1. Personal Finance Cash Flow
Bill Klinger

2. Personal Finance
Review
Opportunity costs

3. Cash Flow It is all about cash flow Cash inflows Cash outflows
In business
Personal
Cash inflows
Salary/wages
Gifts
Investments
Cash outflows
Living expenses
Debt interest and repayment

4. Cash Flow Statement Shows cash flow over a period of time
E.g. monthly, annually
Start with disposable income
Income after tax
Can show actuals
Statement of what happened
Shows how much you saved
Can show forecast
A budget
Shows how much you may save

5. Cash Flow Statement (~Income Statement)
Cash Inflows Disposable (after-tax) income Gifts Investment income . Total Cash Inflow Cash Outflows (expenses) Rent Electricity Water Gas Food Eating Out etc. . Total Cash Outflow . Net Cash Flow .

6. Cash Flow Statement Pay attention to
Recurring monthly expenses
Rent
Cable
Phone
Loans
Annual expenses
Insurance
Memberships
These can eat up much of your disposable income

7. Cash Flow Statement Net cash flow is savings
Savings rate = savings / income
National average ~5%
Set a savings target

8. Saving
The most important financial decision you will make

9. You Can Never Catch Up
Person A: Saves $2000 per year from age 22 to age 35 and then stops
Person B: Starts saving $2000 per year beginning at age 35 and never stops
Both earn 8% on their investments.
At age 75:
Person A has $1M in savings
Person B has $561K in savings

10. Years to “Financial Freedom”
Savings Rate
Years to “Freedom”
Age when “Free” 5% 50 72
10% 40 62
15% 34 56
20% 30 52
25% 26 48
Assumes:
- 7% annual rate of return.
- Start saving at age 22.
Source: how-much-of-your-income-should-you-save/2/?ss=retirement

11. Your Finances Save aggressively
Establish a savings level (at least 15%, think 20+%)
“Pay yourself first”
Take pride in your savings, not your stuff
Plan to save a little each month for future major items, e.g. a car
Avoid debt, except for a mortgage
always pay off credit card balances
if can not pay off balance, do not buy
Keep track of your expenses
Don’t spend like a millionaire until you are one.

12. Factors Affecting Cash Flow
Inflows
Type of job
Stage in career
Income earners in household
Outflows
Family size
Age
Health
Personal consumption

13. Budgets Textbook budgeting “Pay yourself first” budget
Create a cash flow plan (budget)
Track actuals to the budget
Good method but rarely used for long
“Pay yourself first” budget
First, set aside the amount you plan to save long-term
Put where you can’t touch it
IRA, Roth IRA, 401(k)
Second, set aside amount for mid-term
Last, spend what is left however you want

14. In Class In groups of two Create an outline for a cash flow statement
How do your individual life differences affect the statement?