • Income on investments • Interest on your savings Best Jobs 2013

  29. Seven Steps to Making a Budget STEP 3 – Budget for Unexpected Expenses • Emergency Fund STEP 4 – Budget for Fixed Expenses • Mortgage • Real Estate Taxes • Car Loan Payment • Student Loan Payment • Insurance Premiums

  30. Seven Steps to Making a Budget STEP 5 – Budget for Variable Expenses • Food • Medical Bills • Transportation costs • Utilities STEP 6 – Record what you Spend • Actual expenses • Unexpected (such as car breaks down)

  31. Seven Steps to Making a Budget Budget Variance Difference between the budgeted amount and the actual amount spent. The variance could be a surplus, which means you spent less than you budgeted. STEP 7 – Review Spending and Saving Patterns • Keep records up to date by faithfully recording all transactions • Review your budget at least once a month • Make changes based on your income and expenses

  32. Revising Goals and Adjusting Your Budget If your budget shows that you consistently have deficits, you need to reduce your expenses or increase your income. To revise your budget you need to identify the areas of over spending and then decide which expenses to cut.

  33. Steps to Success A Successful Budget • Carefully planned and related to your goals • Practical • Flexible • Easily Accessible Increasing Your Savings • Pay Yourself First • Take advantage of Payroll Savings • Spending Less to Save

  34. Investing and Personal Finance Unit 2: Budgeting Making the Most of Your Money

  35. Budget Assignment

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