Personal Finance Chapter 3

4. Budget for Variable Expenses

- Always have more money than you need - Determine reasonable expense levels - Fixed expenses: predictable (stay the same each month) - Variable Expenses: changes over time

1. Set financial goals

- Be specific - Have a time frame - Separate goals by their times frames (short, intermediate, long)

3. Budget for Unexpected Expenses

- Create a special savings account - This money will help pay for expensive fixes, home disasters, healthcare, etc

Benefits of Organizing Financial Documents

- Plan and measure financial progress - Handle routine money matters - Predict how much money you will have in the future - Effective decisions on how to save money

5. Record what you spend

- Practicality of your budget (test for a month) - Surplus (extra money)-> place towards unexpected expenses

2. Estimate your Income

- Record estimated income for the next month (include all sources of income) - Do not include money you may or may not get

Ways to Increase Savings

- The key to stabilizing your financial future - Fixed amount to save (pay yourself first - some banks will do this automatically)

How to budget successfully

1. Practical 2. Flexible 3. Carefully Planned 4. Easily Accessible 5. Must be written (eh...)

Preparing a Budget (Steps)

1. Set financial goals 2. Estimate your Income 3. Budget for Unexpected Expenses 4. Budget for Variable Expenses 5. Record What you Spend 6. Review Spending and Saving Patterns

Personal Financial Statement

A document that provides information about an individual's current financial position and presents a summary of income and spending

Insolvency

A financial state that occurs if liabilities are greater than assets

Personal Balance Sheet (Net Worth Statement)

A financial statement that lists items of value owned, debts owed, and a person's net worth

Safety Deposit Boxes

A locked box in a bank where you can keep your valuables or papers; not easily accessible; banks usually have insurance to cover contents

Consumer Price Index (CPI)

A measure of the changes in prices commonly purchased goods and services in the US

Budget

A plan on how to spend money

Home files

Anything created to organize paper copies of financial documents; susceptible to natural disasters or burglary

Assets

Are any items of value that an individual or company owns, including cash, property, personal possessions, and investments

Liquid Assets

Cash and items that can be quickly converted to cash

Home computer

Convenient, speedy, mobile, easy to use; limited security

Money Management

How someone plans to save, spend or invest their money

Wealth

Is an abundance of valuable material possessions or resources

Real Estate

Land and any other structures that are on it

Cash Flow

Money that actually goes into and out of your wallet and bank accounts

Financial Documents

receipts, bills, agreements, titles/proof of ownership, taxes - ANYTHING that has to do with money

Where to keep financial documents?

Safe-deposit boxes, home files, or home computer

Take-home Pay (Net Pay)

The amount of income left after taxes and other deductions are taken out of your gross pay

Liabilities

The debts you owe

Net Worth

The difference between the amount that you own and the debts that you owe

Budget Variance

The difference between the budgeted amount and the actual amount that you spend

Deficit

The financial situation that occurs when more money is spent than is earned or received

Discretionary Income

The money left over after paying for the essentials

Income

The money you receive

Market Value

The price at which property would sell