1. Unit 3: Net Worth, Income & Expense, Budgeting, and Shopping

2. Three Tools to Manage Your Money and Financial Progress
Statement of Financial Position
Or Net Worth
Income & Expense Statement
Budget
What is my financial position today?
How have I managed my
money in the past?
What is my future money management plan?
Work together to help you objectively evaluate your past, present, and future financial decisions
Reach net worth level desired

3. Let’s learn more to answer this question!
Who is wealthier?
Tom Brady
Stephen Curry
Income - $30,000,000
Income - $77,000,000
Net Worth - $180 Mill
Net Worth - $60 Mill
Let’s learn more to answer this question!

5. Net Worth
Wealth
Indicates the monetary value of all possessions that a person or household owns, minus the total amounts owed to others
Is an objective measure of financial wealth. Calculated as Assets – Liabilities.

6. Net Worth vs. Income
Net Worth
Income
Determined by how a person manages their income, expense, and savings
Money received such as wages earned from working for pay
A person may have high income and a low net worth or vice versa, but they are usually correlated.

7. Who is wealthier? For now, Tom Brady is but that could change.

8. Statement of Financial Position or Balance Sheet Shows Net Worth
Statement of Financial Position - A financial statement that describes an individual or family’s financial condition on a specified date by showing assets, liabilities, and net worth
Shows a person’s net worth
Or their total financial assets less their financial liabilities arriving at net worth

9. Net Worth in Action
Assets
Less Liabilities
= Net Worth

10. What is an asset? Monetary Assets: Cash, Checking, Savings Stocks
Asset - Anything a person owns with monetary value
Tangible Assets: Home, Autos, Jewelry

11. Liabilities – A debt or obligation owed to others
What are liabilities?
Loans (mortgage, automobile, student)
Other Liabilities
Liabilities – A debt or obligation owed to others
Balance on a credit card

12. Liabilities vs. Expenses
Definition
Characteristics
Example
Money owed to others
Money spent
Total amount owed
Bills paid on a regular basis
Monthly payment to repay that automobile loan - $180/month
Automobile loan - $5,490 owed

13. How Do You Increase Net Worth?
By increasing assets and/or decreasing liabilities?
Assets
Manage your money by having income > expenses
Liabilities

14. Let’s take a look at 2 families. Which family has more wealth, A or B ?
Family A
Family B

15. Family A owns a 3 bedroom house valued at $200,000 with no outstanding mortgage loan. They have a checking account ($5K), an emergency savings account ($35K), a college savings account ($25K) and a retirement savings plan (100K). They also have two credit cards with a total balance of $5K and no other liabilities. 
Family B owns a 5 bedroom house valued at $600,000 with a $500K mortgage loan.Their total cash and savings is $15K. They also own a valuable piece of art and expensive jewelry with a combined value of $50K. The family has a retirement savings account ($15K) and total other liabilities of $35K.

16. Questions for Discussion: Net Worth
Does it make you wealthier to buy items that cost a large amount? Why or why not?
How do most people purchase expensive goods such as a house or car?
What does it mean to have debt?
What are the best ways to grow your net worth?
How important do you think owning stocks and your own home are to building your wealth?

17. Summary Assets – Liabilities = Net Worth
Statement of Financial Position is an important money management tool that shows net worth
Assets – Liabilities = Net Worth
Net worth is the objective measure of wealth
To obtain financial security, increase net worth by ensuring income is greater than expenses (save 10% of each paycheck)
To increase net worth you will have to increase assets and/or decrease liabilities

18. Income and Expense Statement

19. The Income and Expense Statement
Income and Expense Statement - lists and summarizes income and expense transactions that have taken place over a specific period of time, usually a month or year

20. 3 Sections of The Income and Expense Statement
Net gain (surplus) or net loss (shortage)

21. Income – money received
What is Income?
Income – money received

22. Earned income – any money earned from work
Income Categories
Earned income – any money earned from work
Unearned income – income received from sources other than employment (interest, dividends)
Income from Government Programs – welfare, disability, unemployment, social security

23. What are Expenses?
Expenses – money spent

24. Expense Categories
Savings & Investing
Taxes
Insurance
Housing
Transportation
Food
Health care
Entertainment
Other

25. Expense Characteristics: Variable vs. Fixed
Variable Expenses are those that change each time period
Fixed Expenses are expenses that remain the same each time period

26. Net Gain (Surplus) or Net Loss (Shortage)
Income
Expenses
Net Gain or Net Loss
Net gain
Net loss

27. Find a tracking method that works for you
Record in writing
Smartphone
APP
Keep receipts
Add up daily
Use depository institution account statements
Use Money management software (Quicken, Mint)
A written system is more effective than a mental/memory system!

28. Statement of Financial Position Income & Expense Statement
Net Gain
Net Loss
Use that money for extra savings or other expenses
Increase income and/or decrease expenses
Statement of Financial Position
Income & Expense Statement
Budget & Spending Plan
A spending plan or budget will help you plan your spending
What is my financial position today?
How have I managed my
money in the past?
What is my future money management plan?

