Chapter 3: Financial Statements, Tools, and Budgets Garman/Forgue Personal Finance Ninth Edition PPT slide program prepare...
Learning Objectives <ul><li>Identify  your financial values, goals, and strategies. </li></ul><ul><li>Use  balance sheets ...
Learning Objectives <ul><li>Evaluate  your financial strength and progress using financial ratios. </li></ul><ul><li>Maint...
Financial Values, Goals, and Strategies <ul><li>Financial Planning : Managing income and wealth continuously through life ...
Financial Values, Goals, and Strategies <ul><li>Values define your financial success. </li></ul><ul><li>Financial goals fo...
Financial Values, Goals, and Strategies <ul><li>Financial strategies guide your financial success. </li></ul>
Financial Statements <ul><li>Financial Statements  measure your financial health and progress. </li></ul><ul><li>Balance S...
Financial Statements <ul><li>Components of the balance sheet: </li></ul><ul><ul><li>Assets </li></ul></ul><ul><ul><li>Liab...
Financial Statements <ul><li>Assets : What Is owned </li></ul><ul><ul><li>Monetary Assets  (or  liquid assets  or  cash eq...
Financial Statements <ul><li>Liabilities : What Is owed </li></ul><ul><ul><li>Short-term  (or  current )  liability </li><...
Financial Statements <ul><li>Net Worth : What is left </li></ul>
Strategies to Increase Your Net Worth <ul><li>Increase Assets. </li></ul><ul><li>Decrease Liabilities. </li></ul><ul><li>o...
Cash-Flow Statement <ul><li>The Cash-Flow Statement tracks where your money came from and went. </li></ul><ul><ul><li>Inco...
Cash-Flow Statement <ul><li>Expenses </li></ul><ul><ul><li>Fixed Expenses </li></ul></ul><ul><ul><li>Variable Expenses </l...
Financial Ratios <ul><li>Basic liquidity ratio </li></ul><ul><li>Liquidity : The speed and ease with which an asset can be...
Financial Ratios <ul><li>Asset-to-debt ratio </li></ul><ul><li>Do you have enough assets compared to liabilities? </li></ul>
Financial Ratios <ul><li>Debt service-to-income ratio   </li></ul><ul><li>Can you meet your total debt obligations? </li><...
Financial Ratios <ul><li>Debt payments-to-disposable income ratio </li></ul><ul><li>Can you pay your debts? </li></ul>
Financial Ratios <ul><li>Investment assets-to-total assets ratio </li></ul><ul><li>Do you need to invest more? </li></ul>
Financial Record Keeping <ul><li>Financial record keeping saves time and makes you money. </li></ul><ul><li>Financial Reco...
Budgeting <ul><li>Budget : A paper or electronic document used to record both planned and actual income and expenditures o...
Budgeting <ul><li>Rules for successful budgeting: </li></ul><ul><ul><li>Keep it simple. </li></ul></ul><ul><ul><li>Make it...
Budgeting – Action Before <ul><li>Set financial goals. </li></ul><ul><ul><li>Long-term goals </li></ul></ul><ul><ul><li>In...
Budgeting – Action Before <ul><li>Make and reconcile budget estimates. </li></ul><ul><li>Take-home pay  (or  disposable in...
Budgeting – Action Before <ul><li>Revise budget estimates. </li></ul><ul><li>Earn more income. </li></ul><ul><li>Cut back ...
Budgeting – Action Before <ul><li>Plan cash flows. </li></ul><ul><li>Cash-Flow Calendar </li></ul><ul><li>Revolving Saving...
Budgeting – Action During <ul><li>Control spending. </li></ul><ul><li>Monitor unexpended balances to control overspending....
Budgeting – Action During <ul><li>Keep track of credit transactions. </li></ul><ul><li>Justify exceptions. </li></ul><ul><...
Budgeting – Action After <ul><li>Evaluate budgeting progress. </li></ul><ul><li>Budget Variance : Difference between amoun...
Budgeting <ul><li>Record Keeping : Recording sources and amounts of dollars earned and spent. </li></ul><ul><li>Adding up ...
What to Do with Budgeted Money Left Over at the End of the Month <ul><li>Put into a revolving savings fund. </li></ul><ul>...
What to Do with Budgeted Money Left Over at the End of the Month <ul><li>Put toward a mortgage or other loan. </li></ul><u...
