Personal Fiannce 2

Organizing your personal financial records can…

Help you make informed decisions about your spending.

Money management

Planning how to get the most from your money

Trade-off

Giving up one thing to get another

Opportunity cost

The value of the next best alternative you missed out on because of your choice (exp: spent 100 on shoes, but could have spent 109 on concert tickets)

Resolving tough opportunity costs

Make a list of options and consider how these options fit your values, current financial situation, and goal of efficient money management

Personal financial document

Bank statements, paycheck stubs, automobile ownership titles, birth certificates, tax forms

Creating a system for organizing your personal financial documents helps you:

Plan and measure your financial progress, handle routine money matters like playing bills on time, determine how much money you will have now and in the future, and make effective deductions about how to save money

Keep financial documents

A home file, a safe-deposit box, a computer

Home files

Simple to set up, can use a file drawer, several folders, a cardboard box

Setup a home filling system

Sort through all your personal financial records, arrange them accordingly to the type of each document, label all folders or boxes, file all your receipts or financial papers when you receive them, DON’T KEEP HARD-TO-REPLCE DOCUMENTS IN A HOME FILE

Safe deposit boxes

Small, secure storage compartment that you can rent in a bank for like 100 a year or less

Safe deposit boxes documents

Car titles, mortgage loan papers, birth certificates and adoption papers, list of insurance policies, and valuable collectibles such as coins or stamps

Home fire safe box

Can replace safe-deposit boxes because they lock and keep your documents safe

Home computers

Store certain types of financial records, plan your financial future, keep a running summary of checks you have written, track your monthly spending. Can also generate personal financial documents and statements from this info with software

Personal financial statement

Document that provides info about a persons current financial position and presents a summary of income and spending.

For a complete look at your financial situation you should:

Crest e a personal balance sheet and a cash flow statement

These personal financial statements can help you:

Determine what you own and what you owe, measure your progress towards your financial goals, track you financial activities, and organize information that you can use when you file your tax return or apply for credit

Personal balance sheet/ net worth statement

A financial statement that lists items of value owned, and a persons net worth

Net worth

The difference between the amount that you own and the debts you owe

To evaluate your financial situation, you need to first create a balance sheet that includes:

Items of value owned, debts owed, a persons net worth

Step 1 to create a personal balance sheet

Determine your assets

Assets

Any item of value that a person owns, can include cash, property, personal possessions, and investments

Wealth

An abundance of valuable material possessions or resources

To determine your assets consider the four categories of wealth

Liquid assets, real estate, personal possessions, investment assets

Liquid assets

Cash and items that can be quickly turned into cash.

Real estate

Land and any structures on it that a person owns

Market value

The price at which property would sell

determine the market value of your real estate by:

Looking at the amount recorded on the real estate portion of your balance sheet

Liquid assets examples

money in your savings and checking accounts

Personal possessions

Cars, any valuable items, NOT real state

Investment assets

4th category of wealth. Include: retirement accounts, securities such as stocks and bonds. You should set aside such assets for long term financial needs: paying for college, buying a house, retirement

step 2: liabilities

Are the debts that you owe

Two main types of liabilities

Current liabilities- short term debts that have to be paid within one year

Long term liabilities- debts that do not have to be fully repaid for at least a year

Insolvency

Financial state that occurs if liabilities are greater than assets