1. Grab a scratch sheet (from the front table) and jot down your thoughts on the following question.
“I’ve got a great job and no bills. I still live at home. Why do I need an emergency fund?”

2. Personal Financial Statements 3.2
Chapter 3
Personal Financial Statements 3.2

3. Lesson Objectives
Develop a personal balance sheet and cash flow statement.
Analyze your personal financial situation.

4. Personal Financial Statements
Documents that provide information about your current financial position and present a summary of your income and spending.
Balance Sheet
Cash Flow Statement

5. Personal Balance Sheet: What are you worth now?
Balance Sheet – financial statement that lists the items of value that you own, the debts that you owe, and your net worth.

6. Step 1: Determine your assets
Assets – items of value that you own, including cash, property, personal possessions, and investments.

7. Assets Liquid Assets Checking account balance 1,450.00
Savings account balance
Total liquid assets ,000.00
Real Estate
Market value of house ,000.00
Personal Possessions
Market value of car 4,250.00
Furniture and appliances 2,500.00
Electronic equipment 2,000.00
Collectibles
Total personal possessions 9,500.00
Investment Assets
Retirement accounts ,000.00
Stock investments 3,300.00
Total investment assets ,300.00
Total Assets ,800.00

8. Step 2: Determine your Liabilities
Liabilities – debts that you owe.

9. Liabilities Current Liabilities Medical bills 1,250.00
Credit card balances 2,300.00
Total current liabilities ,550.00
Long-term Liabilities
Mortgage ,500.00
Student loan 3,500.00
Car loan 2,500.00
Total long-term liabilities ,500.00
Total Liabilities ,050.00

10. Step 3: Calculate your net worth
Net Worth – difference between the amount that you own and the debts that you owe.
Assets – Liabilities = Net Worth
Insolvency – condition that occurs if your liabilities are greater than your assets.

11. Assets Liabilities Liquid Assets 2,000.00 Real Estate 105,000.00
Personal Possessions 9,500.00
Investment Assets ,300.00
Total Assets ,800.00
Liabilities
Current Liabilities 3,550.00
Long-term Liabilities ,500.00
Total Liabilities ,050.00
Net Worth ,750.00

12. Step 4: Evaluate your financial situation
Track your financial progress
Increasing?
Decreasing?
Holding Steady?

13. Cash flow statement: Income versus expenses
Cash Flow – money that actually goes into and out of your wallet and bank accounts.
Divided into 2 parts:
Cash Inflow
Income
Money you receive
Cash Outflow
Money you spend

14. Step 1: Record your income
Take-Home Pay – (aka: net pay) amount of income left after taxes and other deductions are taken out of your gross pay.
Discretionary Income – money left over after you have paid for the essentials – food, clothing, shelter, transportation, and medication.

15. Income (Cash Inflow Take-home pay 450.00 Allowance 100.00
Savings account interest
Total Income

16. Step 2: Record your expenses
Fixed Expenses – the same each month.
Variable Expenses – change from month to month

17. Expenses (Cash Outflow)
Income (Cash Inflow
Take-home pay
Allowance
Savings account interest
Total Income
Expenses (Cash Outflow)
Fixed expenses (TV, bus pass, etc)
Variable expenses (clothes, take-out, etc)
Total Expenses

18. Step 3: Determine your net cash flow
Surplus – extra money that can be spent or saved
Deficit – occurs if you spend more than you earn or receive

19. Net Cash Flow 162.00 Income (Cash Inflow Expenses (Cash Outflow)
Take-home pay
Allowance
Savings account interest
Total Income
Expenses (Cash Outflow)
Fixed expenses (TV, bus pass, etc)
Variable expenses (clothes, take-out, etc)
Total Expenses
Net Cash Flow

20. Analyze your financial position Using your financial statements
Debt Ratio
Liquidity Ratio
Debt-Payments Ratio
Savings Ratio

21. Low debt ratio is desirable.
Debt to Equity Ratio
Low debt ratio is desirable.
(.5 is reasonable)
Liabilities =
Net Worth
25,000.00 = .5
50,000.00

22. Liquidity Ratio The higher, the better. Liquid Assets =
Monthly Expenses
10,000.00 =
2.5
4,000.00

23. Most financial experts recommend less than 20%.
Debt-payments ratio
Most financial experts recommend less than 20%.
Monthly Credit Payments =
Take-Home Pay
540.00 =
.15
3,600.00

24. Most financial experts recommend at least 10%
Savings Ratio
Most financial experts recommend at least 10%
Amount Saved =
Gross Monthly Income
600.00 =
.12
5,000.00