29. Summary: Income & Expense Statement
Tells you where your money has come from and where it has gone
3 components: income, expenses, and
net gain (surplus) or net loss (shortage)
Use a tracking method that works best for you
Customize income and expense categories

30. Best Budget Apps
Best overall saving and budgeting apps: Mint and Acorns
Best budgeting app for hands-on users: You Need a Budget
Best simplified budgeting app: PocketGuard
Best app for paying and tracking bills: Prism

31. Say “Yes” to Comparison Shopping. Say “No” to Impulse Buying.

32. What are your spending habits?
Think about the last item you purchased
Did you look at the product carefully, or consider other options before purchasing it?
Did you buy the first thing you saw?
Based on size?
Based on color?
Based on price?
Did you compare products?
Are you an impulse shopper or a
comparison shopper? Or does it
depend?

33. Shopping Habits Impulse Buying Comparison Shopping Unplanned buying
Little consideration of the product or other options
“emotional buying”
Comparison Shopping
Planned buying
Careful consideration of the product, features, price and quality
“rational buying”

34. Comparison Shopping Benefits of comparison shopping
Buy the same product or service for less money
Buy more goods and services with the same amount of money
Buy a better quality product for the same amount of money

35. Comparison Shopping – Step One
Decide what is needed before shopping
How will I use this product?
How long does it need to last?
What features do I really need?
Answering the above questions will help a person make the best decision in “rationale mode”

36. Comparison Shopping – Step Two
What is the quality of the products that I am comparing? (Do most of this work before shopping)
Materials used, craftsmanship, durability
Research on the Internet (Blogs, articles, etc.)
Ask others who own the same product
Refer to unbiased testing agencies for more information
Consumer Reports
Underwriter’s Laboratories
Better Business Bureau

37. Comparison Shopping – Step Three
What is the total cost?
Need to consider additional costs other than what is shown on the price tag
Example: Clothing that needs to be dry cleaned will cost more over a lifetime than clothing that can be washed at home
“Hidden costs” impact decisions and need to be considered carefully
Item
Price
Hidden Cost
Frequency
Total cost after 6 months
Wool jacket
$50
Dry cleaning $15
Every 3 months
$80
Nylon jacket
$60
Wash at home $2
$66

38. Comparison Shopping – Step Four
How will the product be used?
Consider how the product will be used, how often it will be used and what price is appropriate for the use
Example: If a product is used once a year, spending more money for high quality and additional features may not be necessary
Example: If a product is used everyday, one may be willing to pay more for higher quality
Item
Price
How will it be used?
Frequency
Total cost per wear
Custom made formal gown
$120
Lightly worn
1 night - prom
In store formal dress
$60
3 times - prom, family wedding, formal dance
$20

39. Comparison Shopping – Step Five
Consider the opportunity cost and make a decision to buy the product (or not)
Opportunity cost – what your second best choice would be as to how to spend (or save) that same money

40. Comparison Shopping Steps
Step One
Decide exactly what is needed before shopping
Step Two
Determine the features and quality you are seeking. Do research before shopping.
Step Three
What is the total cost? Include non price tag items
Step Four
How will the product be used?
Step Five
Consider the opportunity cost and make a decision

41. Making Good Choices Comparison shopping:
Helps individuals and families spend money wisely
Helps build a positive financial future
Can reduce costs without cutting back on necessary items
Allows people to save money while meeting needs

42. Comparison Shopping Activity
Look up the price of the items (choose one model and stick with it) at:
Walmart
Target
Amazon
Where did you find the best online deal?
Can you think of other online search engines to help with Comparison Shopping?

43. Spending Plans Or Budget
Advanced Level

44. Three Money Management Tools
Statement of Financial Position
Income & Expense Statement
Spending Plan or
Budget
What is my financial position today?
How have I managed my
money in the past?
What is my future money management plan?
Determine what changes to make
Make changes

45. Spending Plan or Budget Development Process
Develop the spending plan
or budget
Maintain the spending plan
Step 5 - Evaluate and Make Adjustments
Step 1 - Track Current Income and Expense
Step 4 – Implement, track, and Control
Step 2 - Personalize Your Spending Plan
Step 3 - Allocate Money to Each Category

46. Personalize Your Spending Plan
Step 5 - Evaluate and Make Adjustments
Step 1 - Track Current Income and Expense
How will you develop a spending plan?
What is the time period for your spending plan?
Step 2 - Personalize Your Spending Plan
Step 4 - Implement and Control
Step 3 - Allocate Money to Each Category
Choose categories for your spending plan

47. Ways to develop a spending plan
Any written method that works for you
Paper and pencil
Spreadsheet
How would you develop a spending plan?
Money management computer software
Apps

48. What is the intended time period for your spending plan?
What categories will your spending plan include?
Usually concurrent with pay period or monthly (ie. every 2 weeks or monthly)
Information gathered from tracking the Income and Expense Statement
Do any categories need added, changed, or removed?

49. “Pay Yourself First”
This is putting aside 10 % of your net pay every month for savings or investing.
We do this in order to:
increase net worth
Assure we have an adequate emergency fund
to make sure we reach our financial goals

50. Spending Plan Guide: Common Estimated %s
What variables may cause these percentages to be different?