1. Longwood University 201 High Street Farmville, VA 23901
Personal Finance
Bennie Waller
Longwood University 201 High Street Farmville, VA 23901

2. Financial Statements

3. Measuring your financial health
Where does all your money go?
Planning and budgeting requires control
Evaluate your financial health
Develop a plan of action

4. Balance sheets are used to measure wealth
Measuring your financial health
Balance sheets are used to measure wealth
A snapshot of your financial status at a particular time.
Assets you own
Debt or liabilities you’ve incurred
Your net worth or equity

5. Personal Balance Sheet

6. Personal Balance Sheet

7. Personal Balance Sheet
See Example of Louise and Larry Tate Balance sheet in textbook and textbook PowerPoint slides.

8. Assets: what you own
Assets are your possessions even if you owe money on them.
Car, home, boat
Cash or liquid assets
Investments
Other tangible assets such as furniture, jewelry, cars
Assets are listed using their fair market value

9. Liabilities: what you owe
Liabilities represent something that you owe and must be paid in the future.
Current liabilities must be paid off within the next year.
Utility bills, credit cards
Long-term liabilities come due beyond a year.
Home, car, student loans
List only the unpaid balances.

10. Net Worth: A measure of wealth
Net worth = total assets - total debt
If liabilities > assets, you are said to be insolvent and to have negative net worth.
If liabilities < assets, positive net worth.

11. Income Statement to trace your money
An income statement shows where your money has come from and where it has gone over some period of time.

12. Personal Income Statement
See example of Louise and Larry Tate’s Personal Income statement example in the textbook and textbook PowerPoints

13. Income Statement

14. How People Spend their Money

15. Financial Ratios
Financial ratios allow you analyze raw data in the balance sheet or income statement then compare it to targets.
Ratios help you understand how you are managing financial resources.

16. Liquidity ratios
Question 1: Do I Have Enough Liquidity to Meet Emergencies?
Current ratio: current assets divided by current liabilities.
Month’s Living Expenses Covered Ratio: current assets divided by monthly living expenditures
Should aim for 3 to 6 months of liquid assets maybe less with enough credit capacity

17. Other ratios Question 2: Can I Meet My Debt Obligations?
Debt Ratio: total debt divided by total assets. This ratio should decrease as you get older.
Long-term Debt Coverage Ratio: total income available for living expenses divided by total long-term debt payments
Less than 2.5 is a red flag
Savings Ratio: income available for saving and investments divided by income available for living expenses

18. Other ratios Question 3: Am I Saving as Much as I Think I Am?
Savings Ratio: income available for saving and investments divided by income available for living expenses.
Effective saving is by paying yourself first

19. Record keeping Good record keeping is needs for accurate taxes.
It allows for the tracking and sources of expenses.
Financial planning software is available and will help you to;
Track your financial dealings.
Credit card and check expenditures are easy to track, but cash expenditures must be tracked as they occur.
File and store your financial records so they are readily accessible.

20. Thank You