Personal Financial Statements

16-1

Money Management Basics$100 probably seems like a lot of money to

you now.In the future you will have more expenses

Food, housing, insurance, loans, utilities

Money management- is the day to day financial activities associated with using limited income to satisfy your unlimited needs and wants.Getting the most for your moneyDoes not mean never spending and always

going without or not having fun.You must plan ahead and decide what is

important

Personal balance sheetHow much are you worth?

Not just Cash

Balance sheet is a record of assets and liabilities at a point in time.It reports what a person or family owns as well

as owes

Accounting equationAssets= Liabilities+ Owners equity(Net worth)

AssetsAnything of value

What are something's that are assets to you?

What are some of your parents assets?

LiabilitiesAmounts owed to others.

Credit cardsCar loansHouse loansBusiness loans

Net WorthThe difference between a persons assets and

liabilities.This is the amount of money that could be

claimed if you sold the item and paid off your loan.

This amount is what is actually owned.i.e. You own a $100,000 house. You owe

$50,000.What is your Asset? Liability? What is your

amount of Net worth?

Personal balance sheet

Assets LiabilitiesChecking account $450 Home Mortgage

$45,000Savings account $2,300 Credit card balance $230Home $97,000 Education Loans

$1800Automobile $4,600 Total liabilities

$47,030Household items and furniture $6,200Personal computer $1,600Jewelry $1,100 Owners Equity (Net worth)Total assets $113,250 Total assets-total liabilities

$66,220

Total Liabilities and net worth $113,250

Personal Cash Flow StatementRemember a balance sheet records assets

liabilities and net worthAnother way to examine a persons net worth

is to use the cash flow statement.It records wages and other income (cash

inflows)Spending usually for a month (cash outflows)

Cash InflowsThe money that you have available to spend

IncomeSavingsInterest

Your income should be your net income (take home pay). This is your amount earned minus taxes and payroll deductions.Health deductionsRetirement

Cash outflowsKeep a record of all spending

You might want to categorize Outflows are spending

Some amounts will be the same every monthSome will vary

Compare inflows to outflowsThis is your cash flow statement

Can also be used as your budgetThe cash flow statement takes your cash

inflow and subtract your cash outflowIf you spent less than you had in income the

difference is a net worth This amount will most likely be put into savings.

If you spent more that you had in income you have a net loss

Cash flow statementCash inflows (income)Net income (take-home pay) $1,300Other income (interest) $10Total income $1,310

Cash outflows (expenditures)Rent $300Food $400Clothing $50Utilities $60Telephone $30Transportation $120Personal care $30Recreation/entertainment $75

Total Spending $1,065Dow we have net worth or net loss?