Money Management Skills:

1
CHAPTER 2

• Money Management Skills
• Financial Statements and Budgeting

Or We Spent How Much On What?!
2
Money Management, Defined

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

How Come We Always Have Too Much Month at the
End of the Money!
3
Major Money Management Activities

• Store and maintain personal financial records and
  documents
• Create personal financial statements
• Cash Flow Statement (income vs. expenses)
• Net Worth Statement (assets vs. liabilities)
• Create and implement a plan for spending and
  saving (Arrgh! Budgeting!)

4
Why Keep Financial Records?

• To help make spending decisions
• To plan future spending
• To pay bills on time
• To see changes in net worth
• To make good investment decisions
• To prepare your income tax forms
• In preparation of applying for a loan

So you know what is happening to your money!
5
What to Keep in Your Home File

• Items you refer to often
• Personal and employment records
• Tax records
• Financial services records
• Money management records
• Credit records
• Consumer purchase records
• Insurance records
• Investment records
• Housing and car records
• Estate planning and retirement records

6
What to Keep in Your Safe Deposit Box

• Safe deposit box is for records and items that
  would be hard to replace
• Birth, marriage and death certificates
• Citizenship and military papers
• Adoption and custody papers
• Serial numbers and photos of valuables
• CDs and account numbers
• Mortgage papers and titles
• List of insurance policy numbers
• Stock and bond certificates
• Coins and collectibles
• Copy of will

Discussion What about just buying a home safe?
7
Other Places to Keep Records

• Automobile
• Vehicle registration (I disagree)
• Lawyer or Executor or Both
• Original of your will other estate documents
• Home computer (Encrypted?)
• Current and past budgets
• Checking account records
• Wills, estate plans, investments
• Past income tax returns

www.pgp.com
8
Successful Budgets Are...

• Well planned
• Realistic
• Flexible
• Clearly communicated

• Next To Impossible!

Discussion Does Budgeting ever work?
9
Saving is easier than Budgeting

• Spend Less Than You Earn
• Live Beneath Your Means
• Pay Yourself First
• Make Love, Not Loans!

For those of you old enough to remember (or are
into vinyl music), do I sound like a broken
record?
Discussion The Pay Yourself 10 First
Solution Is it reasonable?
10
The Extreme Viewpoint

• Keep a small notebook with you at all times
• Record every monetary transaction you make
• No matter how small
• Update your cash flow statement constantly

Devotees of Your Money or Your
Life www.simplelivingforums.net Did anyone check
out their forums?
11
Personal Financial Statements

• Net Worth Statement
• A snapshot of your financial situation
• Assets versus Liabilities
• a.k.a. Balance Sheet
• Cash Flow Statement
• The movie of your financial life
• Income versus Expenses
• a.k.a. Income Statement, Budget

Lets look at each one in detail
12
Components of a Net Worth Statement(a.k.a.
Balance Sheet)

• Assets What You Own
• Liquid assets
• Real estate
• Personal possessions
• Investment assets
• Liabilities What You Owe
• Current liabilities One year or less (a.k.a.
  short-term)
• Long-term liabilities Greater than one year
• Net Worth What You Have Left Over
• Assets minus liabilities
• Insolvent means liabilities far exceed assets
• Rule of thumb If short-term liabilities gt
  income

13
Components of a Cash Flow Statement(a.k.a.
Income/Expense Statement, Budget)

• Shows inflow and outflow during a given time
  period Income versus Expenses
• Record cash inflows
• Income from employment
• Savings and investment income
• Other sources
• Record cash outflows
• Fixed and variable expenses
• Net cash flow can be a surplus or a deficit
• Used as a basis for creating a spending, saving,
  and investment plan

Insolvency is better determined here.
14
Cash Flow / Net Worth

• Lets start on those financial documents