1. Money Management Strategy
Chapter 5
Money Management Strategy

2. Section 3.1 Standard and Poor’s pg. 58
Organizing your Personal Financial Records Introductory Paragraph

3. Opportunity Costs and Money Management
Common trade-offs see. Pg. 59 bullet list
Other ways to save money: Price shop, what trade-offs do you make by price shopping?
Whats your Financial ID? Pg. 60
When spending money think of the following: Your values, Your Goals, and the State of your bank account

4. Benefits of Organizing Financial Documents
1st step to effective money management is to organize your personal financial documents
Possible financial documents: Bank statements, paycheck stubs, sales receipts
Not as commonly thought of: Car titles, birth certificates, tax forms

5. Benefits of organizing your documents
Ease of finding needed materials
Plan and measure your financial progress
Handle routine money matters, such as depositing paychecks in the bank and paying bills on time
Determine how much $ you have available to spend now and in the future
Make effective decisions about how to save money

6. Where to keep your documents
Home Files: Folder system, file cabinet, shoebox, should be simple and allow quick access to documents.
If keeping important documents in the home consider a safe or lock box
Safe-Deposit Boxes: Small secure stage compartment that you can rent in a bank, usually under $100 to rent
Usually kept in fire proof room, two keys to unlock, wise idea to keep copies at home as well

7. Continued
Home Computers: Can buy special software programs to track expenses/checks
Good to use for tracking a checking account
Allows you to easily compare month to month expenses
What measures should you consider if using home computer?
See figure 3.1 pg. 64

8. Personal Financial Statements
Section 3-2
Personal Financial Statements

9. The Personal Balance Sheet: What are you worth now?
For a complete look at your financial situation you should create a personal balance sheet and a cash flow statement. Known as personal financial statements
Personal Financial Statements: Documents that provide information about your current financial position and present a summary of your income and spending

10. Personal Financial Statements can Help You…
Determine what you own and what you owe
Measure your progress toward your financial goals
Track your financial activities
Organize information that you can use when you file your tax return or apply for credit

11. To evaluate your financial situation
Create a balance sheet
Balance sheet (net worth statement): Financial statement that lists the items of value that you own, the debts that you, and your net worth
Net Worth: The difference between the amount that you own and the debts that you owe.

12. Steps to Create a Balance Sheet
Step 1) Determine your Assets: Any items of value that you own (cash, personal property, personal possessions, investments)
To determine your assets you need to consider 4 categories of wealth
Liquid Assets: Cash and items that can be quickly converted to cash
Real Estate: Land that a person or family owns, and anything on it, record the market value or price at which you could sell the property
Personal Possessions: Anything valuable that is not real estate, record current market value (golf club example)
Investment Assets: Retirement accounts, stocks, bonds. Long term financial needs

13. Step 2) Determine Your Liabilities
Liabilities: Debts that you owe
Ex: Borrow money from parents to buy a computer. Effects both assets and liabilities
Current Liabilities: Short-term liabilities, have to be paid within 1 year.
Long-Term Liabilities: Debts that don’t have to be fully repaid for at least a year (car loans, student loans, mortgages)
Liabilities include only those things you owe for longer then a month

14. Step 3) Calculate Your Net Worth
Assets – Liabilities = Net Worth
Net worth doesn’t necessarily mean you have that much to spend
People often have money problems when they have too many assets that aren’t liquid
See Figure 3.2 pg. 69
Insolvency: Condition that occurs if your liabilities are greater than your assets

15. Step 4) Evaluate your Financial Situation
Update balance sheet or make a new one every month or chart your changes overtime
Increase net worth by increasing your savings, increasing value of your investments, reducing expenses, or reducing your debts
See Careers in Finance pg. 70

16. The Cash Flow Statement: Income Versus Expenses
Cash Flow: The money that actually goes into and out of your wallet and bank accounts
Cash Inflow: Money you receive or your income
Cash Outflow: All the money you spend
Cash Flow statement is a summary of your cash flow during a particular period, usually a month or year
Shows your spending patterns

17. Steps to Creating a Cash Flow Statement
Step 1) Record your Income
Record all your income for a month, and record as cash inflow
Record exact amount, amount after taxes
Take-home pay: Net pay, amount of income left after taxes and other deductions are taken out of your gross pay
Add interest into statement
Discretionary income: The money left over after you have paid for essentials. The higher your discretionary income the better
What is tax money going towards?

18. Step 2) Record your Expenses
Two basic types: Fixed and Variable
Fixed Expenses: Those that are more or less the same each month
Variable Expenses: Those that may change from month to month
Total of Fixed and Variable expenses is your cash outflow

19. Step 3) Determine Your Net Cash Flow
Income – Expenses= Net Cash Flow
Surplus: Positive net cash flow
Deficit: Spend more than you earn or receive
What is best way to improve your cash flow?

20. Analyzing your Financial Position from your Personal Financial Statements
As net cash flow changes so does net worth
To make up for deficit you can borrow or draw from savings, either way net worth declines
If extra money at end of month net worth increases, can save money or pay off debts

21. Section 3-3

22. Characteristics of a Successful Budget
Carefully Planned: No guesses, cover all expenses
Practical: Be Realistic
Flexible: Unexpected expenses, shifts in income as well. Needs to be easy to revise
Needs to be written and easily accessible
Pg. 135

23. Ways to Increase your Savings
Key to establishing your financial future
Methods:
Set aside fixed amount each time you pay your bills
Percentage of monthly income
Payroll savings deduction
Money saved each day, put in jar/extra change
Pay credit card off each month