Personal Finance Chapter 3

Balance sheet

"Net worth statement or statement of financial position." Reports what you own and what you owe.

Cash flow statement

"Personal income expenditure statement" is a summary of cash receipts and payment for a given period, such as a month or a year.

The budgeting process

1) asses your current situation 2) plan your financial direction 3) implement your budget 4) evaluate your budget program

What are the three money management activities?

1) storing and maintaining personal financial records and documents. 2) creating personal financial statements. 4) creating and implementing a plan for spending and saving (budgeting)

Difference ways to save money

1) write a check each day to deposit in a separate savings account. 2) payroll deduction.

Your personal financial statements and budget allow you to achieve your financial goals with..?

1) your balance sheet 2) your cash flow statement 3) your budget

Safety deposit box

A private storage area at a financial institution with maximum security for valuables and difficult to replace documents.

Budget

A spending plan

What are liabilities?

Amounts owed to others but do not include items not yet due, such as next month's rent.

Liquid assets

Cash and items of value that can easily be converted to cash.

Assets

Cash and other tangible property with a monetary value.

Where are liquid assets found?

In checking in savings accounts.

What are the different types of budgets?

Mental budget, physical budget, written budget, computerized budgeting system, online budget, budgeting app

What do personal financial statements consist of?

Personal balance sheet and the cash flow statement.

Money Management

Refers to the day to day financial activities necessary to manage current personal economic resources while working toward long term financial security

Steps of making a cash flow statement

Step 1: Record income 1) income is the inflows of cash for an individual or household. 2) take-home pay: net pay 3) discretionary income: money left over. Step 2: Record cash outflows 1) fixed expenses: payments that do not vary from month to month 2) variable expenses: flexible payments that change from month to month. Step 3: determine net cash flow

A regular assessment of your financial standing is one of the foundation elements of budgeting activities, which involves these three steps

Step 1: financial goals 1) SMART 2) balance sheet 3) cash flow statement 4) your budget Step 2: estimate income Step 3: an emergency fund and savings Step 4: budget fixed expenses Step 5: budget variable expenses Step 6: record spending amounts 1) budget variance: the difference between the amount budgeted and the amount received or spent. 2) surplus Step 7: review spending and saving patterns 1) review your financial progress 2) revise your goals and budget allocations.

Steps for you personal balance sheet

Step 1: list items of value 1) liquid assets 2) real estate 3) personal possessions 4) investment assets Step 2: determine amounts owed 1) Current liabilities 2) Long-term liabilities Step 3: compute net worth

Cash flow

The actual inflow and outflow of cash during a given time period.

Insolvency

The inability to pay debts that are due

Calculating cash surplus or deficit

Total cash received during the time period-cash outflows during the time period.

How do you calculate your net worth?

What you own-what you owe