Top 3 Financial Missteps in Financial Statements, Tools and Budgets <ul><li>People slip up in building and maintaining goo...
Good Money Habits in Financial Statements, Tools, and Budgets <ul><li>Identify your financial values, goals, and strategie...
Good Money Habits in Financial Statements, Tools, and Budgets  <ul><li>Develop your own cash-flow statements monthly or qu...
Good Money Habits in Financial Statements, Tools, and Budgets <ul><li>Develop a list of financial goals. Start with short-...
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Chapter 3: Financial Statements, Tools, and Budgets Power ...

  1. 1. Chapter 3: Financial Statements, Tools, and Budgets Garman/Forgue Personal Finance Ninth Edition PPT slide program prepared by Amy Forgue and Ray Forgue.
  2. 2. Learning Objectives <ul><li>Identify your financial values, goals, and strategies. </li></ul><ul><li>Use balance sheets and cash-flow statements to measure your financial health and progress. </li></ul>
  3. 3. Learning Objectives <ul><li>Evaluate your financial strength and progress using financial ratios. </li></ul><ul><li>Maintain the financial records necessary for managing your personal finances. </li></ul><ul><li>Outline and work toward achieving your financial goals through budgeting. </li></ul>
  4. 4. Financial Values, Goals, and Strategies <ul><li>Financial Planning : Managing income and wealth continuously through life to meet financial goals. </li></ul>
  5. 5. Financial Values, Goals, and Strategies <ul><li>Values define your financial success. </li></ul><ul><li>Financial goals follow from values. </li></ul><ul><li>Financial Goals : Specific objectives to be attained through financial planning and management efforts. </li></ul>
  6. 6. Financial Values, Goals, and Strategies <ul><li>Financial strategies guide your financial success. </li></ul>
  7. 7. Financial Statements <ul><li>Financial Statements measure your financial health and progress. </li></ul><ul><li>Balance Sheet (or Net Worth Statement ) </li></ul>
  8. 8. Financial Statements <ul><li>Components of the balance sheet: </li></ul><ul><ul><li>Assets </li></ul></ul><ul><ul><li>Liabilities </li></ul></ul><ul><ul><li>Net Worth </li></ul></ul>
  9. 9. Financial Statements <ul><li>Assets : What Is owned </li></ul><ul><ul><li>Monetary Assets (or liquid assets or cash equivalents ) </li></ul></ul><ul><ul><li>Tangible (or use ) assets </li></ul></ul><ul><ul><li>Investment (or capital ) assets </li></ul></ul>
  10. 10. Financial Statements <ul><li>Liabilities : What Is owed </li></ul><ul><ul><li>Short-term (or current ) liability </li></ul></ul><ul><ul><li>Long-term liability </li></ul></ul>
  11. 11. Financial Statements <ul><li>Net Worth : What is left </li></ul>
  12. 12. Strategies to Increase Your Net Worth <ul><li>Increase Assets. </li></ul><ul><li>Decrease Liabilities. </li></ul><ul><li>or both! </li></ul>
  13. 13. Cash-Flow Statement <ul><li>The Cash-Flow Statement tracks where your money came from and went. </li></ul><ul><ul><li>Income </li></ul></ul><ul><ul><li>Expenses </li></ul></ul><ul><ul><li>Surplus (or Net Gain or Net Income) </li></ul></ul><ul><ul><li>Deficit (or Net Loss) </li></ul></ul>
  14. 14. Cash-Flow Statement <ul><li>Expenses </li></ul><ul><ul><li>Fixed Expenses </li></ul></ul><ul><ul><li>Variable Expenses </li></ul></ul>
  15. 15. Financial Ratios <ul><li>Basic liquidity ratio </li></ul><ul><li>Liquidity : The speed and ease with which an asset can be converted to cash. </li></ul>
  16. 16. Financial Ratios <ul><li>Asset-to-debt ratio </li></ul><ul><li>Do you have enough assets compared to liabilities? </li></ul>
  17. 17. Financial Ratios <ul><li>Debt service-to-income ratio </li></ul><ul><li>Can you meet your total debt obligations? </li></ul>
  18. 18. Financial Ratios <ul><li>Debt payments-to-disposable income ratio </li></ul><ul><li>Can you pay your debts? </li></ul>
  19. 19. Financial Ratios <ul><li>Investment assets-to-total assets ratio </li></ul><ul><li>Do you need to invest more? </li></ul>
