Money Management Basics $100 probably seems like a lot of money to you now. In the future you will have more expenses Food, housing, insurance, loans, utilities Money management- is the day to day financial activities associated with using limited income to satisfy your unlimited needs and wants. Getting the most for your money Does not mean never spending and always going without or not having fun. You must plan ahead and decide what is important
Personal balance sheet How much are you worth? Not just Cash Balance sheet is a record of assets and liabilities at a point in time. It reports what a person or family owns as well as owes Accounting equation Assets= Liabilities+ Owners equity(Net worth)
Assets Anything of value What are something's that are assets to you? What are some of your parents assets?
Liabilities Amounts owed to others. Credit cards Car loans House loans Business loans
Net Worth The difference between a persons assets and liabilities. This is the amount of money that could be claimed if you sold the item and paid off your loan. This amount is what is actually owned. i.e. You own a $100,000 house. You owe $50,000. What is your Asset? Liability? What is your amount of Net worth?
Personal balance sheet AssetsLiabilities Checking account$450Home Mortgage$45,000 Savings account$2,300Credit card balance$230 Home$97,000Education Loans$1800 Automobile$4,600Total liabilities$47,030 Household items and furniture$6,200 Personal computer$1,600 Jewelry$1,100Owners Equity (Net worth) Total assets$113,250Total assets-total liabilities$66,220 Total Liabilities and net worth $113,250
Personal Cash Flow Statement Remember a balance sheet records assets liabilities and net worth Another way to examine a persons net worth is to use the cash flow statement. It records wages and other income (cash inflows) Spending usually for a month (cash outflows)
Cash Inflows The money that you have available to spend Income Savings Interest Your income should be your net income (take home pay). This is your amount earned minus taxes and payroll deductions. Health deductions Retirement
Cash outflows Keep a record of all spending You might want to categorize Outflows are spending Some amounts will be the same every month Some will vary
Compare inflows to outflows This is your cash flow statement Can also be used as your budget The cash flow statement takes your cash inflow and subtract your cash outflow If you spent less than you had in income the difference is a net worth This amount will most likely be put into savings. If you spent more that you had in income you have a net loss
Cash flow statement Cash inflows (income) Net income (take-home pay)$1,300 Other income (interest) $10 Total income$1,310 Cash outflows (expenditures) Rent$300 Food$400 Clothing$50 Utilities$60 Telephone$30 Transportation$120 Personal care$30 Recreation/entertainment$75 Total Spending$1,065 Dow we have net worth or net loss?