1. Personal Finance Balance Sheet
Bill Klinger

2. Personal Finance Review Sources of cash inflow Disposable income
Sources of cash outflows
Savings rate
Factors affecting cash flow

3. Personal Balance Sheet Assets
Assets - Things you own
Types of assets
Liquid (current) assets
Household assets (long-term)
Investments
Stocks
Bonds
Mutual funds
Real estate

4. Personal Balance Sheet Liabilities
Liabilities – things you owe
Do NOT confuse with expenses!!
Types of liabilities
Current
Bills
Credit cards
Long-term
Loans
Mortgage

5. Personal Balance Sheet Assets
Things you own
Liabilities
Things you owe
Net worth
Assets – Liabilities
What’s your net worth?

6. Balance Sheet
Assets Liquid Assets Checking Household Assets Home Investment Assets Stocks . Total Assets Liabilities & Net Worth Current Liabilities Credit card balance Long-Term Liabilities Mortgage . Total Liabilities . Net Worth

7. Factors Affecting The Balance Sheet
Cash flow
How?
Your age
How do you expect your net worth to change over time?
Your lifestyle
Time
Value of asset can go down
Examples?
Economic conditions
Value of asset can go up

8. Analysis Liquidity Ratio Debt ratio Savings rate
= liquid assets / current liabilities
Want to be > 1
Debt ratio
= liabilities / assets
Want to reduce over time
Savings rate
= savings / disposable income
Target 15-20%

9. On Track? Age Savings Target 30 .5 times current salary 35 1 x 40 2 x45
3 x 50
4 x 55
5 x 60
6 x 65
7 x 67
8 x
Source: Fidelity Investments

10. On Track? Calculate age x pre-tax income x .10
Prodigious Accumulator of Wealth (PAW)
Average Accumulator of Wealth (AAW)
Under Accumulator of Wealth (UAW)
Example: age 50, income $50,000 is an AAW if they have saved $250,000.
Source: Thomas Stanley, The Millionaire Next Door

11. Net Worth by Age
Source: U.S. Census Bureau

12. In Class
In groups of two create a balance sheet to determine this person’s net worth
Owes $500 on credit card
Has $20,000 car
Owns $300,000 house with $200,000 mortgage
Has $5000 in furniture and electronics
What is this person’s debt-to-assets ratio?

13. In Class
In groups of two, determine the impact on the cash flow statement and balance sheet of:
You buy $200 in furniture and pay with your credit card
You buy a house for $500k, putting $100k down and getting a mortgage for $400k
You owe $300 on your credit card and pay it off by writing a check from your bank
The housing market goes up and your house is worth $50,000 more
Your landlord gives you a bill for $2,000 in rent that you haven’t paid
Your borrow $5,000 for tuition
You go out to eat and spend $50
In groups of two
Create a simple budget with one or two problems
Exchange with another group and find problems