Chapter 3 Section 3.1 and 3.2.  Money Management  Spend your money on clothes or save it?  Shopping around for better deal on mp3 player?

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Presentation transcript:

Chapter 3 Section 3.1 and 3.2

 Money Management  Spend your money on clothes or save it?  Shopping around for better deal on mp3 player?

 Helps you to….

 Home Files  Safe Deposit Box  Home Computers

 Determine Your Assets  Any items of value that you own, including cash, property, personal possessions, and investments.  Four categories of wealth to determine assets

 Determine Liabilities  Debts that you owe.  Current Liabilities  Long-Term Liabilities  Not Liabilities

 Calculate Your Net Worth

 Evaluate Your Financial Situation

 Cash Flow

 Record Your Income

 Record Your Expenses  Fixed expenses – the same each month  Variable expenses – can change from month to month.  The total of your fixed and variable expenses is your cash outflow.

 Determine Your Net Cash Flow

RatioCalculationExampleMeaning Debt RatioLiabilities divided by net worth 25,000/50,000 = 0.5 Low debt ratio is desirable. Liquidity Ratio Liquid assets divided by monthly expenses 10,000/4,000 = 2.5 Number of months you can pay your expenses. Debt- Payments Ratio Monthly credit payments divided by take home pay. 540/3,600 = 0.15 or 15% How much of earnings goes to pay debts. 20% or less is goal. Savings Ratio Amount saved each month divided by gross monthly income. 600/5,000 = 0.12 = 12% At least 10% is goal. 15% is better.