Presentation on theme: "Investing and Personal Finance"— Presentation transcript:
1 Investing and Personal Finance Unit 2: BudgetingMaking the Mostof Your Money
2 Organization of Financial Documents: An organized system will help you:Determine your current financial statusPay your bills on timeComplete required tax reportsPlan for the futureMake sound financial decisionsrelated to your investmentsL.O. - What are the benefits of keeping financial records and documents
3 Organization of Financial Documents Your financial documents can be kept in:A File CabinetA Safe-Deposit Box in a Bank or Fire Proof SafeOn a Computer (with backed up files)This guy did not back up his files!
4 Organization of Financial Documents Home File Cabinet may contain:Personal and Employment RecordsMoney Management RecordsBudgetFinancial GoalsPersonal Balance SheetFinancial RecordsCheckbookBank StatementsCancelled Checks
5 Organization of Financial Documents Tax records and copies of past tax returns (7 years)Consumer records such as receipts and warrantiesHousing records such as copy of title and home improvement listsInsurance records such as policies and list of premium amountsInvestment records such as brokerage statementsEstate Planning and retirement records along with a copy of your willHome file cabinet may also contain
6 Organization of Financial Documents A Safe-Deposit Box in a Bank or Fire Proof Safe may contain:Birth and Marriage CertificatesAdoption PapersMortgage Loan/Lease PapersStock and Bond CertificatesCertificates of DepositContractsValuable CollectiblesFine JewelryPictures of your home and belongings
7 Organization of Financial Documents Home ComputersA home computer, which is password-protected, with the proper software is a good way to keep track of your financial transactions.Software program that will keep track of personal spendingUtilize electronic banking capabilitiesFinancial software assists with generating personal financial documents and statements
8 Happy Friday!!! Please do not log onto the computer Take out last class assignment and notesHow are YOU going to get yourself organized?
9 Personal Financial Statements Personal financial statements can help you:Determine what you own and what you oweMeasure your progress toward your financial goalsTrack you financial activitiesOrganize information required to file your tax return or apply for credit
10 Section 2 – Personal Financial Statements A document that provides information about your current financial position and presents a summary of income and spending.
11 Personal Financial Statements A personal balance sheet is also known as a net worth statement.Your net worth is the difference between the amount you own and the debts you oweOWNOWE
12 HOW DO I KNOW MY NET WORTH? STEP 1 – Determine AssetsAssets: Any items of value that you own, such as cash, real estate, personal possessions and investmentsWealth: The property that has monetary value or an exchangeable value.
13 HOW DO I KNOW MY NET WORTH? Your assets are an indication of your wealthLiquid AssetsReal EstatePersonal PossessionsInvestment Assets
14 HOW DO I KNOW MY NET WORTH? Liquid Assets:Cash and items that can be quicklyconverted to cash.Example:If you have $800 in a savings account and $72 in cash, your liquid assets are worth $872.
15 HOW DO I KNOW MY NET WORTH? Real Estate: Land and any structures that are on it.The real estate portion of your balance sheet is the property’s market value or the price in which the property would sell for.HARRISON HOUSE
16 HOW DO I KNOW MY NET WORTH? Personal Possessions:Valuable belongings that are not real estate.Examples: Cars, laptop computers, rare coins, jewelry, art, etc.Investment Assets:Retirement accounts and Securities such as stocks and bonds. These items are usually for long term financial needs such as paying for college, buying a house or retirement.
17 HOW DO I KNOW MY NET WORTH? STEP 2 – Determine LiabilitiesLiabilities: Debt that you oweCurrent Liabilities:Short term debts that have to paid in one yearExamples:Credit card / charge accounts, insurance premiums, current taxes, utility bills and medical bills.
18 HOW DO I KNOW MY NET WORTH? Long-Term Liabilities: Debts that do not have to fully repaid for at least a year.Examples:Home Improvement, Vehicles, College Tuition, and Mortgage Loans
19 HOW DO I KNOW MY NET WORTH? STEP 3 – Calculate Net WorthValue of your assets – value of your liabilities= Net WorthNet worth: The amount you would have if all your assets were sold for the listed values and all debts were paid in full. The majority of your net worth may be in investments and real estate that cannot be quickly converted to cash.
20 HOW DO I KNOW MY NET WORTH? Net Worth is an indication ofyour general financial situation.Insolvency:The inability to pay debts when they are due. If you are unable to pay all your debts, you are considered insolvent.
21 HOW DO I KNOW MY NET WORTH? STEP 4 – Evaluate your Financial SituationNet Worth is not money available to use but an indication of you financial position on a given date.You can increase your net worth by:Reducing your expensesReducing your spending and your debtsIncreasing your savingsIncreasing your investments
22 Cash Flow StatementA document that provides a summary of your cash inflow and cash outflow during a particular period of time, usually a month or a year. The cash flow statement gives specific, significant information on where you received income and where you spent income.
23 Cash Flow Statement STEP 1 – Record Your Income Record all sources of income – Net Pay or Take Home PaySTEP 2 – Record Your ExpensesRecord all your fixed or variable expensesGROSS PAY = SALARY OR WAGESNET PAY = AFTER TAXES & DEDUCTIONSNET PAY = TAKE HOME PAY
24 Fixed vs. Variable Expenses Fixed Expenses – Expenses that do not vary from month to monthExamples: Rent, Mortgage, Car Payment, Cable, Internet, Train TicketVariable Expenses – Expenses that may change from month to monthExamples: Food, Utilities, Clothing, Medical Costs, Recreation
25 Cash Flow Statement STEP 3 – Calculate Your Net Cash Flow Calculate net cash flow, subtract your total expensesPositive Cash Flow = Surplus or extra moneyNegative Cash Flow = Deficit or spent more than you receivedAs a general rule,a positive cash flow increases your net worthand a negative cash flow will decrease it.
26 Section 3 – Budgeting for Financial Goals A plan for spending and investingyour money to meet your wants and needs.
27 Seven Steps to Making a Budget STEP 1 – Set Your Financial GoalsSet your financial goals upon:Your LifestyleWhat You ValueWhat you plan to do in the futureYour occupation will have a significant impact on your income and your ability to save and invest to reach your financial goals
28 Seven Steps to Making a Budget STEP 2 – Estimate your IncomeTake home pay (NET INCOME)Income on investmentsInterest on your savingsBest Jobs 2013
29 Seven Steps to Making a Budget STEP 3 – Budget for Unexpected ExpensesEmergency FundSTEP 4 – Budget for Fixed ExpensesMortgageReal Estate TaxesCar Loan PaymentStudent Loan PaymentInsurance Premiums
30 Seven Steps to Making a Budget STEP 5 – Budget for Variable ExpensesFoodMedical BillsTransportation costsUtilitiesSTEP 6 – Record what you SpendActual expensesUnexpected (such as car breaks down)
31 Seven Steps to Making a Budget Budget VarianceDifference between the budgeted amount and the actual amount spent. The variance could be a surplus, which means you spent less than you budgeted.STEP 7 – Review Spending and Saving PatternsKeep records up to date by faithfully recording all transactionsReview your budget at least once a monthMake changes based on your income and expenses
32 Revising Goals and Adjusting Your Budget If your budget shows that you consistently have deficits, you need to reduce your expenses or increase your income.To revise your budget you need to identify the areas of over spending and then decide which expenses to cut.
33 Steps to Success A Successful Budget Carefully planned and related to your goalsPracticalFlexibleEasily AccessibleIncreasing Your SavingsPay Yourself FirstTake advantage of Payroll SavingsSpending Less to Save
34 Investing and Personal Finance Unit 2: BudgetingMaking the Mostof Your Money