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Money Management Skills: Financial Statements and Budgeting

C HAPTER 2. Or “We Spent How Much On What ?!”. Money Management Skills: Financial Statements and Budgeting. Money Management, Defined. Money Management –

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Money Management Skills: Financial Statements and Budgeting

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  1. CHAPTER2 Or “We Spent How Much On What?!” Money Management Skills: Financial Statements and Budgeting

  2. Money Management, Defined Money Management– • Day-to-day financial activities necessary to manage current personal economic resources while working toward long-term financial security “How Come We Always Have Too Much Month at the End of the Money!”

  3. Major Money Management Activities • Store and maintain personal financial records and documents • Create personal financial statements • Cash Flow Statement (income vs. expenses) • Net Worth Statement (assets vs. liabilities) • Create and implement a plan for spending and saving (Arrgh! Budgeting!)

  4. Why Keep Financial Records? • To help make spending decisions • To plan future spending • To pay bills on time • To see changes in net worth • To make good investment decisions • To prepare your income tax forms • In preparation of applying for a loan So you know what is happening to your money!

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

  6. What to Keep in Your 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 account numbers • Mortgage papers and titles • List of insurance policy numbers • Stock and bond certificates • Coins and collectibles • Copy of will Discussion: What about just buying a home safe?

  7. Other Places to Keep Records • Automobile • Vehicle registration (I disagree) • Lawyer or Executor or Both • Original of your will & other estate documents • Home computer (Encrypted?) • Current and past budgets • Checking account records • Wills, estate plans, investments • Past income tax returns www.pgp.com

  8. SuccessfulBudgets Are... • Well planned • Realistic • Flexible • Clearly communicated • Next To Impossible! Discussion: Does Budgeting ever work?

  9. Saving is easier than Budgeting • “Spend Less Than You Earn” • “LiveBeneathYour Means” • “Pay Yourself First” • “Make Love, Not Loans!” For those of you old enough to remember (or are into vinyl music), do I sound like a broken record? Discussion: The “Pay Yourself 10% First” Solution Is it reasonable?

  10. The Extreme Viewpoint • Keep a small notebook with you at all times • Record every monetary transaction you make • No matter how small • Update your cash flow statement constantly Devotees of “Your Money or Your Life” www.simplelivingforums.net Did anyone check out their forums?

  11. Personal Financial Statements • Net Worth Statement • “A snapshot of your financial situation” • Assets versus Liabilities • a.k.a. Balance Sheet • Cash Flow Statement • “The movie of your financial life” • Income versus Expenses • a.k.a. Income Statement, Budget Let’s look at each one in detail…

  12. Components of a Net Worth Statement(a.k.a. Balance Sheet) • Assets–What You Own • Liquid assets • Real estate • Personal possessions • Investment assets • Liabilities–What You Owe • Current liabilities – One year or less (a.k.a. short-term) • Long-term liabilities – Greater than one year • Net Worth–What You Have Left Over • Assets minus liabilities • Insolvent means liabilities far exceed assets • Rule of thumb: If short-term liabilities >= income …

  13. Components of a Cash Flow Statement(a.k.a. Income/Expense Statement, Budget) • Shows inflow and outflow during a given time period –Income versus Expenses • Record cash inflows • Income from employment • Savings and investment income • Other sources • Record cash outflows • Fixed and variable expenses • Net cash flow can be a surplus or a deficit • Used as a basis for creating a spending, saving, and investment plan Insolvency is better determined here.

  14. Cash Flow / Net Worth Let’s start on those financial documents…

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