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Mastering Money: Financial Statements and Budgeting Guide

Learn about money management skills such as creating financial statements and budgeting to achieve long-term financial security. Understand the importance of keeping financial records and documents, and discover essential tips for organizing personal finances effectively. Explore major money management activities, including cash flow and net worth statements, as well as creating a plan for spending and saving. Find out what to keep in your home file and safe deposit box, and gain insights into successful budgeting strategies. Dive into personal financial statements, net worth statements, and cash flow statements to gain a comprehensive understanding of your financial situation.

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Mastering Money: Financial Statements and Budgeting Guide

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  1. CHAPTER2 Or “We Spent How Much On What?!” Money Management Skills: Financial Statements and Budgeting

  2. Money Management, Defined Money Management– • Day-to-day financial activities necessary to manage current personal economic resources while working toward long-term financial security “How Come We Always Have Too Much Month at the End of the Money!”

  3. Major Money Management Activities • Store and maintain personal financial records and documents • Create personal financial statements • Cash Flow Statement (income vs. expenses) • Net Worth Statement (assets vs. liabilities) • Create and implement a plan for spending and saving (Arrgh! Budgeting!)

  4. Why Keep Financial Records? • To help make spending decisions • To plan future spending • To pay bills on time • To see changes in net worth • To make good investment decisions • To prepare your income tax forms • In preparation of applying for a loan So you know what is happening to your money!

  5. What to Keep in Your Home File • Items you refer to often • Personal and employment records • Tax records • Financial services records • Money management records • Credit records • Consumer purchase records • Insurance records • Investment records • Housing and car records • Estate planning and retirement records

  6. What to Keep in Your Safe Deposit Box • Safe deposit box is for records and items that would be hard to replace • Birth, marriage and death certificates • Citizenship and military papers • Adoption and custody papers • Serial numbers and photos of valuables • CDs and account numbers • Mortgage papers and titles • List of insurance policy numbers • Stock and bond certificates • Coins and collectibles • Copy of will Discussion: What about just buying a home safe?

  7. Other Places to Keep Records • Automobile • Vehicle registration (I disagree) • Lawyer or Executor or Both • Original of your will & other estate documents • Home computer (Encrypted?) • Current and past budgets • Checking account records • Wills, estate plans, investments • Past income tax returns www.pgp.com

  8. SuccessfulBudgets Are... • Well planned • Realistic • Flexible • Clearly communicated • Next To Impossible! Discussion: Does Budgeting ever work?

  9. Saving is easier than Budgeting • “Spend Less Than You Earn” • “LiveBeneathYour Means” • “Pay Yourself First” • “Make Love, Not Loans!” For those of you old enough to remember (or are into vinyl music), do I sound like a broken record? Discussion: The “Pay Yourself 10% First” Solution Is it reasonable?

  10. The Extreme Viewpoint • Keep a small notebook with you at all times • Record every monetary transaction you make • No matter how small • Update your cash flow statement constantly Devotees of “Your Money or Your Life” www.simplelivingforums.net Did anyone check out their forums?

  11. Personal Financial Statements • Net Worth Statement • “A snapshot of your financial situation” • Assets versus Liabilities • a.k.a. Balance Sheet • Cash Flow Statement • “The movie of your financial life” • Income versus Expenses • a.k.a. Income Statement, Budget Let’s look at each one in detail…

  12. Components of a Net Worth Statement(a.k.a. Balance Sheet) • Assets–What You Own • Liquid assets • Real estate • Personal possessions • Investment assets • Liabilities–What You Owe • Current liabilities – One year or less (a.k.a. short-term) • Long-term liabilities – Greater than one year • Net Worth–What You Have Left Over • Assets minus liabilities • Insolvent means liabilities far exceed assets • Rule of thumb: If short-term liabilities >= income …

  13. Components of a Cash Flow Statement(a.k.a. Income/Expense Statement, Budget) • Shows inflow and outflow during a given time period –Income versus Expenses • Record cash inflows • Income from employment • Savings and investment income • Other sources • Record cash outflows • Fixed and variable expenses • Net cash flow can be a surplus or a deficit • Used as a basis for creating a spending, saving, and investment plan Insolvency is better determined here.

  14. Cash Flow / Net Worth Let’s start on those financial documents…

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