Chapter 2: Measuring Your Financial Health
Chapter 2: Measuring Your Financial Health AAEC 2104
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This 3 page Class Notes was uploaded by Jennifer Cartwright on Sunday February 7, 2016. The Class Notes belongs to AAEC 2104 at Virginia Polytechnic Institute and State University taught by Dr. White in Spring 2016. Since its upload, it has received 36 views. For similar materials see Personal Financial Planning in Agricultural & Resource Econ at Virginia Polytechnic Institute and State University.
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Date Created: 02/07/16
Cornell Notes during class, power point, movies (if need Name: ___________________________________ to collect info.) Class: _________________ Period: ________ TopicChapter 2: Measuring Date: ____________________________ Financial Health Essential Question: Questions/Main Ideas: Notes: Balance Sheets - Own and have paid for - Own vs. owe - Assets: what you own - Liabilities: debts - Net worth: financial value Assets - Liabilities = Net Worth Assets - Monetary: cash, checking, savings, etc. - Non-Retirement Investments: stocks, bonds, mutual funds, real estate - Retirement Assets: 401(k), IRA, pensions - Housing: value of owned residences - Automobiles: value of cars - Personal Property - Other: anything not listed - Classifications: monetary, investments, tangible Liabilities - Legally owe as of today - Current means due within a year: bills and credit card - Non-current: auto loans, mortgage, consumer loans, student loans Net Worth - Wealth - Assets- Liabilities - Want it to be positive: negative means insolvent - Grow over time Income Statement - Tracks money over a period of time - Do on a monthly basis - Helps: reduce spending, project budget, determine amount saved Income - List all sources of cash income - Gross salary/wages (before taxes) - Total all income-based taxes - Gross income - taxes = take home pay Savings and Investments - List amount that you have added to your savings account through the period - List amount invested in that period - Aim for saving or investing 10% of gross income - Students should have 1-2 months in savings - Adults: 3-6 months Expenses - List all household expenses - Housing, Food, Clothing and Personal, Transportation, Medical, Insurance Premiums, Recreation, Other Expense Mistakes - Don’t double count credit card payments - Don’t forget non-regular payments - Don’t include investments as expenses Budgeting - Review goals - Review income statement - Estimate upcoming month’s income - Build savings into budget - Estimate expenditures - Fudge Factor: 10-20% - Track expenses and compare to budget - Adjust accordingly - If negative: check math, consider reduces expenses, see if you need to change your lifestyle - If positive: increase savings, pay debts, invest retirement Financial Health - Look at: budget, balance sheet, income statement, and financial ratios - Track changes Financial ratio- liquidity - Monetary assets/monthly living expenses - Tells how many months you can last on savings - Benchmark: 3-6 months - If bad cut down top 5 expenses and increase savings Financial Ratio- Debt - Debt payment/ gross income Payment - Benchmark: Less than 38-40% Financial Ratio- Savings - Savings and Investment/ Gross income - Benchmark: greater than 10% Record Keeping - Helps prepare for taxes, track finances and control spending, emergencies - Prepare for 5 ds’: disease, disability, divorce, disasters, death - Use a file cabinet, envelopes, computer, accounting service - Keep tax records, investment records, insurance records, retirement records, estate planning documents, debt records, receipts major purchases, balance sheet, income statement, household inventory, warranties, contracts, deeds, and
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