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Personal Financial Statements

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

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Personal Financial Statements

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  1. Personal Financial Statements 16-1

  2. 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 money • Does not mean never spending and always going without or not having fun. • You must plan ahead and decide what is important

  3. Personal balance sheet • How 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 equation Assets= Liabilities+ Owners equity(Net worth)

  4. Assets • Anything of value • What are something's that are assets to you? • What are some of your parents assets?

  5. Liabilities • Amounts owed to others. • Credit cards • Car loans • House loans • Business loans

  6. Net Worth • The 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?

  7. Personal balance sheet Assets Liabilities Checking account $450 Home Mortgage $45,000 Savings account $2,300 Credit card balance $230 Home $97,000 Education Loans $1800 Automobile $4,600 Total liabilities $47,030 Household items and furniture $6,200 Personal computer $1,600 Jewelry $1,100 Owners Equity (Net worth) Total assets $113,250 Total assets-total liabilities $66,220 Total Liabilities and net worth $113,250

  8. Personal Cash Flow Statement • Remember a balance sheet records assets liabilities and net worth • Another 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)

  9. Cash Inflows • The money that you have available to spend • Income • Savings • Interest • Your income should be your net income (take home pay). This is your amount earned minus taxes and payroll deductions. • Health deductions • Retirement

  10. Cash outflows • Keep a record of all spending • You might want to categorize • Outflows are spending • Some amounts will be the same every month • Some will vary

  11. Compare inflows to outflows • This is your cash flow statement • Can also be used as your budget • The cash flow statement takes your cash inflow and subtract your cash outflow • If 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

  12. Cash flow statement Cash inflows (income) Net income (take-home pay) $1,300 Other income (interest) $10 Total income $1,310 Cash outflows (expenditures) Rent $300 Food $400 Clothing $50 Utilities $60 Telephone $30 Transportation $120 Personal care $30 Recreation/entertainment $75 Total Spending $1,065 Dow we have net worth or net loss?

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