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?