Personal Finance Chapter 3

Trade Offs

Especially common when it comes to managing your money

Money Management

Planning how to get the most from your money

Plan and measure your financial progress, handle routine money matters, such as paying bills on time, determining how much money you have now and in the future, making effective decisions on how to save money

Organizing documents also helps you....

Personal and employment records, money management records, financial services records, tax records, consumer records, housing records, insurance records, investment records, estate planning and retirement records

Home files that you should keep a record of...

Safe Deposit Box

A small secure storage compartment that you can rent in a bank, usually for $100 or less

Personal Financial Statement

A document that provides information about an individual's current financial position and presents a summary of income and spending

determine what you own and owe, measure your progress towards your financial goals, track your financial activities, organize information that you can use when you file your tax return or apply for credit

Personal Financial Statements can help you...

Personal Balance Sheet

(also called a net worth statement) is a financial statement that lists items of value owned, debts owned, and and a persons net worth)

Assets

Any items of value that an individual or company owns, including cash, property, personal possessions, and investments

Liquid assets
Real estate
Personal possessions
Investment assets

The categories of assets are...

Liquid assets

Cash and items that can be quickly converted to cash

Real estate

Land and structures that are on it, such as a house or any other building that a person or family owns

Market value

The amount recorded in the real estate portion of your balance sheet is the property's ___________, or the price at which property will sell

Current liabilities

Short-term debts that have to be paid within one year

Medical bills
Cash loans
Taxes

Examples of current liabilities...

Long term liabilities

Debts that do not have to be fully repaid for at least a year

Car loans
Student loans
Mortgage loans

Examples of long term liabilities...

Net worth

Once you know the amounts of your assets and liabilities, you can calculate your _______.

Balance sheet

You can also use a _____ _____ to track your financial progress.

Cash flow

The money that actually goes into and out of your wallet and bank-account; the statement that you receive (or your income)

Record your income
Record your expenses
Determine your net cash flow

To create a cash flow statement, follow these steps...

Take-home pay

(Or net pay) is the amount of income left after takes and other deductions are taken out of your gross pay

Discretionary income

The money left over after paying for the essentials, such as food, clothing, shelter, transportation, and medication

Fixed expenses

Expenses that are more or less the same each moth

Cable television charges
Rent
Bus fare
Work or school

Examples of fixed expenses are...

Variable expenses

Expenses that may change from month to month

Food and clothing

Examples of fixed expenses...

Subtracting your expenses from your income

How can you determine your net cash flow?

Surplus

Extra money that can be spent or saved, depending on a person's financial goals and values

Deficit

Financial situation that occurs when more money is spent than is earned or received

Payroll saving deduction

A portion of your earnings that is automatically taken out of your paycheck and put back into your savings or retirement amount