1. Money Management Skills: Financial Statements and Budgeting
CHAPTER 2
Money Management Skills:
Financial Statements and Budgeting Or
“We Spent How Much On What?!”

2. Money Management, Defined
Day-to-day financial activities necessary to manage current personal economic resources while working toward long-term financial security
“How Come We Always Have Too Much
Month at the End of the Money!”

3. Major Money Management Activities
Store and maintain personal financial records and documents
Create personal financial statements
Cash Flow Statement (income vs. expenses)
Net Worth Statement (assets vs. liabilities)
Create and implement a plan for spending and saving (Arrgh! Budgeting!)

4. Why Keep Financial Records?
To help make spending decisions
To plan future spending
To pay bills on time
To see changes in net worth
To make good investment decisions
To prepare your income tax forms
In preparation of applying for a loan
So you know what is happening to your money!

5. What to Keep in Your Home File
Items you refer to often
Personal and employment records
Tax records
Financial services records
Money management records
Credit records
Consumer purchase records
Insurance records
Investment records
Housing and car records
Estate planning and retirement records

6. What to Keep in Your Safe Deposit Box
Safe deposit box is for records and items that would be hard to replace
Birth, marriage and death certificates
Citizenship and military papers
Adoption and custody papers
Serial numbers and photos of valuables
CDs and account numbers
Mortgage papers and titles
List of insurance policy numbers
Stock and bond certificates
Coins and collectibles
Copy of will
Discussion: What about just buying a home safe?

7. Other Places to Keep Records
Automobile
Vehicle registration (I disagree)
Lawyer or Executor or Both
Original of your will & other estate documents
Home computer (Encrypted?)
Current and past budgets
Checking account records
Wills, estate plans, investments
Past income tax returns

8. Successful Budgets Are...
Well planned
Realistic
Flexible
Clearly communicated
Next To Impossible!
Discussion: Does Budgeting ever work?

9. Saving is easier than Budgeting
“Spend Less Than You Earn”
“Live Beneath Your Means”
“Pay Yourself First”
“Make Love, Not Loans!”
For those of you old enough to remember (or are into vinyl music), do I sound like a broken record?
Discussion: The “Pay Yourself 10% First” Solution
Is it reasonable?

10. The Extreme Viewpoint Keep a small notebook with you at all times
Record every monetary transaction you make
No matter how small
Update your cash flow statement constantly
Devotees of “Your Money or Your Life”
Did anyone check out their forums?

11. Personal Financial Statements
Net Worth Statement
“A snapshot of your financial situation”
Assets versus Liabilities
a.k.a. Balance Sheet
Cash Flow Statement
“The movie of your financial life”
Income versus Expenses
a.k.a. Income Statement, Budget
Let’s look at each one in detail…

12. Components of a Net Worth Statement (a.k.a. Balance Sheet)
Assets – What You Own
Liquid assets
Real estate
Personal possessions
Investment assets
Liabilities – What You Owe
Current liabilities – One year or less (a.k.a. short-term)
Long-term liabilities – Greater than one year
Net Worth – What You Have Left Over
Assets minus liabilities
Insolvent means liabilities far exceed assets
Rule of thumb: If short-term liabilities >= income …

13. Insolvency is better determined here.
Components of a Cash Flow Statement (a.k.a. Income/Expense Statement, Budget)
Shows inflow and outflow during a given time period – Income versus Expenses
Record cash inflows
Income from employment
Savings and investment income
Other sources
Record cash outflows
Fixed and variable expenses
Net cash flow can be a surplus or a deficit
Used as a basis for creating a spending, saving, and investment plan
Insolvency is better determined here.

14. Cash Flow / Net Worth
Let’s start on those financial documents…