1. Money Management Strategy
Chapter 3
Money Management Strategy

2. Organizing Personal Financial Records
What You’ll Learn
How to recognize the relationship between financial documents and money management strategies
How to create a system to maintain your personal financial documents
Why It’s Important
Organizing your personal financial records can help you make informed decisions about your spending.

3. Money Management
Money management is planning how to get the most from your money
Good money management can help you keep track of where your money goes so that you can make it go farther
Money management includes…
Organizing your personal financial records
Preparing personal financial statements
Creating a budget

4. Personal Financial Documents
Personal financial documents include your bank statements, paycheck stubs, car titles, birth certificates, social security cards, tax forms, cell phone contracts, and any other documents that record information about how you spend your money.
Organized documents help you:
Plan and measure your financial progress
Handle routine money matters
Determine how much money you have to spend later and in the future
Make effective decisions about how to save money

5. Where to Keep Documents
Home Files
Use for documents that are fairly easy to replace
Advantages
Easy to set up
Easy to use and access
Inexpensive
Disadvantages
Vulnerable to damage

6. Where to Keep Documents
Safe-Deposit Boxes
Use for documents that are hard to replace
Advantages
Safe from damage
Separate from other documents
Access is limited
Contents usually insured
Disadvantages
Harder to access
Costs money (about $100 year)

7. Where to Keep Documents
Computer Files
Use for documents that are easy to keep electronically or that are useful in planning
Advantages
Automatic calculation of amounts
Usually has tool to help in tracking and planning
Disadvantages
Data can be lost

8. Check Your Understanding
Complete Worksheet Packet page 4
Known these terms
money management
safe-deposit box

9. Personal Financial Statements
What You’ll Learn
How to develop a personal balance sheet and cash flow statement
How to analyze your personal financial situation
Why It’s Important
Personal financial statements can give you an idea of where you’re headed financially and where you are now in relation to your financial goals.

10. Personal Financial Documents
Provide information about your current financial position and present a summary of your income and spending
Help you to…
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 return or apply for credit

11. Balance Sheet
Financial statement that lists the items of value that you own, the debts you owe, and your net worth
Net worth, then, is the difference between the amount that you own and the debts that you owe
Also known as net worth statement

12. Creating the Balance Sheet
Determine Your Assets
Determine Your Liabilities
Calculate Your Net Worth
Evaluate Your Financial Situation

13. Assets Assets are any items of value that you own Categories
Liquid Assets – cash and items that can be quickly converted to cash
Real Estate – land that a person or family owns and anything that is on the land
Personal Possessions – valuable belongings that are not real estate
Investment Assets – retirement accounts and securities (investments) such as stocks, bonds, and mutual funds

14. Liabilities Liabilities are debts that you owe
Liabilities include only those items that you will owe for longer than a month
Categories
Current liabilities – short-term debts that have to be paid within one year
Long-Term liabilities – debts that don’t have to be fully paid for at least one year

15. ASSETS – LIABILITIES = NET WORTH
The formula to calculate net worth is:
ASSETS – LIABILITIES = NET WORTH
Example: What is Janine’s net worth if her assets are worth $3,000 and her liabilities total $700?
Formula: Assets – Liabilities = Net Worth
Solution: $3,000 - $700 = $2,300

16. More on Net Worth What Net Worth Means
Net worth is an indication of your general financial situation.
A negative net worth means you are insolvent or you have more debt than items of value.
A positive net worth is generally good, but it doesn’t mean you will always have an easy time paying your bills especially if you have few liquid assets

17. Evaluate Your Financial Situation
Use the balance sheet to track your financial progress
Update your balance sheet every month noting the change in net worth
Increasing – keep doing what you’re doing
Decreasing – changes are in order
Staying the Same – you may want to make some changes

18. Check Your Understanding
Complete Worksheet Packet page 9
Known these terms
personal financial statements
balance sheet
net worth
assets
liquid assets
real estate
personal possessions
investment assets
market value
liabilities
current liability
long-term liability
insolvency

19. Cash Flow Statement
The cash flow statement tracks the amount of money that actually goes into and out of your wallet
Also known as an income statement

