Money Management Skills

1. Money Management Skills

2. Objective 1: Identify the main components of wise money management • Daily spending and saving decisions are at the center of financial planning. • Decisions must be coordinated with your needs, goals, and personal situations. • Money management means the day-to-day financial activities necessary to manage personal economic resources, while working toward long-term financial security.

3. Objectives • Identify the main components of wise money management • Create a personal balance sheet and cash flow statement • Develop and implement a personal budget • Connect money management activities with saving for personal financial goals

4. Opportunity Cost and Money Management • Spending money on current living expenses reduces the amount you can save and invest. • Saving and investing for the future reduces the amount you can spend now. • Buying on credit ties up future income. • Using savings for purchases results in lost interest and means savings can’t be used for other purposes. • Comparison shopping can save money but takes your valuable time.

5. Components of Money Management Creatingpersonalfinancialstatements(balancesheets andcash flowstatements of income and outflow). Storingandmaintainingpersonalfinancialrecordsanddocuments. Creating and implementing a plan for spending, and saving (budgeting).

6. Benefits of an Organized System of Financial Records • Handling daily business affairs, including payment of bills on time. • Planning and measuring financial progress. • Completing required tax reports. • Making effective investment decisions. • Determining available resources for current and future buying.

7. What to Keep in Your Home File • Items you refer to often. • Personal and employment records. • Money management records. • Tax records. • Financial services records. • Credit records. • Consumer purchase and auto records. • Housing records. • Insurance records. • Investment records. • Estate planning and retirement records.

8. What to Keep in a Safe Deposit Box • Safe deposit box is for records and items that would be hard to replace. • Birth, marriage and death certificates. • Citizenship and military papers. • Adoption and custody papers. • Serial numbers and photos of valuables. • CDs and credit and banking account numbers. • Mortgage papers and titles. • List of insurance policy numbers. • Stock and bond certificates. • Coins and othercollectibles. • Copy of will.

9. Records on Personal Computer • Home computer. • Current and past budgets. • Summary of checks written and other banking transactions. • Past income tax returns prepared with tax preparation software. • Account summaries and performanceresults of investments. • Computerized versions of wills, estate plans, and other documents.

10. How Long to Keep Records • Birth certificates, wills, and Social Security information should be kept indefinitely. • Keep records on personal property and investments as long as you own them. • Keep documents related to the purchase and sale of real estate indefinitely. • Copies of tax returns and supporting data should be kept seven years.

11. Objective 2: Create a personal balance sheet and cash flow statements Benefits of these statements • Report your current financial position in relation to the value of the items you own and the amounts you owe. • Measure your progress toward your financial goals. • Maintain information on your financial activities. • Provide information you can use when preparing tax forms or applying for credit.

12. Components of a Balance Sheet(Net Worth statement) • Assets – List what you own. • Liquid assets. • Real estate. • Personal possessions. • Investment assets. • Liabilities –Determine what you owe • Current liabilities (< 1 year). • Long term liabilities. • Compute your net worth. • Assets minus liabilities. • Insolvent means liabilities far exceed assets.

13. Ways to Increase Net Worth • Increase your savings • Increase the value of your investments and other possessions • Reduce amount owed

14. Components of a Cash Flow Statement:Inflows and Outflows • Shows inflow and outflow during a given time period. • Record Income • Net income from employment (Net Pay) • Savings and investment income. • Other sources. • Record cash outflows. • Fixed and variable expenses • Determine Net Cash Flow • Use this statement as a basis for creating a spending, saving and investment plan.

15. Objective 3: Develop and implement a Personal Budget • Budget: is a plan for spending in the future, such as for the next month. A budget helps you… • Live within your income. • Spend your money wisely. • Reach your financial goals. • Prepare for financial emergencies. • Develop wise financial management habits.

16. 7 Steps in the Budgeting Process • Set financial goals. • Estimate income from all sources. • Budget amount for an emergency fund, periodic expenses and financial goals. • Budget set amounts that you are obligated to pay. These are your fixed expenses.

17. 7 Steps in the Budgeting Process • Budget estimated amounts that are to be spent for various household and living expenses. These are your variable expenses. • Record actual amounts for inflows and outflows, comparing actual amounts with budgeted amounts to determine variances. • Deficits and surpluses. • Review your spending and savings patterns and evaluate whether revisions are needed in your savings and spending plans.

18. Characteristics of Successful Budgeting • Well planned. • Realistic. • Flexible. • Clearly communicated.

19. Objective 4: Connect money management activities with savings for personal financial goals • Financial Statements and Budget allow you to achieve your financial goals with • Balance Sheet: telling you where you are now • Cash Flow Statement: telling you what you received and spent over the past month • Budget: How to plan, spend and save to achieve financial goals

20. Changes in Net Worth • Changes in Net Worth result from cash inflows and outflows. • Outflows>Inflows • Draw from savings or borrow • Lower assets or higher liabilities • Inflows>Outflows • Put money into savings or pay off debts • Higher net worth

21. Selecting a Saving Technique • Write a check each payday and deposit in a savings account • Use payroll deduction to deposit a certain amount in savings • Save coins or spend less on certain items

22. Saving to Achieve Financial Goals • Common reasoning for saving include… • To set aside money for irregular and unexpected expenses. • To pay for the replacement of expensive items, such as appliances, cars or a down payment on a house. • To buy special items like recreational equipment or to pay for a vacation. • To provide for long-term expenses such as retirement or the education of children. • To earn income from the interest on savings for use in paying living expenses.