1. Chapter 3 Money Management Strategy

2. Today’s topics are…  Opportunity Cost and Money Management  Benefits of Organizing Your Financial Documents

3. Organizing Your Personal Financial Records  Money Management-planning how to get the most from your money

4. Opportunity Cost and Money Management  Financial Decisions involve trade-offs  Money  Time  Use your values and goals to help make these tough decisions  Become a better judge

5. What are “Financial Documents ”?  Personal Financial Documents  Bank Statements  Paycheck stubs  Receipts  Car titles  Birth Certificates  Tax Forms

6. Benefits of Organization  Plan and measure your financial progress  Handle routine money matters – deposits and paying bills  Determine how much money you have available now and in the future  Make effective decisions about how to save money

7. Where to keep your Financial Documents  Home file  Safe-deposit boxes  Computer  You could use any of the above

8. Home Files  File Drawer, Folders, Cardboard Box  Make it simple for you  Arrange them by nature and type of each document  Get organized, Train yourself to use your home files  You might want a safe to protect important documents

9. Safe Deposit Boxes  -A small, secure storage compartment that you rent at a bank  $100 a year or less

10. What to keep in a Safe Deposit Box  Car titles, Mortgage loan papers  Rental Agreements  Birth Certificates  Valuable Collectibles  Coins, Stamps

11. More About Safe-Deposit Boxes  Kept in locked, fire proof room  Accessible only when bank is open  Two lock system  Safer than keeping things at home  Most of the time your things are insured  Keep copies at home

12. Home Computers  Computer programs to keep track of checks  Good for keeping track of finances  Keeps you aware!

13. Assignment  Section 3.1 Page 65  1-6

14. Personal Financial Statements Section 3.2

15. The Personal Balance Sheet  Personal Financial Statements-Documents that provide information about your current financial position and present a summary of your income and spending.

16. Personal Financial Statements can help you:  Determine what you own and what you owe  Measure your progress toward your financial goals  Track your financial activities  Organize information that you can use when you file your tax return or apply for credit

17. Creating a Balance Sheet  Balance sheet/Net worth statement  A financial statement that lists the items of value that your own, the debts that you owe, and your net worth  Net worth-Difference between the amount that you own and the debts that you owe

18. Create a balance sheet: Step 1  Determine your assets  Any items of value that you own-cash, property, personal possessions, investments

19. Step 1 continued: 4 Categories of Wealth 1. Liquid Assets  Cash and items that can be quickly converted to cash 2. Real Estate  Land and anything that is on it  Record the market value

20. Step 1 continued: 4 Categories of Wealth 3. Personal Possessions  Cars, other valuable belongings  Need to be valuable  List at market Value 4. Investment Assets  Retirement accounts

21. Step 2: Determine your Liabilities  Liabilities-Debts that you owe  Current Liabilities-Short term debts that have to be paid within one year (Medical Bills, cash loans, taxes)  Long Term Liabilities- Don’t have to be fully repaid for at least a year

22. Step 3: Calculate Your Net Worth  Subtract your liabilities from your assets  Assets-liabilities=Net worth  Net worth does not equal how much money you have to spend  Insolvency-Condition that occurs if your liabilities are greater than your assets

23. Step 4: Evaluate Your Financial Situation  Keep an updated balance sheet  You may need to change it  Increase your net worth by:  Increasing savings  Increasing value of investments  Reducing expenses and debts

24. Assignment Balance Sheet  Use the example on page 69 and create your personal balance sheet  Think of all of your debts and liabilities  Make sure your titles and headings match the example  If you do not have a certain type of asset of liability, remove the title off your balance sheet  Utilize Microsoft Excel

25. The Cash Flow Statement Income Versus Expenses

26. Cash Flow  Money that actually goes into and out of your wallet and bank accounts  Two Parts of Cash Flow 1. Cash inflow  Income 2. Cash outflow  All of the money you spend

27. Step 1: Record Your Income  List all sources of income during a month  Use exact amount that is available to use  Not your Gross Pay  Before taxes and other deductions  Use your take-home pay/net pay  Money left after taxes and other deductions  Discretionary income-Money left after you have paid for essentials

28. Step 2: Record Your Expenses  Two Types of Expenses  Fixed-About the same each month  Variable-Change from month to month

29. Step 3: Determine Your Net Cash Flow  Subtract your Expenses from your Income  Income-Expenses=Cash Flow  Do you have a surplus or a deficit?  Surplus-Extra money left that can be spent or saved  Deficit-When you spend more than you earn

30. Assignment - Cash Flow Statement and Text Questions  Use the example on page 71 and create your personal cash flow statement  Think of all of your incomes and expenses  Make sure your titles and headings match the example  Utilize Microsoft Excel  Section 3.2 Page 74  1-6

31. Budgeting to Achieve Your Financial Goals Section 3.3

32. Preparing a Practical Budget  Budget-A plan for using your money in a way that best meets your wants and needs  Learn to live within your income and how to spend your money wisely

33. Step 1: Setting Your Financial Goals  What do you want to accomplish with your money?  You need to plan  Look at values and goals  Make your goals specific  Shot-term, intermediate, long-term goals

34. Step 2: Estimate Your Income  Record your estimated income for next month  Include all sources of income  Do not include “Maybe Money”  This could be hard depending on your job/career

35. Step 4: Budgeting for Fixed Expenses  List fixed expenses  Mortgage/rent, car and school loans, insurance

36. Step 5: Budgeting for Variable Expenses  Not as easy as planning for fixed expenses  Medical costs  Heating and cooling costs can vary  When in doubt, guess high  Consumer Price Index-A measure of the changes in prices for commonly purchased goods and services in the United States  Allows you to check and see if you are spending too much money on a particular item  What are some ways you could save money each month?

37. Step 6: Recording what you Spend  Keep track of your income and expenses  Budgeted amount does not always equal actual amount spent  Budget variance-The difference between the budgeted amount and the actual amount that you spend.

38. Step 7: Reviewing Spending and Saving Patterns  Budgeting is a continual process  Reviewing your Financial Progress  Revising your goals and adjusting your budget

39. Assignment  Section 3.3 Page 85  1-6