  20. 20. Financial Record Keeping <ul><li>Financial record keeping saves time and makes you money. </li></ul><ul><li>Financial Records : Documents that evidence financial transactions. </li></ul>
  21. 21. Budgeting <ul><li>Budget : A paper or electronic document used to record both planned and actual income and expenditures over a period of time. </li></ul>
  22. 22. Budgeting <ul><li>Rules for successful budgeting: </li></ul><ul><ul><li>Keep it simple. </li></ul></ul><ul><ul><li>Make it personal. </li></ul></ul><ul><ul><li>Keep it flexible. </li></ul></ul><ul><ul><li>Be positive. </li></ul></ul>
  23. 23. Budgeting – Action Before <ul><li>Set financial goals. </li></ul><ul><ul><li>Long-term goals </li></ul></ul><ul><ul><li>Intermediate goals </li></ul></ul><ul><ul><li>Short-term goals </li></ul></ul>
  24. 24. Budgeting – Action Before <ul><li>Make and reconcile budget estimates. </li></ul><ul><li>Take-home pay (or disposable income ) </li></ul>
  25. 25. Budgeting – Action Before <ul><li>Revise budget estimates. </li></ul><ul><li>Earn more income. </li></ul><ul><li>Cut back on expenses. </li></ul><ul><li>Try a combination of more income and fewer expenses. </li></ul>
  26. 26. Budgeting – Action Before <ul><li>Plan cash flows. </li></ul><ul><li>Cash-Flow Calendar </li></ul><ul><li>Revolving Savings Fund </li></ul>
  27. 27. Budgeting – Action During <ul><li>Control spending. </li></ul><ul><li>Monitor unexpended balances to control overspending. </li></ul><ul><li>Use a subordinate budget. </li></ul><ul><li>Pay by check to record the purpose of expenditures. </li></ul>
  28. 28. Budgeting – Action During <ul><li>Keep track of credit transactions. </li></ul><ul><li>Justify exceptions. </li></ul><ul><li>Use the envelope system. </li></ul>
  29. 29. Budgeting – Action After <ul><li>Evaluate budgeting progress. </li></ul><ul><li>Budget Variance : Difference between amount budgeted and actual amount spent or received. </li></ul>
  30. 30. Budgeting <ul><li>Record Keeping : Recording sources and amounts of dollars earned and spent. </li></ul><ul><li>Adding up actual income and expenditures </li></ul>
  31. 31. What to Do with Budgeted Money Left Over at the End of the Month <ul><li>Put into a revolving savings fund. </li></ul><ul><li>Build a cash reserve in a savings account. </li></ul><ul><li>Pay down credit card debt. </li></ul>
  32. 32. What to Do with Budgeted Money Left Over at the End of the Month <ul><li>Put toward a mortgage or other loan. </li></ul><ul><li>Invest in a retirement account. </li></ul><ul><li>Spend like “made money.” </li></ul>
  33. 33. Top 3 Financial Missteps in Financial Statements, Tools and Budgets <ul><li>People slip up in building and maintaining good credit when they do the following: </li></ul><ul><ul><li>Fail to plan for occasional, non-monthly expenditures. </li></ul></ul><ul><ul><li>Underestimate how much you spend each month. </li></ul></ul><ul><ul><li>Using credit cards to “balance” your budget. </li></ul></ul>
  34. 34. Good Money Habits in Financial Statements, Tools, and Budgets <ul><li>Identify your financial values, goals, and strategies so you can always keep a balance between spending and saving and stay committed to your financial plans. </li></ul><ul><li>Develop your own balance sheet and update it annually. </li></ul>
  35. 35. Good Money Habits in Financial Statements, Tools, and Budgets <ul><li>Develop your own cash-flow statements monthly or quarterly and compile them into an annual statement. </li></ul><ul><li>Calculate your financial ratios annually to assess your financial progress. </li></ul>
  36. 36. Good Money Habits in Financial Statements, Tools, and Budgets <ul><li>Develop a list of financial goals. Start with short-term goals and then expand your list to longer-range goals. Update and revise your goals annually. </li></ul><ul><li>Start an uncomplicated personal financial record-keeping system that meets your needs. </li></ul>

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