2 CompetenciesExamine components and purposes of a personal net worth statement.Identify anticipated and unanticipated income and expenses.
3 Let’s learn more to answer this question! Who is wealthier?IanMitchellIncome - $30,000Income - $85,000Net Worth - $50,000Net Worth - $35,000Let’s learn more to answer this question!
4 The measure of _________ _________ Net WorthWealthIndicates the ________ value of all __________ that a person or household owns, ______ the total amounts _______ to othersThe measure of _________ _________
5 Net Worth vs. IncomeNet WorthIncomeDepends on how a person _________ their incomeMoney __________ such as ________ ______from working for ______A person may have ______ ________ and _____ _____ _____ or vice versa
6 How do you determine What your ____ _______is? _____________ of __________ Position - A financial statement that describes an individual or family’s __________ condition on a ______ ____ by showing _______, ____________, and ___ ______Shows a person’s net worthSimilar to a net worth statement or ___________ ____________
8 What is an asset?CashAsset - _________ a person _______ with monetary valueValue of _______ __________
9 Monetary AssetsCashMonetary assets - Can be ______ and ______ ________ into _______Money in checking and savings accounts
10 Tangible AssetsTangible assets - ________ property that was ________ to create a lifestyle or improve your life (also known as use or _______ assets)HomesAutomobilesElectronics
11 How do you determine the value of tangible assets? Market valueWhere can you find the market value?ExampleWhat you could realistically ____ that ______ for today, not what you ________ paidWebsites available to _________ the value of ____________Derek purchased a car for $12,000 two years agoResearch the place you would sell the item to determine what _______ items are selling forThe current market value = $8,500He records $8,500 on his Statement of Financial PositionListed on the Statement of _________ Position
12 Value of retirement accounts Investment AssetsInvestment assets – Financial assets purchased with the hope that they will _______ _________ and ________ in ______ to make it possible to sell at a _______ price in the futureValue of retirement accountsStocks
13 What are liabilities? Loans (mortgage, automobile, student) Liabilities – A _____ or obligation _____ to othersBalance on a credit card
14 What is recorded in the Liabilities Section? Amount you _____ if you were to pay the _______ owed in _______ todayIf monthly payments are continued to be madeAutomobile loanIf paid in full todayRecord on statement$180/ month$6,300$5,490$5,490
15 Liabilities vs. Expenses DefinitionCharacteristicsExampleMoney _______ to othersMoney _____________ amount owedBills paid on a _____ basisMonthly payment to ____ that automobile loan - $180/monthAutomobile loan - $5,490 owed
17 Net Worth – Your Personal Financial Thermometer Provides a number that can objectively measure your “financial temperature”Determine what _____ of ___ ____you desire and then set ______ to ______ that ______
18 How can you increase net worth? How do you______ assets and/or _______ liabilities?AssetsEvaluate how you ______ your ______Liabilities
19 Money Management Tools Statement of Financial PositionIncome & Expense StatementSpending PlanWhat is my financial position today?How have I managed mymoney in the past?What is my future money management plan?Work together to help you objectively evaluate your past, present, and future financial decisionsReach net worth level desired
20 Your present self impacts your future self Keep your net worth in mind when making financial decisionsPresentFutureHow will this financial decision affect my future net worth?
21 So who is wealthier? Income - $30,000 Income - $85,000 Ian’s Statement of Financial PositionMitchell’s Statement of Financial PositionAssetsHome60,000100,000Retirement Savings20,000 5,00020,000 7,000Automobile10,00020,000Total Assets$95,000$147,000LiabilitiesMortgage (house loan)40,00080,000College loan5,000Automobile loanCredit card debt2,000Total Liabilities$45,000$112,000Net Worth$50,000$35,000Income - $30,000Net Worth - $50,000Income - $85,000Net Worth - $35,000
22 DiscussionDo you think Ian is making any trade-offs to have higher net worth than Mitchell even though he has a lower income? How could both Ian and Mitchell increase their net worth? If Ian and Mitchell were thinking about going on vacation, how would their statement of financial position guide their decision?