20. Creating the Cash Flow Statement
Determine Your Cash Inflows
Determine Your Cash Outflows
Determine Your Net Cash Flow

21. Cash Inflows Your cash inflows represent your income Sources of income
Take-home pay or net pay
Gifts
Bank account interest
Gains on investments
Sale of assets

22. Cash Outflows Your cash outflows represent your expenses
Types of Expenses
Fixed expenses – expenses that remain more or less the same every month
Variable expenses – expenses that change from month to month

23. INCOME - EXPENSES = NET CASH FLOW
The formula to calculate net cash flow is:
INCOME - EXPENSES = NET CASH FLOW
Example: What is Jason’s net cash flow if his income is $1,500 and his expenses add up to $1,350?
Formula: Income – Expenses = Net Cash Flow
Solution: $1,500 - $1,350 = $150

24. More on Cash Flow A surplus occurs if you have a positive cash flow
A deficit occurs if you have a negative cash flow
Some financial experts like to look at discretionary income to evaluate the strength of a person’s income
Discretionary income is the money you have left over after paying for essentials (food, clothing, shelter, transportation, medication)
Represents the money you can spend on wants

25. Putting It Together
When your cash flow changes, so does your net worth
A negative cash flow will decrease your net worth
A positive cash flow will increase your net worth
You can also use financial ratios to analyze your financial position – see worksheet packet page 7.

26. Check Your Understanding
Use your Personal Spending Record to prepare your own Cash Flow Statement.
Worksheet packet pages 8, 10, 10A, 10B
Terms to know
personal spending record
cash flow
cash inflows
cash outflows
fixed expense
variable expense
income
take-home pay
discretionary income
surplus
deficit
positive cash flow
negative cash flow
income statement

27. Budgeting What You’ll Learn
How to create a budget that is practical for you
How to achieve your financial goals by increasing your savings
Why It’s Important
Following a practical budget can help you achieve your financial goals and develop wise financial habits.

28. What is a Budget?
A budget is a plan for using your money in a way that best meets your needs and wants.
Budgeting is essential to intelligent money management and includes 6 steps.

29. Steps in Budgeting Set financial goals Estimate your income
Budget for the unexpected
Budget for expenses
Record what you spend
Review spending and savings patterns

30. I think we’ve said and done enough on this topic!
Set Financial Goals
I think we’ve said and done enough on this topic!

31. Estimate Your Income Record expected income for the next month
Include only income you can count on
If your income is unpredictable, estimate what you will receive in the next month and adjust it down a little

32. Budget for the Unexpected
You should build up and maintain an emergency fund.
Your emergency fund should be 3-6 months worth of income.
This money is used in case of unemployment, unexpected medical needs or any other financial crisis.

33. Budget for Expenses Fixed Expenses Variable Expenses
simply record the amounts
Pay Yourself First (PYF) – try payroll deduction
Variable Expenses
make your best guess based on previous months
when in doubt, guess high!
use guidelines about expenses published by financial experts
asks friends and relatives what they spend

34. Record What You Spend
Keep track of your money for the next month and record what you actually receive and spend
Calculate the budget variance – the difference between the actual amount you spent and what you budgeted

35. Review Patterns Your budget should be reviewed each month
Deficits – cut expenses/increase income
Surplus – consider placing more in savings for long-term goal

36. Budgeting Tips Plan carefully Be practical Be flexible
estimates should be based on some data
cover all expenses
Be practical
Be flexible
Write your budget down
Be able to access your budget data easily

37. Check Your Understanding
Worksheet packet page 12A, 13, 12B
Terms to know
taxes
federal income tax
state income tax
Social Security tax
Medicare tax
FICA
Unemployment tax
gross pay
net pay
pay yourself first
United Way
retirement plan
budget
Consumer Price Index
budget variance
cost/benefit analysis
pay stub
payroll deduction
Occupational privilege tax

38. Form W-4
Tells your employer how much to withhold from your paycheck for taxes.

39. Form W-2
Shows the income you earned from the employer and the amount withheld for taxes.

40. Check Your Understanding
Worksheet packet pages 14-16; Unit 3 Puzzle, Scrambled Words
Terms to know
Form W-2
Form W-4
Allowance