From Status to Goals To Plans

1. In Engineering Project must define budget as well and project expectations and monitor them.Personal Financal model is example to make it real (and other other benefits)

2. From Status to Goals To Plans • Where are you now? (financial statements) • Where do you want to go? (financial goals) • Tools to help you get there • Budget • Spreadsheets • Personal Investing issues (3 weeks) • Monitoring progress (financial statements)

3. Personal Financial Statements • Balance Sheet: shows position at point in time • Assets listed at market values • Liabilities • Assets – Liabilities = Net Worth • Income & Expense Statement: shows where money came from & where it went • Gross income • Expenses • Income – Expenses = Surplus (or deficit)

4. Example Balance SheetDecember 31, 2005

5. Income Statement Surplus or Deficit: Effect on Balance Sheet (P&L) • If income > expenses => Surplus (Profit) • If income < expenses => Deficit (Loss) • In many Balance Sheets and other accounting, negatives are shown in RED to highlight them. (Option for excel!)

6. Deficit Spending (being “in the Red) DECREASES Net Worth!Being in the red can kill a project unless initial investment is large enough

7. Budgeting • Why budget? • What is a budget? • Short-term forecast of income & expenditures (I.e. revenues and costs a project) • Tool to monitor & control spending

8. Budgeting • Creating a budget (short term model) • Determine how you spend money now. • Evaluate your spending in light of your goals. • Create a forecast (budget) of your monthly income and expenditures. • Track your spending and adjust as necessary. • Financial Model (longer term model) • Future income/costs very approximate, be careful • Use Excel or financial planning software.

9. Financial models of the futureExpense models • Build your Expense Statement Measured 2007, and estimated 2015, 2025, 2045. • Break expenses into • required costs, • expected costs, • discretionary costs. • 5 different “income” models can either yield different balances or allow more of expected/discretionary costs.

10. Why Financial Goals? • Use resources in a way that results in the greatest utility (satisfaction) to effort. • How much do you enjoy that daily Starbucks? $4 per day x 260 days per year = $1,040 annually for 30 years Invest it: what would it be worth in 30 years? Direct “Investment” returns “return”-inflation. What if used to avoid debt (e.g. CC debt) and keep budget neutral?

11. Can use formula or just “simulate” in excel. • Value = lastval *(1+ yield)+ new_Savings • Use relative formula for “state” and absolute formula for “rates”. • Can more easily adjust for changes over time and 1-time adjustments. Can understand the impact process. • Given values in states at time, can build a graph using plot functions. • Do this yourself now…

12. Assumptions & Calculations

13. Budget For your project ideas • Roughly estimate costs of design, development and production. Include discussion of your estimates. • Roughly estimate the “sales/value” and market size. • List Your data sources/assumptions.

14. Financial Goals • Short-term (< 1 year) (Budget adjustments) • Intermediate term (1 to 5 years) • Long-term (> 5 years)

15. Defining Goals • Dollar amount • Time frame • Prioritize (Why?)

16. Financial models of the futureExpense models • Already have your Expense Statement Measured 2006, and estimated 2011, 2021, 2041. • Break expenses into • required costs, • expected costs, • discretionary costs. • Now add • 5 different “income” models can either yield different balances or allow more of expected/discretionary costs.