1. Business and Personal Finance
Chapter 3
Money Management Strategy
Section 3.2
Personal Financial Statements

2. Personal Financial Statements
3.2
In This Section . . .
Personal financial statements are documents that provide information about your current financial position and present a summary of your income and spending.

3. Personal Financial Statements
3.2
In This Section . . .
This section discusses:
The Personal Balance Sheet: What Are You Worth Now?
The Cash Flow Statement: Income Versus Expenses
Analyzing Your Financial Position from Your Personal Financial Statements

4. Personal Financial Statements
3.2
What You’ll Learn
How to develop a personal balance sheet and cash flow statement
How to analyze your personal financial situation

5. Personal Financial Statements
3.2
Why It’s Important
Personal financial statements can give you a good idea of where you’re headed financially and where you are now in relation to your financial goals.

6. Personal Financial Statements
3.2
The Balance Sheet (1 of 3)
A balance sheet, also called a net worth statement, lists the items of value that you own, the debts that you owe, and the difference between them.
To create a personal balance sheet, follow these steps . . .

7. Personal Financial Statements
3.2
The Balance Sheet (2 of 3)
Step 1. Determine your assets. Assets are any items of value that you own, including cash, property, personal possessions, and investments.
Step 2. Determine your liabilities. Liabilities are the debts that you owe.

8. Personal Financial Statements
3.2
The Balance Sheet (3 of 3)
Step 3. Calculate your net worth To do this, subtract your liabilities from your assets.
Step 4. Evaluate your financial situation. Do you own more than you owe? Do you owe more than you own?

9. Personal Financial Statements
Go Figure Net Worth

10. Personal Financial Statements Create a Personal Balance Sheet

11. Personal Financial Statements
3.2
The Cash Flow Statement
The money that actually goes in and out of your wallet and bank accounts is called cash flow. Cash inflow is the money you receive, or your income. Cash outflow includes all of the money you spend.
To figure your cash flow for certain period of time, usually a month, follow these steps...

12. Personal Financial Statements
The Cash Flow Statement (1 of 3)
Step 1. Record your income. List all of your sources of income during a given month.

13. Personal Financial Statements
3.2
The Cash Flow Statement (2 of 3)
Step 2. Record your expenses. Expenses fall into two basic types: fixed and variable. Fixed expenses are those that are more or less the same each month. Variable expenses are those that may change from month to month.

14. Personal Financial Statements
The Cash Flow Statement (3 of 3)
Step 3. Determine your net cash flow. To do this, subtract your expenses from your income.

15. Personal Financial Statements
Go Figure Net Cash Flow

16. Personal Financial Statements Creating a Cash Flow Statement

17. Personal Financial Statements
3.2
Analyzing Your Financial Position (1 of 2)
When your cash flow changes, so does your net worth. If you have a deficit cash flow, your net worth declines. You can either:
borrow money, increasing your liabilities, or
draw from your savings, decreasing your assets.

18. Personal Financial Statements
3.2
Analyzing Your Financial Position (2 of 2)
If you have a surplus, your net worth can go up. You can choose to:
save the money, adding to your assets, or
pay off previous debts, reducing your liabilities.

19. Personal Financial Statements Evaluating Your Financial Progress

20. Personal Financial Statements
3.2
Check Your Understanding
1) How do you calculate your net worth when you prepare a balance sheet?
2) Explain how you should record your income on a cash flow statement.
3) If your personal financial statements indicate that you have a deficit, what might you do to change your financial situation?

21. Personal Financial Statements
Think Critically
List the three most valuable items that you own that would fall into the category of personal possessions.

22. Personal Financial Statements
3.2
End of Section 3.2