Money Management Strategy Personal Financial Statement Objective SWBAT

Money Management Strategy Personal Financial Statement Objective: SWBAT develop personal balance sheet and cash flow statement. Do Now: How can personal financial statements help you?

Personal Financial Statement Documents issued by banks, federal and state governments, and businesses can only reveal part of your financial picture For a complete look at your financial situation, you should create your own personal financial statements: personal balance sheet and cash flow statement

Personal Financial Statement Document that provides information about an individual’s current financial position and presents a summary of income and spending Personal Financial Statements can help you: Determine Measure Track what you own and what you owe your progress toward your financial goals your financial activities Organize information that you can use when you file your tax return or apply for credit

I. Personal Balance Sheet Personal balance sheet, also called a net worth statement, is a financial statement that lists items of value owned, debts owed, and a person’s net worth Follow the following steps to create a personal balance sheet:

I. Personal Balance Sheet Step 1. Determine your assets. Assets are any items of value that you own, including cash, property, personal possessions, and investments. There are four categories of wealth (an abundance of valuable material possessions or resources) • Liquid Assets • Real Estate (based on market value – the price it will sell) • Personal Possessions • Investment Assets

I. Personal Balance Sheet Step 2. Determine your liabilities. Liabilities are the debts that you owe. There are two categories of liabilities • Current Liabilities • short-term debts that have to be paid within one year • Long-Term Liabilities • debts that do not have to be fully repaid for at least a year

I. Personal Balance Sheet Step 3. Calculate your net worth Net Worth: the difference between the amount that you own and the debts that you owe Insolvency: a financial state where liabilities are greater than assets Net Worth = Asset - Liabilities

I. Personal Balance Sheet Step 4. Evaluate Your Financial Situation * Update your balance sheet every few months! Do you own more than you owe? Good! Keep it up! Do you owe more than you own? Is your net worth decreasing or just holding steady? Make changes by increasing your savings, investments, reducing your expenses and/or debt!

I. Personal Balance Sheet

II. Cash Flow Statement Income versus Expenses Cash Flow: money that goes into and out of your wallet and bank account Cash Inflow: money you receive (income, interest, allowances) Cash Outflow: money you spend (expenses) Follow the following steps to create a cash flow statement:

II. Cash Flow Statement Step 1. Record Your Income (Cash Inflow) Gross pay/Gross income: the total amount of money an employee earns in a pay period before deductions Take-home pay/Net pay: the amount of income left after taxes and other deductions are taken out of your gross pay Discretionary income: money left over after paying for essentials

II. Cash Flow Statement Step 2. Record Your Expenses (Cash Outflow) Fixed Expenses: expenses that are more or less the same each month. Variable Expenses: expenses that may change from month to month.

II. Cash Flow Statement Step 3. Determine Your Net Cash Flow = Income – Expenses Surplus: cash flow is positive; extra money that can be spent or saved, depending on a person’s financial goals and values Deficit: cash flow is negative; more money is spent than is earned or received Let’s play the Budget Odyssey game!!!

II. Cash Flow Statement

Analyzing Your Financial Position When your cash flow changes, so does your net worth If you have a deficit cash flow, your net worth declines. To make up for the deficit, you will either: borrow money, increasing your liabilities or § draw from your savings, decreasing your § assets

Analyzing Your Financial Position If you have a surplus cash flow, your net worth can go up. You can choose to: save the money, increasing your assets or § pay off your previous debts, reducing your liabilities §