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Personal Financial Statements

This section explores the projected lifetime earnings of individuals based on educational attainment, using data from the U.S. Census Bureau. It highlights that those with higher educational degrees, such as professional or doctoral degrees, tend to earn significantly more over their lifetime, with averages reaching up to $4.4 million. The guide also emphasizes the importance of effective money management, which involves planning, saving, and budgeting to achieve financial goals. It explains concepts like personal balance sheets, cash flow statements, and the significance of maintaining positive cash flow for financial success.

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Personal Financial Statements

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  1. Personal Financial Statements Chapter 16-1

  2. How Much Money Will You Earn in Your Lifetime? • From the U.S. Census Bureau, Current Population Survey, Educational Attainment 2009 data, in a sample of 100 Americans: • 55 would have some college: • 1 Professional degree • 1 Doctoral degree • 7 Master's degree • 18 Bachelor's degrees • 9 Associate's degrees • 19 some college, no degree • 45 would have no college: • 31 would have a high school diploma, no college • 14 would have no high school diploma • Combining Work-Life Earnings for Full-Time Employees* with the data above: • Professional Degree: $4.4 million x 1 = $4.4 million • Doctoral Degree: $3.4 million  x 1 = $3.4 million • Master's Degree: $2.5 million  x 7 = $17.5 million • Bachelor's Degree: $2.1 million x 18 = $37.8 million • Associate's Degree: $1.6 million x 9 = $14.4 million • Some College: $1.5 million x 19 = $28.5 million • High School Diploma: $1.2 million x 31 = $37.2 million • Some High School: $1.0 million x 14 = $14.0 million • Total = $157.2 ÷ 100 = $1.572 million or about $1.6 million average life-time earnings

  3. 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. • It involves getting the most for your money through careful planning, saving, and spending. • It involves making and using a plan for spending.

  4. Money Management • It doesn’t mean • Never spending • Doing without • Not having any fun

  5. Successful Money Manager • Set goals • Make wise decisions • Buy wisely • Live within your income

  6. Personal Balance Sheet • Balance sheet is a record of assets and liabilities at a point in time. • Reports what a person owns as well as what he or she owes.

  7. Balance Sheet • Assets: • Items of value: money in bank, home, investments, furniture, clothing, automobiles, jewelry, … • Liabilities: • Amounts owned to others: credit card balance, automobile loans, home mortgage, personal loans,.. • Net worth: • Difference between a person’s assets and liabilities.

  8. Personal Cash Flow Statement • Examines the change in a person’s net worth. • Reports net wages and other income along with spending for a period.

  9. Personal Cash Flow Statements • Personal Cash Flow Statement examines the changes in a person’s net worth. • Cash Inflows is the money you have available to spend as a result of working or from other income • Cash Outflows is amounts spent on food, clothing, transportation, other living cost.

  10. Why Positive Cash Flow is Important • One of the fundamental building blocks of becoming wealthy is spending less than you earn. It is one of the core concepts of achieving wealth. • Your cash flow statement won’t tell you if you will become a millionaire or not, but it can tell you if you are on the right path – hint: you can’t build wealth if you are running on a deficit.

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