Statement of Financial Position Who is wealthier?  Ian  Income $30,00  Net Worth $45,000 Mitchell Income-$85,000 Net Worth-$28,000

Statement of financial position  Your net worth = wealth! Net worth: the objective measure of financial wealth. Wealth: Measurement of how much a person or household owns once all debts have been paid

Net Worth  Net Worth is more about how you MANAGE your income. Someone can have a high income, but low net worth. Living within your means will help build your net worth.  Your net worth is actually the difference between your assets and liabilities.

How do you determine your net worth?  Statement of financial position: that describes an individual or family’s financial condition on a specified date. Uses assets, liabilities, and net worth.

 3 components of Statement of Financial Position: 1. Assets 2. Liabilities 3. Net worth

Assets  Asset: everything a person owns with monetary value Can be cash Can also be value of personal possessions Examples: Checking account, savings account, money in stocks, value of current home or car ○ The value of these assets must be what you can realistically sell them for TODAY, not the purchase price. Kellybluebook.com

Liabilities  Liabilities: debt or obligations owed to others Can be bills or loans that are due Can also be value owed on credit cards

Liabilities  What is recorded in the liabilities section of a personal financial statement? The amount you owe if you were to pay the amount owed in full today. ○ Example: You have an auto loan that you pay $180 per month on; if you continued payments till it was paid off $6300. ○ If paid the loan off in full today $5490  Amount recorded on statement.

Net Worth  The difference between your liabilities and your assets is your Net Worth. Assets – Liabilities = Net worth AssetsLiabilities Checking Account $540 Savings Account $3250 Current Bills Due $1,250 Credit Cards Owed $4500 Stocks & Bonds $10,000 Home Value $92,000Mortgage Owed $68,000 Car Value $2,300 Total: $108,090Total $73,750 Net Worth:$34,340

How to increase Net Worth  Your net worth increases when your assets increase or your liabilities decrease. Ideal assetsIdeal Liabilities Update your personal financial statement at least once a year, Especially if there are dramatic changes to assets or liabilities

How to Increase Net Worth  By properly using money management tools! Statement of financial position (updated yearly) Income and Expense Statement Using a spending plan

So… Who is wealthier?  Ian  Income $30,00  Net Worth $45,000 Mitchell Income-$85,000 Net Worth-$28,000

Income and Expense Statement  Jessica is paid once a month.  She puts enough money in the bank to cover her expenses every month; but still runs out of money before all expenses are paid.

Meet Jessica… ExpenseAmount Rent/Utilities$500 Health Insurance$100 Renter’s Insurance $10 Car Insurance$40 Gas$100 Groceries$100 Cell phone$70 Personal Care$30 Entertainment$50 Total$1000 -Jessica made a list of all her expenses -Doesn’t expect to have more than $1000 in expenses every month; but still runs out! -Where is her money going?

Jessica…  Jessica forgot to account for the $1.50 coffee she buys every morning and the lunch she has with friends about once a week.  $1.50  $45  $540 on Coffee!  $8.00  $32  $416 on Lunch! ○ Jessica is forgetting $77 that she thinks is minimally nothing!

The costs add up ItemAvg Cost Of Item Cost/Month if purchased daily Approximate cost per year if purchased daily 16 oz pop$1-$2$30-$60$365-$ oz Energy Drink $2-$3$60-$90$730-$ oz Starbucks coffee $2.50-$4$75-$120$900-$1440 Candy Bar$1$30$360

Income and Expense Statement  A statement that lists and summarizes income and expense transactions that have taken place over a specific period of time, usually a month or year. ○ Can help evaluate past financial decisions to increase net worth

Income and Expense Statement  3 Components Income: Money received Expenses: money spent Net Gain/Net Loss: Your income minus your expenses

Spending Plans  Think of a personal/financial goal.  Based on your current spending, is it realistic to achieve your goal?  Think of how you can adjust your spending to achieve this goal… This is the beginning of a spending plan!

Spending Plan  A document used to record both planned and actual income and expenses over a period of time. A BUDGET!

Spending Plan  Look at your current financial position and how you have managed money in the past.  Determine what changes to make & then make changes!

Why is a spending plan so important for financial planning?  Manage $ in a positive manner  Increase net worth  Help set and reach goals  Analyze opportunity costs and trade offs to maximize financial well being