MEASURING THE FINANCIAL POSITION OF A PERSON“WHO IS BETTER OFF???”

Introduction to Personal Finance

Who is better off

Person ABank Account $ 2,800Earns Weekly $ 750House $ 160,000Investments $ 23,000Loans $ 15,800Mortgage $ 125,000Weekly Cost to Run House $ 550Car $ 28,000Car Loan $ 22,000

Person BHouse $

280,000Earns Weekly $ 3,000Bank $ 4,000Mortgage $

260,000Investments $

25,000Weekly Cost toRun house $ 3,900Car $

65,000Car Loan $ 58,000

Look at what they earn and what they have to pay

Person AEarns Weekly $750 Weekly Cost to Run House $550 Left Over $200

Person BEarns Weekly $3,000 Weekly Cost toRun house $3,900 Left??

($900)

Comparing Money Earned and Money spent in a week

Person A looks to be better off

BUT….

Who is “worth more” now???

Person ABank Account $2,800 House $160,000 Car $28,000 Investments $23,000

Total Value $213,800

Person BHouse

$280,000 Bank

$4,000 Investments

$25,000 Car $65,000

Total Value $374,000

What do they own?

What do they owe?Loans

$15,800 Carl Loan

$22,000 Mortgage

$125,000

Total $ $162,800

Mortgage $260,000 Car Loan $58,000

Total $ Owing $318,000

So what is each person worth?= 213,800 –

162,800 51,000

= 374,000 – 318,000 56,000

SO…..

2 Aspects to consider

1. Cash flow over time: how much money is earned and spent

“getting ahead” only if earn more than you spend

2. Worth: value belonging to the person…What they own vs what they owe to others

- Personal Equity / net worth

- These two aspects together are used to measure a person’s overall financial position

Financial Awareness Inventory

1. Do you know how to make a budget?2. Do you have a budget?3. Do you avoid making impulse purchases?4. Do you understand the difference between

needs and wants?5. Do you keep track of what you spend your

money on?

Financial Awareness Inventory Cont….

6. Do you have an inventory of your valuable possessions?

7. Do you have possessions that will increase in value?

8. Do you keep money aside for unexpected expenses?

9. Have you avoided the need to borrow money often?

10. Do you understand how interest is charged when you borrow money?

Financial Awareness Inventory Cont….

11. Have you started saving for your future?12. Do you have a bank account?13. Do you know what fees are charged on a

bank account?

Earning Money

All income earned by a person Employment Gifts Allowance! Investments

Interest Collectables

Try to list all the money you earned last year (you may estimate this if you cannot remember)