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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