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Unit 3 Money Management

Unit 3 Money Management

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Unit 3 Money Management

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  1. Unit 3 Money Management Strategies to get the most from your money: Financial Statements The Personal Balance Sheet The Cash Flow Statement

  2. What are you worth (wealth) now? • Personal Financial Statements . . . • Are documents that provide information about your current financial position and a current summary of your income and spending. • Determine what you own and what you owe • Measure your progress towards financial goals • Track your financial activities

  3. Evaluating your financial situation • Balance Sheet • Financial statement that lists the items of value that you own, the debts that you owe, and your net worth • Net Worth • Is the difference between the amount that you OWN and the debts that you OWE

  4. To create a balance sheet… • Step 1: Determine your assets • Assets are any items of value that you own, including cash, property personal possessions and investments • Liquid Assets: cash, bank accounts and items that can be quickly converted to cash • Personal possessions: cars, guitar, skis, jewelry (“valuable”) • Investment assets:stocks and bonds

  5. Step 2: Determine your liabilities • Liabilities are the debts that you owe • Current Liabilities: short term debts that have to be paid within a year or so (bills, loans, taxes, insurance) • Long Term Liabilities: debts that don’t have to be fully repaid for at least a year (car loans and student loans)

  6. Step 3: Calculate your net worth • Subtract liabilities from your assets, the difference is your net worth • Assets – Liabilities = Net Worth • Insolvency: when a person’s liabilities are greater than their assets

  7. Step 4: Evaluate your financial situation • Is your net worth increasing? Good! • Is your net worth decreasing? Changes are needed!

  8. Your turn… • What is Janine’s net worth if her assets are worth $3,000 and her liabilities total $700? $3,000 - $700 = $2,300 • Is she insolvent? No

  9. What is your net worth?

  10. The Cash Flow Statement: • Income versus Expenses • Cash flow: the money that actually goes in and out of your pocket and bank accounts • Cash inflow: money that you receive… aka... your income • Cash outflow: all of the money you spend

  11. CASH FLOW STATEMENT • Step 1: Record your income • List all your sources of income during a given month • Take home pay/net pay: actually amount of income left after taxes • Discretionary income: the money you have left over after you have paid or the essentials (you can spend this at your discretion)

  12. Step 2: Record your expenses • Fixed expense: for the most part same each month (rent, car, cable bill) • Variable expense: changes month to month (food, clothing, electricity bill)

  13. Step 3: Determine your net cash flow • Subtract your expenses from your income • Income – Expenses = Net Cash Flow

  14. Your turn… • What is Jason’s net cash flow if his income from the month is $1,500 and his expenses add up to $1,350? 1500 – 1350 = $150 • Is this a surplus? • Yes- extra money can be spent or saved. • Is this a deficit? • No- you spend more than you earn or receive

  15. figure out your cash flow! Do you have a surplus or a deficit?