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NDSU HDFS 357 - Personal Financial Statements and Budgeting

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HDFS 357 1st Edition Lecture 3Outline of Last LectureI. Continuation of Personal Financial PlanningII. Time Value of MoneyChapter 3:I. Personal Financial Recordsa. Fileb. Safec. ComputerOutline of Current LectureII. How Long to Keep Personal Financial RecordsI. Personal Financial Statementsa. Balance Sheetb. Cash Flow StatementII. BudgetingCurrent Lecture 1. How long?- Birth certificates, wills, and Social Security information- indefinitely- Records on personal property and investments- as long as you own them- Documents related to the purchase and sale of real estate- indefinitely- Copies of tax returns (and supporting data)- six years2. Personal Financial Statements- Purpose- Maintain information on your financial activities- Balance Sheet (General Overview of Finances)- Where are you now (financially)? What you own – what you owe = Net worth- Step 1: Listing Items of Value Assets- what you own- Ex: real estate, personal possessions, vehicles, furniture, investment assets- Step 2: Determining Amounts Owed Liabilities- what you owe- Current liabilities- things that need to be paid off in less than a year. Ex: Credit Card payment- Long-term liabilities- things that need to be paid off in more than a year. Ex: Student loans- Step 3: Computing Net Worth Assets – Liabilities = Net Worth Net worth is an indication of financial position - Cash Flow Statement- Cash Flow is the actual inflow and outflow for a given time period- Total cash received during a time period- Cash outflows during the time period- = Cash surplus or deficit- Step 1: Record Income Wages, salaries, and commissions Self-employment business income Savings and Investment Income Gifts, grants, scholarships and educational loans Government payments, such as Social Security, public assistance, or unemployment benefits Amounts received from pension and retirement programs Alimony and child support payments- Step 2: Record Cash Outflows Fixed Expenses (set)- Ex: rent, car payment, phone bill, etc. Variable Expenses (unpredictable)- Electricity, groceries, shopping, fuel, etc.- Step 3: Determine Net Cash Flow The difference between income and outflows can either be positive or negative (deficit) Cash flow statement provides the foundation for preparing and implementing a spend, saving, and investment plan3. Budgeting- A budget is a spending plan- Selecting a Budgeting System- Which one works for you? Mental budget- in your head Physical Budget- use envelopes (cash) for your expenses such as food, rent, etc.  Written Budget- use spreadsheets/piece of paper Computerized budget- use software (Quicken) Online Budget- use website (mint.com) Budget App- phone/tablet app (check,


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