CHAPTER 3 FINANCIAL STATEMENTS TOOLS AND BUDGETS FIN

FINANCIAL STATEMENTS, TOOLS, AND BUDGETS I. LEARNING OBJECTIVES A. Identify your financial values, goals, and strategies. B. Use the balance sheet and the cash-flow statements to measure your financial health and progress. C. Evaluate your financial strength and progress using financial ratios. D. Collect and organize the financial records necessary for managing your personal finances. E. Achieve your financial goals through budgeting. 2 Dr. David P. Echevarria All Rights Reserved

FINANCIAL STATEMENTS, TOOLS, AND BUDGETS II. IDENTIFYING FINANCIAL VALUES, GOALS, AND STRATEGIES A. How will you define financial success? B. Setting achievable financial goals 1. Spending 2. Risk Management (medical, disability, life, liability) 3. Capital accumulation 3 Dr. David P. Echevarria All Rights Reserved

FINANCIAL STATEMENTS, TOOLS, AND BUDGETS C. How are wealth-building principles related to financial goals? D. What strategies make sense given your goals and wealth-building principles? 4 Dr. David P. Echevarria All Rights Reserved

FINANCIAL STATEMENTS, TOOLS, AND BUDGETS III. IMPORTANCE OF FINANCIAL STATEMENTS A. The Personal Balance Sheet 1. Assets: monetary, real, financial 2. Liabilities: installment debt (S-T, L-T), credit cards 3. Net Worth: increase assets, reduce liabilities 5 Dr. David P. Echevarria All Rights Reserved

FINANCIAL STATEMENTS, TOOLS, AND BUDGETS B. Cash Flow Statement (Cash Budget) See table 3 -3 on page 76 1. 2. 3. 4. 6 Income Expenses: fixed, variable Savings and/or Investments Surplus: Discretionary Disposable Income uses Dr. David P. Echevarria All Rights Reserved

FINANCIAL STATEMENTS, TOOLS, AND BUDGETS IV. TRACKING FINANCIAL PERFORMANCE A. Using Financial ratios 1. 2. 3. 4. 5. 7 Liquidity Ratio: ability to pay your bills Debt ratio: total debt to total assets Debt Service to Income Debt payments to disposable income Investment assets to Total assets Dr. David P. Echevarria All Rights Reserved

FINANCIAL STATEMENTS, TOOLS, AND BUDGETS B. Importance of keeping Good Records 1. Helps in achieving goals 2. Useful at tax time 3. Removes guesswork when planning the future 8 Dr. David P. Echevarria All Rights Reserved

FINANCIAL STATEMENTS, TOOLS, AND BUDGETS V. COMPONENTS OF BUDGETING A. Living expenses B. Debt service (especially credit card and installment purchases) C. Savings/investments VI. HOMEWORK A. Do the Math: 2, 5 9 Dr. David P. Echevarria All Rights Reserved