Personal Finance Chapter 3 - Money Management Strategy
1.liquid assets 2. real estate 3. personal possessions 4. investment assets
4 Categories of wealth:
1. documents can be found quickly 2. plan and measure financial progress 3. handle routine money matters
Advantages of organizing your personal financial documents
everything you own that has value
Assets
the money that actually goes into and out of your bank accounts.
Cash Flow
the total amount of your fixed and variable expenses
Cash Outflow
short-term debts that you have to be paid within one year
Current Liabilities
the money left over after paying for the essentials-food,shelter, clothing, transportation, and medication.
Discretionary Income
ncreasing your savings increasing your investments reducing expenses reducing your debts
How can you increase your net worth?
the money you receive
Income
a financial state that occurs if liabilities are greater than assets.
Insolvency
the debts that you owe
Liabilities
quickly converted to cash
Liquid Assets
debts that do not have to be fully repaid for at least one year.
Long-Term Liabilities
the amount recorded on real estate portion of your balance sheet
Market Value
can help you keep track of where your money goes so that you can make it go farther.
Money Management
the difference btw the amount that you own and the debts that you owe
Net Worth
Variable Expense examples:
food and clothing electricity, medical cost, recreation
Fixed Expense examples:
rent cable tv charges
also called a net worth statement; a financial statement that list items of value owned, debts owed, and a person's net worth
Personal Balance Sheet
a document that provides information about an individual's current financial position and presents a summary of income and spending
Personal Financial Statement
not as easy to convert to cash.
Real Estate
record your income record your expenses determine your net cash flow
Steps to creating a cash flow statement:
1. determine your assets 2. determine your liabilities 3. calculate your net worth evaluate your Financial situation
Steps to creating a personal balance sheet:
more income than expenses and positive cash flow
Surplus
the amount of money you take home after taxes
Take-Home Pay
an abundance of valuable material possessions or resources
Wealth
how much money you spend and how much you make
What information do you think might be on a cash flow statement?
1. a home file 2. safe-deposit box 3. on a computer
Where can you keep your financial documents?