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Understanding Net Worth: Financial Position & Income Statement

Learn about financial position, net worth, assets, liabilities, income, expenses, and how to manage money effectively to reach your desired net worth level. Includes examples and activities to help you evaluate your financial decisions.

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Understanding Net Worth: Financial Position & Income Statement

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  1. Statement of Financial Position and Income and Expense Statement Advanced Level

  2. Agenda • Primer: What is Net Worth? an Asset? a Liability? • Statement of Financial Position • Income and Expense Statement • Net Worth Activity

  3. 3 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

  4. Who is wealthier? Income - $14,120,000 Income - $19,200,000 Net Worth - $120 Mill Net Worth - $115 Mill Let’s learn more to answer this question!

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

  6. 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

  7. Who is wealthier?

  8. 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

  9. Three components • Assets • Liabilities • Net Worth

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

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

  12. 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

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

  14. 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

  15. https://docs.google.com/spreadsheet/ccc?key=0AgC8bo4HR-otdDJYY1JMakpnOWlNNDZ6SDZERkJXRkE&hl=en#gid=0https://docs.google.com/spreadsheet/ccc?key=0AgC8bo4HR-otdDJYY1JMakpnOWlNNDZ6SDZERkJXRkE&hl=en#gid=0

  16. Net worth Activity • Step 1 • Let’s read the handout together about a recent college graduate and highlight and underline important financial information • Step 2 • Go to the PCs and find the Mommy’s Net Worth Calculator on the Anfindsen Global Drive • Complete the spreadsheet using the Biography • When done check your answers

  17. Start Day 11

  18. The Costs Add Up How much do you think each item would cost if purchased every day for one month? $365.00 - $730.00 $1.00 - $2.00 16 oz. soda $30.00 - $60.00 16 oz. energy or sports drink $730.00 - $1095.00 $2.00 - $3.00 $60.00 - $90.00 $273.75 - $456.25 Candy bar $0.75 - $1.25 $22.50 – $37.50 16 oz. Latte’ or flavored coffee $912.50 – $1277.50 $75.00 - $105.00 $2.50 -$3.50

  19. The Income and Expense Statement Income and Expense Statement - lists and summarizes income and expense transactions that have taken place over a specific period of time, usually a month or year

  20. Three Components Income Expenses Net gain or net loss

  21. What is Income?

  22. Income Categories Earned income – any money earned from work Unearned income – income received from sources other than employment Received Income from Government Programs – offer a form of income, usually temporary

  23. What are Expenses?

  24. Expense Categories • Taxes • Saving and Investing • Insurance • Housing • Transportation • Food • Other Expenses will vary for every person

  25. Expense Categories • Variable Expenses are those that change each time period • Fixed Expenses are expenses that remain the same each time period

  26. Net Gain or Net Loss Net gain Net loss

  27. Find a tracking method that works for you Keep receipts Smartphone Record in writing Depository institution account statements Money management computer software program A written system is more effective than a mental system – like Evan you can trick yourself into thinking you spend less than you do!

  28. Use that money for savings or other expenses Increase income and/or decrease expenses Statement of Financial Position Income & Expense Statement Spending Plan A spending plan will help you plan your spending What is my future money management plan? What is my financial position today? How have I managed my money in the past?

  29. Summary Tells you where your money is coming from and where it is going Three components: income, expenses, and net gain/loss Use a tracking method that works best for you Customize income and expense categories

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