CSM 204 Chapter 3 LectureOutline of Previous LectureI. Career Choice FactsII. Trade-Offs of Career DecisionsIII. Career Training and Skill DevelopmentIV. Informational InterviewsV. Career Planning and AdvancementVI. Fields with Hiring PotentialVII. Obtaining Employment ExperienceVIII. Career Information SourcesIX. Career Advancement TipsX. Quiz 1-2Outline of Current LectureI. Planning for Successful Money ManagementII. Opportunity Cost and Money ManagementIII. Money Management ComponentsIV. Financial Records SystemV. Items to File at HomeVI. Items for a Safe Deposit BoxVII. Computer RecordsVIII. Record RetentionIX. 3 Components of Successful PlanningX. Balance Sheet or Statement of Net WorthXI. Income and Expense SheetXII. Important EquationsXIII. The Budgeting ProcessXIV. Characteristics of Successful BudgetingXV. Selecting a Budget SystemXVI. Identifying Savings GoalsXVII. Savings TechniquesXVIII. Quiz 1-3Current LectureChapter 3- Money Management Strategy: Financial Statements and BudgetingThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.BOOK- SMART WOMEN FINISH RICHPlanning for Successful Money ManagementMake wise decisions dailyCoordinate decisions with needs and goalsMoney managementThe day-to-day activities necessary to manage current economic resources and pursue long-term goalsOpportunity Cost and Money ManagementSpending reduces savings potential while saving reduces amounts available for spendingCredit use ties up future incomeUsing savings for purchases depletes savingsComparison shopping spends time but saves moneyMoney Management ComponentsStoring and maintaining personal financial records and documentsCreating personal financial statementsCreating a plan for spending and saving – a budgetFinancial Records SystemFacilitates handling financial affairsPromotes timely bill payingProvides benchmarks for successRecords are available at tax timeImproves financial and investment decisionsProvides a clear record of resources availableItems to File at HomePersonal and employment recordsMoney management recordsTax recordsFinancial services statementsConsumer purchase recordsHousing recordsInsurance recordsInvestment recordsEstate and retirement planning recordsItems for a Safe Deposit BoxBirth, marriage and death certificatesCopy of willCitizenship papers and military recordsAdoption and custodyHousehold inventory informationMortgage papersDeeds and titles to propertyStocks and bond certificatesCoins and other collectiblesComputer RecordsCurrent and past budgetsSummary of banking transactionsPast tax returns prepared electronicallyInvestment and bank statements sent electronicallyComputerized versions of wills, estate plans, or other documentsCloud storageBack up your computer!Record RetentionKeep indefinitelyBirth, marriage and death certificatesWillsSocial security informationDocuments related to the purchase or sale of real estateKEEP TAX RETURNS INDEFINATELY AND SUPPORTING RECORDS FOR SIX YEARSKeep personal property records as long as you own the property3 Components of Successful PlanningSpecified valuesThings like reserved emergency account, its not okay to over draw at the bank, etc.Explicitly stated financial goalsKnowing a dollar amountConsistent financial strategiesA strategy that MAKES SENSEBalance Sheet or Statement of Net WorthA financial statement that describes an individual’s or family’s financial condition at a particular time (on one day) showing assets, liabilities and net worth3 components of a balance sheetAssetsLiquid MonetaryMoney in you checking, daily savings account, physical dollarsReal EstateHome(s) that you ownPersonal PossessionsThings that you ownFurniture, dishes, cars, boatsInvestmentsStocks, bonds, mutual funds, or rental propertyLiabilitiesTotal amount that you owe on current propertyCurrent (short-term)If the item will be paid in full in 1 yearLong-termIf the item will be paid in full in over 1 yearNet WorthAssets – liabilities = net worthIncome and Expense Statement or Cash Flow StatementA financial statement that list and summarizes income and expense transactions that have taken place over a specific period of timeUsually a year or one monthIncome/Expense Statement ComponentsIncomeExpensesFixedSame amount every monthRent, car payment, insuranceTHE FIRST FIXED EXPENSE IN EVERY BUDGET SHOULD BE YOUR PAYMENT TO YOURSELF FOR YOUR SAVINGSVariableChanges from month to monthGroceries, eating out, medical expensesSurplus/LossImportant EquationsDebt RatioTotal Liabilities / Net Worth = Debt RatioCurrent RatioLiquid Assets / Current Liabilities = Cash PositionThe bigger it is, the better it isLiquidity RatioLiquid (Monetary) Assets / Monthly Expenses = Liquidity RatioHow well you are off financially if you have an emergencyHow many months you can cover your living before you have to dip into you savings/investmentsBare minimum of three months to one yearDebt Payment RatioMonthly Non-mortgage Debt / Take Home Pay = %Are you in too much debt?Should be no more than 15% of your take home paySavings RatioAmount Saved Monthly / Gross Monthly Income = SavingsGoal: save 15% of your gross monthly incomeThe Budgeting ProcessApplies to anyone that is going to live in the budget1. Setting Goals2. Estimating income3. Budgeting emergency fund and savings4. Budgeting fixed expenses5. Budgeting variable expenses6. Recording spending amounts7. Review spending and savings patternsThere should never be a “miscellaneous” column in your budget, however, this should be recorded as “personal allowance”Characteristics of Successful BudgetingWell-plannedEnough categories, but not too manyRealisticFlexibleKnow what you’re going to do to tighten up when something goes over, or know where to put the extra money when something is less than expectedClearly CommunicatedEveryone living under the budget must understand the budgetSelecting a Budget SystemMental budgetIf your budget is not physical, it’s not a budgetPhysical budgetWritten budgetComputerized budgetOnline budgetMint.comBudgeting appIdentifying Savings GoalsIrregular and unexpected expensesReplacement of expensive itemsPlan ahead for things you know are going to have to be replaced in X amount of yearsSpecial itemsVacations, etc.Long-term expensesTo earn income from interestSavings TechniquesAlways pay yourself first through payroll deductions into savings accounts or automatic payments