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Personal Financial Statements. Ch. 16-1 PoB 2011. Money Management Basics. Money Management – refers to the day-to-day financial activities associated with using limited income to satisfy your unlimited needs and wants Involves getting the most for your money through: Careful planning
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Personal Financial Statements Ch. 16-1 PoB 2011
Money Management Basics • Money Management – refers to the day-to-day financial activities associated with using limited income to satisfy your unlimited needs and wants • Involves getting the most for your money through: • Careful planning • Savings • Spending • Know your current financial status • Set goals
Personal Balance Sheet • Balance Sheet – is a records of assets and liabilities at a point in time • Reports what a family owns as well as owes
Assets & Liabilities • Personal Assets – items of value • Examples: money in bank accounts, investments, furniture, clothing, automobiles, jewelry, and rare coins • Assets are the first thing listed on the balance sheet • Liabilities – amounts owed to others • Examples: credit card balances, car loans, home mortgage, or personal loans • Liabilities are the second item on the balance sheet
Net Worth • Net Worth - the difference between a person’s assets and liabilities • Assets – Liabilities = Net Worth • Net Worth = Owner’s Equity
Cash Flow Statement Cash Flow Statement- reports net wages and other income along with spending for a period
Cash Inflows • Cash Inflow – is the money you have available to spend as a result of working or from other income • first part of cash flow statement • Net pay (take-home pay) – amount of a paycheck after taxes and other payroll deductions • Examples of Deductions: retirement contributions, charges for health benefits, and local, state & federal taxes • Reported first on the statement
Cash Outflows • Cash Outflows – expenditures • Reported second on the cash flow statement • Examples: food, clothing, transportation, and other living costs
Compare Inflows to Outflows • Subtract cash outflows (total spending) from the cash inflows (total income) • Final step in preparing the cash flow statement • Difference between the two provides net worth
Review What are some characteristics of a wise money manager? What are the three (3) main categories on a personal balance sheet? What do cash outflows represent? What do cash inflows represent?