U4

What are the 3 components of money management?

*1) Keep records* - bills, checking, bank statements, all records of spending *2) Create personal financial statements* - balance sheet, cash flow statements, budget *3) Make a plan + make it work* - spending, saving, investing + envelopes, cash

What are the 3 steps of the personal balance sheet?

*1) List your assets (what you own)* - Liquid Assets - Cash and other items that are easily converted to cash: real estate, personal possessions, investment assets *2) List your liabilities (what you owe)* - current Liabilities, 1 year or less. Long Term Liabilities, more than 1 year *3) Compute your net worth* - Net Worth = Assets - Liabilities

What are the 4 types of budgets?

*1) Mental Budget* - It's all in your head *2) Physical Budget* - use envelopes for your expenses such as food, rent, etc. *3) Written budget* - use spreadsheets *4) Computerized Budget* - use software such as Quicken, www.quicken.com

What are the 3 steps of the cash flow statement?

*1) Record Income* - Wages+Salaries+Commissions, Savings & Investment Income, Gifts+Grants+Scholarships+Loans *2) Record Expenses (cash outflows)* - Fixed Expenses: Paid on a regular basis, cost that does not change from period to period or that changes only very slightly. Variable Expenses: expenses change depending on your consumption of a good or service. *3) Determine Net Cash Flows* - The difference between income and outflows can either be positive or negative

How long should your records be kept?

- Birth certificates, wills and Social Security information should be kept indefinitely - Keep records on personal property and investments as long as you own them - Keep documents related to the purchase and sale of real estate indefinitely - Copies of tax returns and supporting data should be kept six years

What records should you keep on your personal computer?

- Current and past budgets - Summary of checks written and other banking transactions - Past income tax returns prepared with tax preparation software - Account summaries and performance results of investments - Computerized versions of wills, estate plans, and other documents

What is the purpose of the personal financial statement?

- Get a Handle on Current Financial Position - Measure your Progress - Develop a Budget - Enables You to Take Control - Maintain Information on your Financial Activities - Provides information you can use to prepare taxes, apply for credit and to purchase a home

What are the Benefits of and Organized System of Financial Records?

- Handle daily business affairs, including payment of bills on time - Planning and measuring financial progress - Completing required tax reports - Making effective investment decisions - Determining available resources for current and future buying

How can you increase your net worth?

- Increasing your Income / Savings - Reduce Spending - Reduce the Amounts You Owe (Pay off Debt) - Increasing the Value of Investments / Possessions (i.e. home and car)

What are items that should be in your home file (for personal financial records)

- Personal and employment records - Money management records - Tax records - Financial service records - Consumer purchase, auto and credit records - Housing records - Insurance records - Investment records - Estate planning and retirement records

What is a cash flow statement?

- Shows cash you have received and spent in the past and enables you to create a workable budget - Equation: Inflow - Outflow = Surplus or Deficit - the actual inflow and outflow of money for a given time period

Identifying saving goals:

- To set aside money for irregular and unexpected expenses - To pay for replacement of expensive items such as cars or a down payment on a house - To buy special items like recreational equipment or to pay for a vacation - To provide long-term expenses such as retirement or the education of children - To earn income from the interest on savings for use in paying living expenses

What are the 3 personal financial statements?

1) Cash Flow Statements 2) Personal Balance Sheet 3) Budgeting

What is a renter's insurance?

A monthly payment to protect all of your personal belongings

What is net worth?

indicates the difference between assets and total liabilities on any given date

What are the steps of the budgeting process?

1) Set financial goals 2) Estimate income from all sources 3) Budget amount for an emergency fund - pay yourself first, periodic expenses and financial goals 4) Budget Fixed Expenses that you are obligated to pay 5) Budget Variable Expenses - the amounts that are to be spent for household and living expenses 6) Record Spending Amounts - the actual amounts for inflows and outflows, comparing actual amounts with budgeted amounts to determine variances 7) Review spending and saving patterns 8) Evaluate whether revisions are needed in your savings and spending plans

What is an example of an employees document?

A W-4

How do you calculate net worth?

Assets - Liabilities; liabilities are always subtracted from assets 1) Assets are what you own 2) Liabilities are what you owe

What is the equation to find net worth?

Assets - liabilities = net worth

Example of net worth:

Assets are what you own while Liabilities are what you owe (basically debt). Let's say someone has 7 mil in assets but 8 mil in liabilities (or debt) he would have a negative 1 mil net worth. Compared to someone with 500k in assets but 100k in dent, he would have 400k net worth. Leading the guy who looked poorer to a higher net worth.

What is a current and long-term liability?

Current --> less than one year (ex: something that needs to be payed in the near future) Long-term --> more then one year

What are items that should be placed in a safety deposit box?

Records that we be hard to replace: - Birth, Marriage & Death certificates, copy of will - Citizenship and military papers - Adoption and custody papers - Serial numbers and photos of valuables - CDs, and credit banking account numbers - Mortgage papers and titles - List of insurance policy numbers - Stock and bond certificates - Coins and other collectibles

What is a personal balance sheet?

Reports your current financial position in relation to the value of the items you own and the amounts you owe You want a positive Net Worth

What are budgets?

Helps you to spend and save to achieve financial goals Equation: Income - Expenses = 0

What is money management?

How do you use your money properly?

Define insolvency

Inability to pay debts when they are due

What are the 2 other names of a personal balance sheet?

Net worth statement, or Statement of financial planning

What is it called when you make a budget using pens and a notebook?

Physical budget

What are file cabinets meant for?

They are meant for things such as credit card bills

Where are your most important documents (such as birth certificates) placed?

They are placed in a safety deposit box

What is the equation for the personal income and expenditure statement?

Total cash received during the time period - cash that flows out during the time period = cash surplus or deficit

What happens if you have some income, then some taxes are taken out?

Whatever is left over is going to be either a surplus or a deficit. Surplus --> is when you have extra Deficit --> is when you don't have enough.