Chapter 2 In-Class Notes

Personal Cash Flow Statement Record Your Income Salary, interest income, dividends Record Your Expenses Rent, living expenses, credit card payments Monitor expenses by recording chequing transactions and checking bank statements Net Cash Flows Income – expenses = excess cash 2-2 Copyright © 2009 Pearson Education Canada

Factors That Affect Cash Flows Income Stage in your career path Type of job Number of income earners in your household Expenses Size of family Age Personal consumption behaviour 2-3 Copyright © 2009 Pearson Education Canada

Creating a Budget A budget is a forecast of your cash flows for a future time period. It does the following: Helps you anticipate cash surpluses and shortages Allows you to assess the accuracy of your cash flow Allows you to forecast your cash flow over several months or the coming year Allows you to reassess your cash flow and improve your budget 2-4 Copyright © 2009 Pearson Education Canada

Personal Balance Sheet Assets (what you own): Liquid assets (e.g., cash, chequing account) Household assets (e.g., furniture, car) Investments (e.g., bonds, stocks) Liabilities (what you owe): Current liabilities (e.g., credit card debt) Long-term liabilities (e.g., student loan) Net Worth Value of total assets – Value of total liabilities 2-5 Copyright © 2009 Pearson Education Canada

Relationship Between Cash Flows and Wealth Net cash flows = Income – Expenses Use your net cash flows to build your net worth over time Your net worth = Value of your assets – Value of liabilities Increase your net worth by: Investing in more assets Reducing your liabilities 2-6 Copyright © 2009 Pearson Education Canada