Finance 310: Measuring Your Financial Health and Creating a Plan

Liabilities are defined as what you owe or unpaid balances. Liabilities include:
- Current Liabilities: Debt to be paid off within one year (utilities, insurance premiums, credit card balances)
- Long Term Liabilities: Longer-term debts (home loans, car loans, student loans)
- Other Liabilities: Installment loans, bank loans, insurance policy loans.

Assignments include:
- Complete a 2-page long-form balance sheet
- Complete a short-form balance sheet, itemizing amounts per section (A, B, etc.), and transfer totals, then submit.
- All forms are posted on Canvas to be brought for tax preparation lecture.

To calculate net worth effectively, transfer total amounts for each asset category (A through O) to establish an annual view of your assets and liabilities.
- This can help in long-term projections and analysis.
- It presents a big picture of net worth.

Formula: Total Assets - Total Liabilities = Net Worth
- Positive Net Worth occurs when total assets exceed liabilities.
- Negative Net Worth occurs if expenses exceed income and total liabilities exceed total assets, indicating insolvency.

Income refers to where money comes from. Common sources include:
- Wages, salaries, bonuses, tips, royalties, and commissions
- Other sources: family income, government payouts (e.g., veteran benefits, welfare, social security)
Major expenditures include:
- Federal, state, social security, and Medicare taxes (deducted from earnings)
- Living expenses that reduce net income, with remaining money earmarked for savings and investments.
- Important note: Tracking cash transactions can be difficult; keep all receipts.

Complete personal income statement worksheets for 2 months.
- Important that any transferred numbers must be annualized.
- Complete a simplified income statement, with worksheets provided on Canvas.
- Bring completed forms to class for tax preparation lecture.

The simplified income statement provides a yearly overview:
- Total annual income, taxes, and expenses tracked from personal income statement worksheets.
- Represents a financial motion picture of income over the year, reflecting net income properly.
- Financial components summarized:
- Federal income tax, social security contributions, total annual wages, other income, and state income tax deductions.

Understanding cash flow is crucial before spending, saving, and investing.
- Determines cash flow with the equation:
  $ext{Income} - ext{Expenses} - ext{Debt} = ext{Cash Flow}$
- Quote by Warren Buffet:
- "Do not save what is left after spending but spend what is left after saving."

Using the balance sheet and income statement to evaluate financial health allows for:
- Setting and achieving financial goals
- Developing a cash budget and a plan of action
- Monitoring progress with balance sheet and income statement reviews.
- Important reminder: A budget should proactively inform spending habits.

Encouraged to pay with cash for one month:
- Compare actual expenditures with budgeted amounts at month-end for accuracy.
- Consider using envelope systems or “cash stuffing” to limit spending in each category.
- Essential to keep and log receipts to monitor daily spending habits.
- Recommended apps for tracking expenditures include Mint, GoodBudget, or Quicken.

Emphasizes communication about money in relationships:
- Discuss financial goals, personal feelings, and money-related intimacies.
- Best to initiate discussions during conducive times.
- Reference mentioned: WSJ Article, "If You Date Me, You Date My Debt".
- Questions raised about prenuptial agreements: Good idea or bad idea?

Overview continues on understanding financial health and practical implications of personal financial management including budget adherence, cash flow tracking, and informed decision-making with professional insight where needed.