money management
the day-to-day financial activities necessary to get the most from your money
resolve
reach a decision about
safe-deposit box
a small, secure storage compartment that you can rent in a bank, usually for $100 or less
secure
safe
personal financial statement
gives information about your current financial position and presents a summary of income and spending
evaluate
determine the value of
personal balance sheet
a financial statement that shows what you own and what you owe; also known as a net worth statement
net worth
the difference between the amount you own and the debts you owe; a measure of your current financial position
assets
any items of value that you own, such as cash, real estate, personal possessions, and investments; an indication of your wealth
wealth
property that has a money value or an exchangeable value
liquid assets
cash and items that can be quickly converted to cash
real estate
land and any structures that are on it
market value
the price at which a property would sell
liabilities
the debts that you owe
insolvency
the inability to pay debts when they are due
cash flow
the movement of cash in and out of your wallet or your bank account
income
cash inflow or money received from an employer
take-home pay
net pay; the amount of income left after taxes and other deductions are subtracted from your gross pay
discretionary income
the money you have left after paying for your essentials, such as rent, utilities, clothing, transportation, and medications
surplus
extra money that you can spend or save; positive net cash flow; when you receive more money than you spend
deficit
negative net cash flow; when you spend more money than you receive
foundation
basis
budget
a plan for spending and investing your money to meet your wants and needs; helps you live within your income and spend wisely
budget variance
the difference between the budgeted amount and the actual amount spent
cultivate
promote the growth of
encounter
to experience something unexpectedly
four characteristics of a successful budget
carefully planned, practical, flexible, and easily accessible
examples of non-liquid assets
gold, stocks, insurance, investments, and real estate
alternative
a different option
opportunity cost
trade-off
where mortgage papers should be kept
a safe-deposit box
where birth certificates should be filed
safe-deposit box
category of wealth that cars fall into
personal possessions
what is greater than your assets when insolubility occurs
liabilities
examples of cash inflow
an allowance, interest on savings
examples of fixed expenses
car payment, auto insurance premiums
example of cash outflow
a credit payment
examples of personal financial documents
pay stubs, bank statements, broker reports, and credit card statements; marriage licences, vehicle titles, tax forms, contracts, certificates of deposit, leases, mortgage loan papers, stock certificates, and birth certificate
key to establishing a sound financial future
increase your savings
when making decisions about opportunity cost, you must consider
your values, current financial situation, and goals
first step to effective money management
organize your personal financial documents
an organized system of personal financial documents helps you...
determine your current financial status, pay your bills on time, complete required tax reports, plan for the future, and make sound financial decisions related to your investments
places to store financial documents
home filing cabinet, safe-deposit box, and home computers
steps to making a home filing system
locate and sort your documents, put them in labeled filed folders, cultivate the habit of promptly placing financial documents in the folders
documents to store in a home filing system
resumes, budgets, balance sheets, checkbooks, bank statements, canceled checks, tax records and returns, receipts, warranties, insurance records, investment records, brokerage statements, wills, retirement records
documents to not store in a home filing system
difficult-to-replace documents like mortgage papers, car titles, and insurance policies
documents to store in a safe-deposit box
car titles, mortgage loan papers, birth and marriage certificates, leases, stock certificates, bonds, certificates of deposit, contracts, adoption papers, valuable collectibles, fine jewelry, and pictures of your home and belongings
how to use home computers to keep track of your financial transactions
save back-up copies of important documents, financial software programs to summarize your spending and deposits, and online banking
what a personal financial statement helps you do
helps you determine what you owe and own, measure your progress toward your financial goals, track your financial activities, and organize information required to file your tax return or apply for credit
steps to making a personal balance sheet
determine your assets, determine your liabilities, calculate your net worth, evaluate your financial position
four categories of wealth
liquid assets (money in savings and checking accounts, life insurance policy with a cash value that can be borrowed), real estate (land and structures on it), personal possessions (cars, laptop computers, bicycles, rare coins, fine jewelry, and other valu
current liabilities
short-term debts that must be paid within one year; balances on a charge account, insurance premiums, current taxes, utility bills, and medical bills
long-term liabilities
debts that do not have to be fully repaid for at least a year; loans for home improvement, vehicles, college tuition, and mortgage loans
even when you have a high net worth, this can still happen because your assets are not liquid
insolvency
how to increase your net worth
reduce your expenses, reduce your spending and debts, increase your savings, increase your investments
cash flow statement
summary of your cash inflow and outflow during a particular period of time; shows where you received income and where you spent money
steps to create a cash flow statement
record all your sources of income (your net pay/take-home pay after deductions from your gross pay), record all your expenses (fixed and variable), calculate your net cash flow (surplus or deficit)
fixed expenses
do not vary from month to month; rent, cable, internet charges, bus fare
variable expenses
may change from month to month; food, utilities, clothing, medical costs, recreation
positive cash flow does what to net worth
increases it
negative cash flow does what to net worth
decreases it
net cash flow and net worth do this
change from month to month
steps to prepare a budget
set your financial goals, estimate your income, budget for unexpected expenses, budget for fixed expenses, budget for variable expenses, record what you spend (your budget variance may be a surplus or deficit), review spending and saving patterns (keep re
financial goals
depend on your lifestyle, values, and plans for the future; should be specific with a definite time frame
how to save more
put money in savings first, use payroll savings, spend less