“Where Did All the Money Go?” Financial Statements “Where Did All the Money Go?” Southwestern Community College School of Business and Technology Frank Paiano – “Paco” www.wonderprofessor.com BUS-121, Financial Planning & Money Management BUS-123, Introduction to Investments Welcome, Everyone! Thank you for your interest.

Money Management Money Management – “How Come We Always Have Too Much 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!”

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!)

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

Saving is easier than Budgeting “Spend Less Than You Earn” “Live Beneath Your Means” “Pay Yourself First” “Make Love, Not Loans!” Discussion: Is “Pay Yourself First” reasonable?

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…

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 Short-term liabilities – Examples: credit cards Long-term liabilities – Examples: car & home loans Net Worth – What You Have Left Over Assets minus liabilities

Components of a Cash Flow Statement (a.k.a. Income Statement, Budget) Shows inflow and outflow during a given time period – Income versus Expenses Record cash inflows Income from employment 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

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