23 Recommended Special Times When would a person need or want to create a Statement of Financial Position?RecommendedSpecial TimesWhen making decisions regarding assets or liabilitiesOnce per yearMust be written to be most effective – use any written method that works for youMay have to create a statement for a financial professional
24 Meet Tori Your Job: Use the information provided to create a Tori is considering purchasing a new pre- owned car. She would like to know what her net worth is to help her make this decision.Your Job:Use the information provided to create aStatement of Financial Position for Tori
25 Small Group activity Read slides 25 – 31 Answer the discussion questions
26 About Tori Record all applicable information in the “current” column of Tori’s Statement of Financial PositionCompleting training to be a radiology technicianHas one semester of training left21 years oldOwes $5,000 in student loans that helped pay for her schoolingWorks part-time to earn $13,000 per year
27 About Tori Has $1,000 in her checking account Owns a car that runs fine but would like an upgradeUsed a website to determine the market value of her current car = $3000Has $1,000 in her checking accountKeeps $20 in cash in her wallet at all timesKeeps $2,000 in her savings account for emergencies
28 About ToriRents a one bedroom apartment and owns $1,000 worth of furniture and other household suppliesBought a laptop computer when she started school but estimates that it is only worth $200 nowInvests $20 per month into a retirement account – that account is currently worth $500Loves to shop and estimates that she owns $1,500 worth of clothes and shoes
29 Tori’s Current statement of Financial position AssetsMonetary assetsCash on hand 20.00Value of checking account1,000.00Value of savings account2,000.00Subtotal of monetary assets$3,020.00Tangible AssetsMarket value of household furnishings 1,000.00Market value of automobile 3,000.00Market value of electronics 200.00Market value of clothing 1,500.00Subtotal of tangible assets$5,700.00Investment AssetsValue of retirement account 500.00Subtotal of investment assets$500.00Total Assets$9,220.00LiabilitiesStudent loan balance 5,000.00Total Liabilities$5,000.00Net Worth = Total Assets - Total Liabilities $4,220.00
30 CurrentIf she purchased a new carAssetsMonetary assetsCash on hand 20.00Value of checking account1,000.00Value of savings account2,000.00Subtotal of monetary assets$3,020.00$2,020.00Tangible AssetsMarket value of household furnishings 1,000.00Market value of automobile 3,000.00 12,000.00Market value of electronics 200.00Market value of clothing 1,500.00Subtotal of tangible assets$5,700.00$14,700.00Investment AssetsValue of retirement account 500.00Subtotal of investment assets$500.00Total Assets$9,220.00$17,220.00LiabilitiesStudent loan balance 5,000.005,000.00Installment loan balance for automobile9,000.00Total Liabilities $5,000.00$14,000.00Net Worth = Total Assets - Total Liabilities$4,220.00 $3,220.00Tori would like to trade in her car for a new pre-owned car priced at $12,000. She would receive $2,000 trade- in value for her car making the purchase price of the new car $10,000. She will use $1,000 from her emergency savings and apply for a loan for the remaining $9,000. If Tori purchased this car today, how would her Statement of Financial Position be affected?Decrease savings to $1,000Increase value of automobile to $12,000Add automobile loan for $9,000
31 Discussion What is Tori’s current net worth? What would her net worth be if she purchased the new car today?Based upon Tori’s Statements of Financial Position, would you recommend that she purchase the new car? Why or why not?Consider what trade-offs she will have to make with both options
32 Discussion How could Tori increase her current net worth? Tori has chosen to use student loans to help her pay for training to become a radiology technicianThis has lowered her current net worth, but what affect may it have on her future net worth?By investing in higher education she is helping to increase her future income earning ability and therefore make it easier to increase her future net worth
33 Summary Assets – Liabilities = Net Worth Statement of Financial Position is an important money management tool that shows net worthAssets – Liabilities = Net WorthNet worth is an objective measure of wealthNet worth is your “financial thermometer” to objectively measure your financial positionTo increase net worth you will have to increase assets or decrease liabilities
34 The Costs Add UpHow much do you think each item would cost if purchased every day for one month?ItemAverage Cost of ItemApproximate Cost Per Month if purchased every dayApproximate Cost Per Year if purchased every day$ $730.0016 oz. soda$ $2.00$ $60.0016 oz. energy or sports drink$ $$ $3.00$ $90.00$ $456.25Candy bar$ $1.25$22.50 – $37.5016 oz. Latte’ or flavored coffee$ – $$2.50 -$3.50$ $105.00
40 Net Gain or Net Loss Net ___ IncomeExpensesNet Gain or Net LossGoal is to have ______ (from sources other than drawing down ______ or ______ assets) _______ than expenses.Net ____Net ___
41 Statement of Financial Position Income & Expense Statement Net GainNet LossUse that money for ______ or other expenses______ income and/or _________ expensesStatement of Financial PositionIncome & Expense StatementSpending PlanA spending plan will help you plan your spendingWhat is my financial position today?How have I managed mymoney in the past?What is my future money management plan?
42 SummaryTells you where your money is coming _____ and where it is ______Three components: ______, __________, andnet _____/_______Use a tracking method that works best for youCustomize income and expense categories