HDF 322 1st Edition Lecture 3 Outline of Last Lecture I The Financial Planning Process Outline of Current Lecture II Planning for Successful Money Management a Opportunity Costs III A System for Personal Financial Records IV Record Keeping a Items in your home b Items in safe deposit box c Personal computer records V Personal Financial Statements Measure Financial Progress VI Balance Sheet VII The Cash Flow Statement VIII Evaluating Liquidity IX Savings Adequacy X Evaluating Tax Burden Current Lecture I Planning for Successful Money Management a Step 1 looking at our current in situation b in successful money management you are making decisions daily car you will buy and with what you do with little amounts of your money c coordinating whats important to you keep all goals in mind d opportunity costs what you spend today makes a difference for what you invest tomorrow e today s spending habits do matter how much is enough how many new shoes f If you savings you are giving up the return g Opportunity Costs II A System for Personal Financial Records a YOU NEED TO HAVE A SYSTEM b you want to measure financial progress balance sheet or statement shows if you are improving or sliding back c records for taxes These 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 d Investment decisions not in this class III Record Keeping a Items in your home b Items in safe deposit box i put things in here that are impossible to replace See examples above ii copy of the will not an original copy original needs to be kept with attorney iii if you want to keep original copy of will not in safe deposit box bc it will be sealed at your death only when court rep is there with heirs will it be reopenediv Best place to keep original is with your attorney c Personal computer records i your comp could have info also ii always back them up d In record keeping you need a system any system that fits you Dr Kitt uses files envelopes arent bad they are closed when you take them out education insurance files etc e You need to get a system your comp is part of a system but its not a full system bc you need physical copies of things f devise a system alphabetical whatever fits you IV Personal Financial Statements Measure Financial Progress a start organizing and keeping records to where you can get to them b cover your behind c net worth statement balance sheet d allow you to see where you are today e are you increasing f can be important for taxes annually V Balance Sheet a Balance Sheet has left and Right Sideb balance sheet net worth statement we use MARKET VALUE the current price that will also be the current debt c when looking at ASSETS on left side diff types those are at the CURRENT MARKET VALUE d Assets WHAT YOU OWN e LIABILITIES what you OWE the debts you have f LIQUID you can get to it quickly 6 months or less g INVESTMENT 6 months or more h LIABILITIES on RIGHT sidei current liabilities are 1 year or less SEE NEXT SLIDE j difference types k Long term liabilities are over 1 year l current bills overdue m outstanding balances would be in credit card discover n when you have balance sheet and you look at Assets and Liabilities the difference is a NET WORTH what is your real value how much you are worth o you want your net worth to increase over the years by having no or little debt or by purchasing assets not consumables p Insolvency more debts than assets VI The Cash Flow Statement a TOP AND BOTTOM SHEETb TOP INCOME c BOTTOM EXPENSES d this is like an annual thing like a movie balance sheet is more like snap shot e January December f called this because want you to think of money coming in INCOME and money coming out EXPENSES g When you look at income you look at all type that you get cash check etc you can look at those categories and see the things that come in child support misc income rent etc h all of these things come in you record INCOME i bottom part the OUTFLOW what do you spend your money on VII Evaluating Liquidity a LIQUIDITY RATIO b Liquid Assets on Balance Sheet it s a total amount this is easy one c Monthly Expenses Expenditures are Everything don t look at TOTAL EXPENDITURES AFTER TAKE HOME but that doesn t include the ones at top taxes health insurance retirement and other d take the figure 48 000 total at bottom go back and add taxes and health insurance and retirement e LIQUIDITY RATIO IS 199 you have to divide by 12 because those are all annual f this ratio does how long can I exist if bad times come and I have no job no money 250 is what our financial planners educators recommend that is 2 5 months 199 for Thomas he cant even survive 2 full months on his liquid assets if bad times come g text says you need 3 6 months of income another says 8 but OUR study says 2 5 months of liquid assets then you get check VIII Savings Adequacy a Savings Ratio how are you doing in savings what you can set aside so you arent spending all of your money IX Evaluating Tax Burden I 2 Tax Burdens Payroll Taxes only or Property Taxes guy on project doesn t have property taxes though just payroll II 2 amounts depending on income level income level in middle you will take payroll taxes and divide by gross income amt you used before III matter of pulling numbers off to get IV you want them to be lower this time
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