UNIT 2: BUDGETING
MAKING THE MOST OF YOUR MONEY
Investing and Personal Finance
Organization of Financial Documents:
An organized system will help you:
Determine your current financial status Pay your bills on time Complete required tax reports Plan for the future Make sound financial decisions
related to your investments
Organization of Financial Documents
Your financial documents can be kept in: A File Cabinet A Safe-Deposit Box in a Bank or Fire Proof
Safe On a Computer (with backed up files)
This guy did not
back up his files!
Organization of Financial Documents
Home File Cabinet may contain:Personal and Employment RecordsMoney Management Records
Budget Financial Goals Personal Balance Sheet
Financial Records Checkbook Bank Statements Cancelled Checks
Organization of Financial Documents
Tax records and copies of past tax returns (7 years)Consumer records such as receipts and warrantiesHousing records such as copy of title and home
improvement listsInsurance records such as policies and list of
premium amountsInvestment records such as brokerage statementsEstate Planning and retirement records along with
a copy of your will
Home file cabinet may also contain
Organization of Financial Documents
A Safe-Deposit Box in a Bank or Fire Proof Safe may contain:
1. Birth and Marriage Certificates2. Adoption Papers3. Mortgage Loan/Lease Papers4. Stock and Bond Certificates5. Certificates of Deposit6. Contracts7. Valuable Collectibles8. Fine Jewelry9. Pictures of your home and belongings
Organization of Financial Documents
Home Computers A home computer, which is password-
protected, with the proper software is a good way to keep track of your financial
transactions.
Software program that will keep track of personal spending
Utilize electronic banking capabilitiesFinancial software assists with generating personal
financial documents and statements
Happy Friday!!!
Please do not log onto the computer
Take out last class assignment and notes
How are YOU going to get yourself organized?
Personal Financial Statements
Personal financial statements can help you:
Determine what you own and what you owe Measure your progress toward your financial
goals Track you financial activities Organize information required to file your tax
return or apply for credit
Section 2 – Personal Financial Statements
Personal FinancialStatement
A document that provides
information about your current
financial position and presents a
summary of income and spending.
Personal Financial Statements
A personal balance sheet is also known as a net worth statement.
Your net worth is the difference between the amount you own and the debts you owe
OWN
OWE
HOW DO I KNOW MY NET WORTH?
STEP 1 – Determine Assets
Assets: Any items of value that you own, such as cash, real estate, personal possessions and investments
Wealth: The property that has monetary value or an exchangeable value.
HOW DO I KNOW MY NET WORTH?
Your assets are an indication of your wealthLiquid AssetsReal EstatePersonal PossessionsInvestment Assets
HOW DO I KNOW MY NET WORTH?
Liquid Assets:
Cash and items that can be quickly converted to cash.
Example:If you have $800 in a savings account and
$72 in cash, your liquid assets are worth $872.
HOW DO I KNOW MY NET WORTH?
Real Estate: Land and any structures that are on it.
The real estate portion of your balance sheet is the property’s market value or the price in which the property would sell for.
HARRISON HOUSE
HOW DO I KNOW MY NET WORTH?
Personal Possessions: Valuable belongings that are not real estate.Examples: Cars, laptop computers, rare coins, jewelry, art, etc.
Investment Assets: Retirement accounts and Securities such as stocks and bonds. These items are usually for long term financial needs such as paying for college, buying a house or retirement.
HOW DO I KNOW MY NET WORTH?
STEP 2 – Determine Liabilities
Liabilities: Debt that you owe
Current Liabilities: Short term debts that have to paid in one year
Examples: Credit card / charge accounts, insurance premiums, current taxes, utility bills and medical bills.
HOW DO I KNOW MY NET WORTH?
Long-Term Liabilities: Debts that do not have to fully repaid for at least a year.
Examples: Home Improvement, Vehicles, College Tuition,
and Mortgage Loans
HOW DO I KNOW MY NET WORTH?
STEP 3 – Calculate Net Worth
Value of your assets – value of your liabilities= Net Worth
Net worth: The amount you would have if all
your assets were sold for the listed values and all debts were paid in full. The majority of your net worth may be in investments and real estate that cannot be quickly converted to cash.
HOW DO I KNOW MY NET WORTH?
Net Worth is an indication of your general financial situation.
Insolvency: The inability to pay debts when they are due. If you are unable to pay all your debts, you are considered insolvent.
HOW DO I KNOW MY NET WORTH?
STEP 4 – Evaluate your Financial Situation
Net Worth is not money available to use but an indication of you financial position on a given date.
You can increase your net worth by: Reducing your expenses Reducing your spending and your debts Increasing your savings Increasing your investments
Cash Flow Statement
A document that provides a summary of your cash inflow and cash outflow during a particular period of time, usually a month or a year.
The cash flow statement gives specific, significant information on where you received income and where you spent income.
Cash Flow Statement
STEP 1 – Record Your IncomeRecord all sources of income – Net Pay or Take Home
Pay
STEP 2 – Record Your ExpensesRecord all your fixed or variable expenses
GROSS PAY = SALARY OR WAGES
NET PAY = AFTER TAXES & DEDUCTIONS
NET PAY = TAKE HOME PAY
Fixed vs. Variable Expenses
Fixed Expenses – Expenses that do not vary from month to month Examples: Rent, Mortgage, Car Payment, Cable,
Internet, Train Ticket
Variable Expenses – Expenses that may change from month to month Examples: Food, Utilities, Clothing, Medical
Costs, Recreation
Cash Flow Statement
STEP 3 – Calculate Your Net Cash FlowCalculate net cash flow, subtract your total
expensesPositive Cash Flow = Surplus or extra moneyNegative Cash Flow = Deficit or spent more than
you received
As a general rule, a positive cash flow increases your net worth and a negative cash flow will decrease it.
Section 3 – Budgeting for Financial Goals
Budget A plan for
spending and investing
your money to meet your wants and
needs.
Seven Steps to Making a Budget
STEP 1 – Set Your Financial Goals
Set your financial goals upon: Your Lifestyle What You Value What you plan to do in the future
Your occupation will have a significant impact on your income and your ability to save and invest to reach your financial goals
Seven Steps to Making a Budget
STEP 2 – Estimate your Income
Take home pay (NET INCOME)Income on investmentsInterest on your savings
Best Jobs 2013
Seven Steps to Making a Budget
STEP 3 – Budget for Unexpected ExpensesEmergency Fund
STEP 4 – Budget for Fixed ExpensesMortgageReal Estate TaxesCar Loan PaymentStudent Loan PaymentInsurance Premiums
Seven Steps to Making a Budget
STEP 5 – Budget for Variable ExpensesFoodMedical BillsTransportation costsUtilities
STEP 6 – Record what you SpendActual expensesUnexpected (such as car breaks down)
Seven Steps to Making a Budget
Budget VarianceDifference between the budgeted amount and the
actual amount spent. The variance could be a surplus, which means you spent less than you
budgeted.
STEP 7 – Review Spending and Saving PatternsKeep records up to date by faithfully recording all
transactionsReview your budget at least once a monthMake changes based on your income and expenses
Revising Goals and Adjusting Your Budget
If your budget shows that you consistently have deficits, you need to reduce your expenses or increase your income.
To revise your budget you need to identify the areas of over spending and then decide which expenses to cut.
Steps to Success
A Successful BudgetCarefully planned and related to your goalsPracticalFlexibleEasily Accessible
Increasing Your SavingsPay Yourself FirstTake advantage of Payroll SavingsSpending Less to Save
UNIT 2: BUDGETING
MAKING THE MOST OF YOUR MONEY
Investing and Personal Finance
Budget Assignment