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					       Lecture 3



Preparing Financial Statement
           Lecture Objectives
• Recognise relationships among financial
  documents and money management activities
• Create a system for maintaining personal
  financial records
• Develop a personal balance sheet and cash flow
  statement
• Create and implement a budget
• Calculate savings needed for achieving financial
  goals
What is Money Management?

The day-to-day financial activities necessary to
manage current personal economic resources
while working toward long-term financial
security
Successful Money Management


Requires effective coordination of:
   •   personal financial records
   •   personal financial statements
   •   budgeting activities
    Personal Financial Records
• Personal and employment records
• Money management records
• Tax records
• Financial services records
• Credit records
• Consumer purchases and automobile
  records
• Housing, insurance, investment records
 Personal Financial Statements

Define current financial position.

Track changes in financial position over
 time.

Monitor progress in achieving goals.

Reformulate plans as situations change.
   Personal Financial Statement
     consists of the following

• Personal Balance Sheet
• Personal Cash Flow Statement
         Personal Balance Sheet
Balance Sheet (statement of financial position) –
          Shows Where You Are Now

   Assets         -    Liabilities     =   Net Worth
 (What You Own)       (What You Owe)       (Your Wealth)
          Balance Sheet
     ASSETS       LIABILITIES

What you own:    What you owe:
•current acct.   •Housing loans
•car             •car loan
•investments     •credit card balances
•jewellery       •education loans
•furniture       •unpaid monthly bills
                 Net Worth
                 The balance is your
                 wealth
         What is Net Worth?

       Asset – Liabilities = Net Worth

You can increase your net worth by:
• Increasing your savings
• Reducing your spending
• Increasing the value of your investments
• Reducing the amount you owe
      What Net Worth Isn’t

Net worth IS NOT money available for use
BUT an indication of your financial position
at a given date
     The Cash Flow Statement

• Also called a personal income and
  expenditure statement
• Is a summary of cash receipts and
  payments for a given period, such as a
  month or a year
STEP 1: RECORD INCOME
    Cash IN   


Wages and salaries
Bonuses
Interest and dividends
Saving and investment income
Gifts, scholarships, loans
Money from parents etc
 STEP 2 RECORD EXPENSES
     Cash OUT   

FIXED             VARIABLE
 Rent or loan      Dry cleaning
  payment           Phone bill
 Astro Cable TV    Recreation
 Insurance         Eating out
                    Gifts
     STEP 3: DETERMINE NET
          CASH FLOW

• Difference between Cash In and Cash Out
• Positive or Surplus if Cash In > Cash Out
• Negative or Deficit if Cash Out > Cash In
                             Net Worth Statement
                            Personal Balance Sheet
Assets - What You Own
Cash on hand
Current Account
Savings (Bank, FD, ASB, ASN)
Personal property (market value of car, jewellery, bicycle, home, etc.)
Money owed you
Investments (market value of shares, bonds, unit trusts, etc.)
Others _________________
Total Assets

Liabilities - What You Owe
Credit card balances
Instalment loans (auto, furniture, bank loan)
Educational loans
Others ________________
Total Liabilities

Net Worth (Total Assets minus Total Liabilities)
                 ESTIMATE YOUR INCOME WORKSHEET

                             Month 1   Month 2    Month 3


Scholarship


Allowance


Others




Monthly Totals
                 RECORD YOUR EXPENSES
                  3 MONTH WORKSHEET

                         Month 1      Month 2   Month 3


Housing


Food/Clothing


Transport


Loan


Education/Play


Insurance


Set/asides


Health care


Others


Monthly Total
                             MATCH INCOME AND EXPENSES


                               Month 1          Month 2             Month 3
Income                         ___________      ___________         ___________
Expenses                       ___________      ___________         ___________
Surplus or Deficit             ___________      ___________         ___________

If Expenses Exceed Income                    If Income Exceeds Expenses
1.Where are you overspending?                1.Increase savings for future goals.
2.Where can you cut back?                    2.Satisfy more immediate wants.
3.Which expenditures can be postponed?       3.Increase giving.
4.How can you increase income?
5.Extra job

				
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