unit 2: budgeting making the most of your money investing and personal finance

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UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

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Page 1: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

UNIT 2: BUDGETING

MAKING THE MOST OF YOUR MONEY

Investing and Personal Finance

Page 2: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Organization of Financial Documents:

An organized system will help you:

Determine your current financial status Pay your bills on time Complete required tax reports Plan for the future Make sound financial decisions

related to your investments

Page 3: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Organization of Financial Documents

Your financial documents can be kept in: A File Cabinet A Safe-Deposit Box in a Bank or Fire Proof

Safe On a Computer (with backed up files)

This guy did not

back up his files!

Page 4: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Organization of Financial Documents

Home File Cabinet may contain:Personal and Employment RecordsMoney Management Records

Budget Financial Goals Personal Balance Sheet

Financial Records Checkbook Bank Statements Cancelled Checks

Page 5: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Organization of Financial Documents

Tax records and copies of past tax returns (7 years)Consumer records such as receipts and warrantiesHousing records such as copy of title and home

improvement listsInsurance records such as policies and list of

premium amountsInvestment records such as brokerage statementsEstate Planning and retirement records along with

a copy of your will

Home file cabinet may also contain

Page 6: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Organization of Financial Documents

A Safe-Deposit Box in a Bank or Fire Proof Safe may contain:

1. Birth and Marriage Certificates2. Adoption Papers3. Mortgage Loan/Lease Papers4. Stock and Bond Certificates5. Certificates of Deposit6. Contracts7. Valuable Collectibles8. Fine Jewelry9. Pictures of your home and belongings

Page 7: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Organization of Financial Documents

Home Computers A home computer, which is password-

protected, with the proper software is a good way to keep track of your financial

transactions.

Software program that will keep track of personal spending

Utilize electronic banking capabilitiesFinancial software assists with generating personal

financial documents and statements

Page 8: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Happy Friday!!!

Please do not log onto the computer

Take out last class assignment and notes

How are YOU going to get yourself organized?

Page 9: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Personal Financial Statements

Personal financial statements can help you:

Determine what you own and what you owe Measure your progress toward your financial

goals Track you financial activities Organize information required to file your tax

return or apply for credit

Page 10: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Section 2 – Personal Financial Statements

Personal FinancialStatement

A document that provides

information about your current

financial position and presents a

summary of income and spending.

Page 11: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Personal Financial Statements

A personal balance sheet is also known as a net worth statement.

Your net worth is the difference between the amount you own and the debts you owe

OWN

OWE

Page 12: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

HOW DO I KNOW MY NET WORTH?

STEP 1 – Determine Assets

Assets: Any items of value that you own, such as cash, real estate, personal possessions and investments

Wealth: The property that has monetary value or an exchangeable value.

Page 13: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

HOW DO I KNOW MY NET WORTH?

Your assets are an indication of your wealthLiquid AssetsReal EstatePersonal PossessionsInvestment Assets

Page 14: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

HOW DO I KNOW MY NET WORTH?

Liquid Assets:

Cash and items that can be quickly converted to cash.

Example:If you have $800 in a savings account and

$72 in cash, your liquid assets are worth $872.

Page 15: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

HOW DO I KNOW MY NET WORTH?

Real Estate: Land and any structures that are on it.

The real estate portion of your balance sheet is the property’s market value or the price in which the property would sell for.

HARRISON HOUSE

Page 16: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

HOW DO I KNOW MY NET WORTH?

Personal Possessions: Valuable belongings that are not real estate.Examples: Cars, laptop computers, rare coins, jewelry, art, etc.

 

Investment Assets: Retirement accounts and Securities such as stocks and bonds. These items are usually for long term financial needs such as paying for college, buying a house or retirement.

Page 17: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

HOW DO I KNOW MY NET WORTH?

STEP 2 – Determine Liabilities

Liabilities: Debt that you owe

Current Liabilities: Short term debts that have to paid in one year

Examples: Credit card / charge accounts, insurance premiums, current taxes, utility bills and medical bills.

Page 18: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

HOW DO I KNOW MY NET WORTH?

Long-Term Liabilities: Debts that do not have to fully repaid for at least a year.

Examples: Home Improvement, Vehicles, College Tuition,

and Mortgage Loans

Page 19: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

HOW DO I KNOW MY NET WORTH?

