1. 2 Money Management Skills
Money management = Day-to-day financial activities necessary to manage current personal economic resources, while working toward long-term financial security
Daily spending and saving decisions = central to financial planning
Must be coordinated with needs, goals, and personal situation
2-1

2. Objective 1 Identify the Main Components of Wise Money Management
2-2

3. An Organized Personal Financial Records System
Provides a basis for:
Handling daily business affairs, such as bill paying
Planning and measuring financial progress
Completing required tax reports
Making effective investment decisions
Determining available resources for current and future buying
2-3

4. Records in Your Home File/Computer
Items you refer to often:
Personal and employment records (resume, benefit info)
Money management records (budget, balance sheet)
Tax records (W-2 forms, receipts, copies of past returns)
Financial services records (checkbook, bank statements)
Credit records (statements, list of account numbers)
Consumer purchase & auto records (warranties, receipts)
Housing records (lease, property tax, home improvements)
Insurance records (policies, claim reports)
Investment records (CD certificate #s, brokerage statements)
Estate planning & retirement records (will, pension, IRA)
2-4

5. What to Keep in a Safe Deposit Box
Records and items that would be hard to replace:
Birth, marriage and death certificates
List of checking, savings and financial institution account numbers
Citizenship and military papers
Adoption and custody papers
Serial numbers and photos of valuables
CDs and credit and banking account numbers
Mortgage papers and titles
List of insurance policy numbers
Stock and bond certificates
Coins and other collectibles
Copy of will
2-5

6. How Long to Keep Records
Retention Period
Birth certificates, wills and social security information
Indefinitely
Personal property and investments
As long as you own them
Documents re: purchase and sale of real estate
Copies of tax returns and supporting data
7 years minimum
10 years better
2-6

7. Objective 2 Create a Personal Balance Sheet and Cash Flow Statement
Benefits of Personal Financial Statements
Report current financial position in relation to value of items owned and amounts owed
Measure progress toward financial goals
Maintain information on financial activities
Provide information for preparing tax forms or applying for credit
2-7

8. Balance Sheet
A financial statement that reports what an individual or family owns and owes as of a specific date:
Also called:
Net worth statement
Statement of financial position
Items of Value (what you own) -
Amounts owed (what you owe)
Net Worth (your wealth) =
2-8

9. Components of a Balance Sheet
Step 1 – List items of value
Liquid assets (e.g., checking & savings)
Real estate (e.g., house, condo, land)
Personal possessions (e.g., car, computer)
Investment assets (e.g., mutual funds, IRAs)
Step 2 – Determine amounts owed
Current liabilities (debts repaid in < 1 year)
Long term liabilities (e.g., mortgage)
Step 3 - Compute your net worth
2-9

10. Sample Balance Sheet
2-10
How can net worth be increased? What is insolvency?

11. The Cash Flow Statement Inflows and Outflows
Cash flow statement = personal income and expenditure statement
Summary of cash receipts and payments for a given period
Total cash received during the time period
Cash outlays during the time period
Cash surplus or deficit - =
2-11

12. The Cash Flow Statement Inflows and Outflows
Step 1 - Record Income
Net income from employment (Net Pay)
Savings and investment income
Other sources
Step 2 - Record cash outflows
Fixed and variable expenses
Step 3 - Determine Cash Flow (Surplus or Deficit)
Use this statement as a basis for creating a spending, saving, and investment plan
2-12

13. Sample Cash Flow Statement
2-13

14. Evaluating Financial Progress Ratios
2-14

15. Objective 3 Develop and Implement a Personal Budget
Budget = Spending Plan
Helps you:
Live within your income
Spend money wisely
Reach financial goals
Prepare for financial emergencies
Develop wise financial management habits
2-15

16. The 7 Steps in Budgeting Process
Set financial goals
Estimate income from all sources
Budget an emergency fund and savings
Budget fixed expenses (include 1/12 occasional expenses)
Budget variable expenses
Record spending amounts
Review spending and saving patterns
Review financial progress
Revise goals and budget allocations
2-16

17. 2-17

18. Typical Budget Allocations
2-18

19. Budgeting Systems Mental budget Physical Budget Written Budget
Appropriate if financial resources and responsibilities are limited
Physical Budget
Envelopes, folders or containers
Written Budget
On notebook paper
Computerized Budget
Spreadsheet or specialized software
Pros and Cons of each system? Who might use them?
2-19

20. Objective 4 Connect Money Management Activities with Savings for Personal Financial Goals
Your Balance Sheet (Net Worth):
Snapshot of where you are now
Your Cash Flow Statement:
What you received and spent over a specific period
Your Budget (Spending Plan):
Planning spending and saving to achieve financial goals
2-20

21. Changes in Net Worth
Changes in Net Worth result from cash inflows and outflows.
Outflows > Inflows
Draw from savings or borrow
Problem/Result: Lower assets or higher liabilities
Inflows > Outflows
Put money into savings or pay off debts
Result: Higher net worth
2-21

22. Selecting a Saving Technique to “Pay Yourself First”
Write a check each payday and deposit in a savings account
Use payroll deduction to deposit a certain amount in savings (direct deposit)
Save coins or spend less on certain items
Convert financial goals into specific savings amounts using time value of money calculations
2-22

23. Using Savings to Achieve Financial Goals
2-23

24. Wrap Up Chapter Quiz Concept Check 2-1- How Long Should Items Be Kept?
Credit card statements, mortgage documents, receipts, retirement account info, will
Concept Check 2-2- Identify items in financial statements
Concept Check 2-3- Identify types of expenses
Concept Check 2-4- Which financial statement?