1. Money Management Skills
Chapter 2

2. A Successful Money Mangement Plan
Money management
Day-to-day financial activities necessary to manage current personal economic resources while working toward long-term financial security
Components of Money Management
Storing and maintaining personal financial records and documents
Creating personal financial statements
Balance sheet and cash flow statements of income and outflows
Creating and implementing a plan for spending and saving
budgeting

3. A System for Personal Financial Records
An organized system of financial records provides the basis for:
Handling daily business activities such as bill paying
Planning and measuring financial progress
Completing required tax reports
Making effective investment decisions
Determining available resources fro current and future spending
Most financial records are kept in one of three places:
Home file
Safe deposit box
Home computer

4. A System for Personal Financial Records
Home file
Personal and employment records
Money management records
Tax records
Financial services records
Credit records
Consumer purchase and automobile records
Housing records
Insurance records
Investment records
Estate planning and retirement records

5. A System for Personal Financial Records
Safe Deposit Box
Birth certificate, marriage certificate, adoption records, custody papers, citizenship papers
Certificates of deposits, list of checking and savings account numbers
Serial number of expensive items
Photographs of valuable belongings
Mortgage papers, title deed
Automobile title
Stock and bond certificates
Rare coins, stamps, gems
Copy of will

6. A System for Personal Financial Records
Personal Computer
Current and past budgets
Summary of written checks and other banking transactions
Past income tax returns
Account summaries and performance results of investments
Computerized version of will, estate plan,

7. Personal Financial Statements
These reports provide information about your current financial position and present a summary of your income and spending
Include:
Balance sheet
Cash flow statement
Purposes:
Report your current financial position
Measure your progress toward financial goals
Maintain information about your financial activities
Provide data for preparing tax forms or applying for credit

8. Your Personal Balance Sheet
Balance sheet (also called a net worth statement or statement of financial worth)
Reports what you own and what you owe
What you own – what you owe = net worth
Involves three steps:
Listing items of value
Determining amounts owed
Computing net worth

9. Steps to Creating a Balance Sheet
Listing items of value (assets)
Cash and other tangible property with monetary value
Liquid assets—cash and items that can easily be converted to cash
Real estate—home, condo, vacation property, land
Personal possessions—autos and other personal belongings
Investment assets--funds set aside for long- term financial needs

10. Steps to Creating a Balance Sheet
2. Determining amounts owed (liabilities)
Current liabilities—debts you must pay within a short time (usually less than a year)
Medical bills
Tax payments
Insurance premiums
Long-term liabilities—debts you do not have to pay in full until more than a year from now
Auto loans
Educational loans
mortgages

11. Steps to Creating a Balance Sheet
Computing net worth
Difference between your total assets and total liabilities
ASSETS – LIABILITIES = NET WORTH
Business balance sheets are expressed as:
ASSETS = LIABILITIES + NET WORTH
A person can have a high net worth and still have trouble paying debts when they are due
Net worth is not money available to use, but an indication of your financial position on a given date

12. Increasing Cash Flow
How can an individual or family increase net worth?
Increase savings
Reduce spending
Increase value of investments and other possessions
Reducing amount owed

13. Your Cash Flow Statement
Actual inflow and outflow of cash during a given time period
Income from employment will represent your most important cash inflow
Items such as rent, food, and loans represent cash outflow
Cash flow statement
Also called personal income and expenditure statement
Summary of cash receipts and payments for a given period of time
Provides data on your income and spending patterns

14. Steps to Create a Cash Flow Statement
Record Income
Inflows of cash for an individual or household
Main source is usually your paycheck
Other sources:
Commissions
Self-employment income
Interest/dividends
Gifts
Grants
scholarships
Disposable Income—money earned after taxes (also called net or take-home pay)
Discretionary Income—money left after all expenses are paid

15. Steps to Create a Cash Flow Statement
Record Cash Outflows
Fixed expenses—payments that do not vary month-to- month
Rent/mortgage
Installment loan payments
Variable expenses—payments that change from month- to-month
Food
Clothing
Utilities
Recreation
Medical expenses
Gifts
donations

16. Steps to Create a Cash Flow Statement
Determine Net Cash Flow
Difference between income and outflows
Surplus—positive difference
Can be used for:
Investment
Saving
Paying off debt
Deficit—negative difference
Must be made up by:
Using savings
borrowing

17. A Plan for Effective Budgeting
Budget or Spending Plan
Purpose:
to help you live within your income
spend money wisely
reach your financial goals
prepare for financial emergencies
develop wise financial management habits
Steps:
Set financial goals
Estimate income
Budget an emergency fund and savings
Budget fixed expenses
Budget variable expenses
Record spending amounts
Review spending and savings patterns