STEP 3 – Calculate Net Worth

Value of your assets – value of your liabilities= Net Worth

 Net worth: The amount you would have if all

your assets were sold for the listed values and all debts were paid in full. The majority of your net worth may be in investments and real estate that cannot be quickly converted to cash.

Page 20: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

HOW DO I KNOW MY NET WORTH?

Net Worth is an indication of your general financial situation.

Insolvency: The inability to pay debts when they are due. If you are unable to pay all your debts, you are considered insolvent.

Page 21: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

HOW DO I KNOW MY NET WORTH?

STEP 4 – Evaluate your Financial Situation

Net Worth is not money available to use but an indication of you financial position on a given date.

You can increase your net worth by: Reducing your expenses Reducing your spending and your debts Increasing your savings Increasing your investments

Page 22: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Cash Flow Statement

A document that provides a summary of your cash inflow and cash outflow during a particular period of time, usually a month or a year.

The cash flow statement gives specific, significant information on where you received income and where you spent income.

Page 23: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Cash Flow Statement

STEP 1 – Record Your IncomeRecord all sources of income – Net Pay or Take Home

Pay

STEP 2 – Record Your ExpensesRecord all your fixed or variable expenses

GROSS PAY = SALARY OR WAGES

NET PAY = AFTER TAXES & DEDUCTIONS

NET PAY = TAKE HOME PAY

Page 24: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Fixed vs. Variable Expenses

Fixed Expenses – Expenses that do not vary from month to month Examples: Rent, Mortgage, Car Payment, Cable,

Internet, Train Ticket

Variable Expenses – Expenses that may change from month to month Examples: Food, Utilities, Clothing, Medical

Costs, Recreation

Page 25: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Cash Flow Statement

STEP 3 – Calculate Your Net Cash FlowCalculate net cash flow, subtract your total

expensesPositive Cash Flow = Surplus or extra moneyNegative Cash Flow = Deficit or spent more than

you received

As a general rule, a positive cash flow increases your net worth and a negative cash flow will decrease it.

Page 26: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Section 3 – Budgeting for Financial Goals

Budget A plan for

spending and investing

your money to meet your wants and

needs.

Page 27: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Seven Steps to Making a Budget

STEP 1 – Set Your Financial Goals

Set your financial goals upon: Your Lifestyle What You Value What you plan to do in the future

Your occupation will have a significant impact on your income and your ability to save and invest to reach your financial goals

Page 28: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Seven Steps to Making a Budget

STEP 2 – Estimate your Income

Take home pay (NET INCOME)Income on investmentsInterest on your savings

Best Jobs 2013

Page 29: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Seven Steps to Making a Budget

STEP 3 – Budget for Unexpected ExpensesEmergency Fund

STEP 4 – Budget for Fixed ExpensesMortgageReal Estate TaxesCar Loan PaymentStudent Loan PaymentInsurance Premiums

Page 30: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Seven Steps to Making a Budget

STEP 5 – Budget for Variable ExpensesFoodMedical BillsTransportation costsUtilities

STEP 6 – Record what you SpendActual expensesUnexpected (such as car breaks down)

Page 31: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Seven Steps to Making a Budget

Budget VarianceDifference between the budgeted amount and the

actual amount spent. The variance could be a surplus, which means you spent less than you

budgeted.

STEP 7 – Review Spending and Saving PatternsKeep records up to date by faithfully recording all

transactionsReview your budget at least once a monthMake changes based on your income and expenses

Page 32: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Revising Goals and Adjusting Your Budget

If your budget shows that you consistently have deficits, you need to reduce your expenses or increase your income.

To revise your budget you need to identify the areas of over spending and then decide which expenses to cut.

Page 33: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Steps to Success

A Successful BudgetCarefully planned and related to your goalsPracticalFlexibleEasily Accessible

Increasing Your SavingsPay Yourself FirstTake advantage of Payroll SavingsSpending Less to Save

Page 34: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

UNIT 2: BUDGETING

MAKING THE MOST OF YOUR MONEY

Investing and Personal Finance

Page 35: UNIT 2: BUDGETING MAKING THE MOST OF YOUR MONEY Investing and Personal Finance

Budget Assignment