Money Management Strategies CHAPTER 5

Organizing Financial Records CHAPTER 5 SECTION 1

What financial documents should you keep and organize?

What are some ways to organize these documents?

Money Management Day-to-day financial activities necessary to get the most from your money. Money trade-offs

Financial Documents First step in effective money management is to organize your financial documents. Benefits: Financial status Pay your bills on time Tax reports Future planning Investing decisions

Storing Financial Documents Locate your documents and sort them into categories such as payroll stubs, savings account, checking account, bills, etc. Label and file each document Maintain filing discipline

Safe-Deposit Box A small, secure storage compartment that you can rent at a bank.

#1 Personal Financial Statements CHAPTER 5 SECTION 2

Personal Balance Sheet Allows you to have a complete look at your financial situation. Step 1: Determine Assets Step 2: Determine Liabilities Step 3: Calculate Net Worth Step 4: Evaluate Financial Situation Pg. 127 in text

Determine Assets Liquid Assets Real Estate Assets Personal Possessions Investment Assets

Liquid Assets Cash and items that can quickly be converted to cash. $800 in a savings account and $72 in cash Your liquid assets are worth $872

Determine Liabilities Current (short term debt) - paid within one year Long-term – Debts that require a longer term of repayment Insolvency – the inability to pay debt when it’s due

#2 Cash Flow CHAPTER 5 SECTION 2

Cash Flow Statement Movement of cash in and out of your wallet and/or bank account. Step 1: Record your income Step 2: Record your expenses Step 3: Calculate your net cash flow Pg. 131 - chart

The next slide lists several types of accounts The next slide lists several types of accounts. Categorize each account as belonging to the personal balance sheet or cash flow statement.

Take-home pay Transportation Checking Account Balance Groceries Credit Card Balance Investment income Student Loan Payment Mortgage

#3 Your Financial Position CHAPTER 5 SECTION 2

What is your net worth? Deficit – spend more than you earn Loans make up for deficit – increases liabilities Surplus – spend less than you earn Increases net worth Invest – pay off debts – etc.

#4 Preparing a Budget CHAPTER 5 SECTION 3

Budget A plan for spending and investing your money to meet your wants and needs. Step 1: Set your financial goals Step 2: Estimate your income Step 3: Budget for unexpected expenses Step 4: Budget for fixed expenses Step 5: Budget for variable expenses Step 6: Record spending

Budget Variance The difference between the budget and the actual amount spent.

Increasing Your Savings CHAPTER 5 SECTION 3

Increasing Your Savings Essential component – open a savings account PAY YOURSELF FIRST! PAYROLL SAVINGS DEDUCTION SPENDING LESS TO SAVE