This lesson provides information about money management basics and the reports used to measure financial progress.
Money management – refers to the day-to-day financial activities associated with using limited income to satisfy your unlimited needs and wants It involves getting the most for your money through careful planning, saving, and spending If you learn to manage your money well, you will be able to buy what you really want
Wise money managers get the most from their limited incomes through careful planning, saving, and spending They set goals, make wise decisions, buy wisely, and live within their incomes A 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
Personal assets – items of values Money in bank accounts Investments Furniture Clothing Automobiles Jewelry Rare coins The current value of all assets of an individual or family is the first thing stated on a balance sheet
Liabilities – amounts owed to others These debts may include: Credit card balances Car loans Home mortgage Personal loans A listing of your liabilities is the second item on a balance sheet Net worth – the difference between a persons assets and liabilities
To examine changes in a persons net worth, another financial statement can be helpful Cash flow statement – reports net wages and other income along with spending for a period, such as for a month Cash inflows – the money you have available to spend as a result of working or from other income, such as interest earned on your savings
Cash outflows – amount spent for food, clothing, transportation, and other living costs Keeping track of how much is spent for various living expenses will help you plan and control your spending
This lesson introduces budgeting activities along with an explanation of personal financial statements.
Budget – allows you to meet your personal goals with a system of saving and wise spending The main purposes of a budget are to help you do the following: Live within your income Achieve your financial goals Buy wisely Avoid credit problems Plan for financial emergencies Develop good money management skills
Having a written budget is a key part of successful money management The process of creating and using a budget involves 4 main steps: 1. Set financial goals 2. Plan budget categories 3. Maintain financial records 4. Evaluate your budget
Most financial advisers recommend that an amount be set aside for savings as the first part of a budget After savings, 2 types of living expenses must be considered: Fixed expenses – costs that occur on a regular basis and are the same amount each time Ex) rent, mortgage payments, insurance premiums Variable expenses – living costs that differ each time and may not be as easy to estimate Ex) food, clothing, utilities, medical and dental costs
While the budget categories can vary for the different situations, 8 main divisions are commonly used: 1. Savings 2. Food 3. Clothing 4. Household 5. Transportation 6. Health & personal care 7. Recreation & education 8. Gifts & contributions
Effective budgeting will be an ongoing learning process for you The following are common characteristics of a successful budget: Must be realistic Should be flexible Should be evaluated regularly Must be well planned and clearly communicated Should have a simple format