MEASURING THE FINANCIAL POSITION OF A PERSON “WHO IS BETTER OFF???” Introduction to Personal Finance.

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Presentation transcript:

MEASURING THE FINANCIAL POSITION OF A PERSON “WHO IS BETTER OFF???” Introduction to Personal Finance

Who is better off Person A Bank Account$ 2,800 Earns Weekly$ 750 House$ 160,000 Investments$ 23,000 Loans$ 15,800 Mortgage$ 125,000 Weekly Cost to Run House$ 550 Car$ 28,000 Car Loan$ 22,000 Person B House$ 280,000 Earns Weekly$ 3,000 Bank$ 4,000 Mortgage$ 260,000 Investments$ 25,000 Weekly Cost to Run house$ 3,900 Car$ 65,000 Car Loan$ 58,000

Look at what they earn and what they have to pay Person A Earns Weekly $750 Weekly Cost to Run House $550 Left Over $200 Person B Earns Weekly $3,000 Weekly Cost to Run house $3,900 Left?? ($900) Comparing Money Earned and Money spent in a week Person A looks to be better off BUT….

Who is “worth more” now??? Person A Bank Account $2,800 House $160,000 Car $28,000 Investments $23,000 Total Value $213,800 Person B House $280,000 Bank $4,000 Investments $25,000 Car $65,000 Total Value $374,000 What do they own? What do they owe? Loans $15,800 Carl Loan $22,000 Mortgage $125,000 Total $ $162,800 Mortgage $260,000 Car Loan $58,000 Total $ Owing $318,000 So what is each person worth? = 213,800 – 162,800 51,000 = 374,000 – 318,000 56,000 SO…..

2 Aspects to consider 1. Cash flow over time: how much money is earned and spent  “getting ahead” only if earn more than you spend 2. Worth: value belonging to the person…What they own vs what they owe to others - Personal Equity / net worth - These two aspects together are used to measure a person’s overall financial position

Financial Awareness Inventory 1. Do you know how to make a budget? 2. Do you have a budget? 3. Do you avoid making impulse purchases? 4. Do you understand the difference between needs and wants? 5. Do you keep track of what you spend your money on?

Financial Awareness Inventory Cont…. 6. Do you have an inventory of your valuable possessions? 7. Do you have possessions that will increase in value? 8. Do you keep money aside for unexpected expenses? 9. Have you avoided the need to borrow money often? 10. Do you understand how interest is charged when you borrow money?

Financial Awareness Inventory Cont…. 11. Have you started saving for your future? 12. Do you have a bank account? 13. Do you know what fees are charged on a bank account?

Earning Money All income earned by a person  Employment  Gifts  Allowance!  Investments  Interest  Collectables Try to list all the money you earned last year (you may estimate this if you cannot remember)