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Personal finance 2

by: Savah Notetaker

Personal finance 2 AAEC 2104

Savah Notetaker
Virginia Tech

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About this Document

These notes cover financial health, record keeping and financial ratios.
Personal Financial Planning
Dr. White
Class Notes
financial, health, Records, Ratios
25 ?




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This 5 page Class Notes was uploaded by Savah Notetaker on Friday September 16, 2016. The Class Notes belongs to AAEC 2104 at Virginia Polytechnic Institute and State University taught by Dr. White in Fall 2016. Since its upload, it has received 6 views. For similar materials see Personal Financial Planning in AAEC at Virginia Polytechnic Institute and State University.


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Date Created: 09/16/16
Personal Finance Measuring Financial Health Balance sheet o Budget o Income and expense statements ­ What you own and how you paid for it ­ What you own and owe on a given date ­ Terms o Assets­ what you own  Listed at fair market value o Liabilities­ debts, what you owe o Net worth­ financial value  Net worth=Assets­Liabilities Balance sheet­ Assets ­ Monetary Assets o Cash, checking, savings, CDs, MMAs, Emergency funds ­ Investments (non­retirement) o Stocks, bonds, mutual funds, real estate ­ Retirement Assets o Value of IRAs, 401 (K) ­ Tangible assets: o Automobiles  Value of Automobiles o Personal property  Collectables, clothing, furnishings, etc. ­ Other o Anything else owned that is not listed above o Value (equity) of any businesses you own o Money owed to you Balance sheet­ Liabilities ­ What you legally owe TODAY! ­ Current liabilities­ due within 1 year o Payable Net worth ­ What you’re ‘worth’ (in money), your ‘wealth’ ­  NOT a measure of self­worth ­ Want your net worth to be positive o If negative­ you are insolvent o College students tend to be negative ­ Want net worth to grow over time o Until retirement years Income statement ­ Tracks your money over a period of time ­ Cash accounting o Record when cash changes hands ­ Easier to do on a monthly basis than to do on an annual one ­ Income statements help o Identify ways to reduce spending o Project budget for the future Income ­ List ALL sources of income o Gross salary/wages (before taxes) o Tips, commissions, bonuses o Scholarships, grants, welfare, “GI Bill”, gifts o Investment income  Interest earned  Dividends (cash or stock) o Other income such as garage sale Income taxes ­ Total all income­based taxes o Local state and federal income taxes **Advice: after you graduate, try to have 1­2 months of savings built up Expenses ­ Housing o Rent, repairs, utilities, property taxes, etc. ­ Food o Groceries, food away from home, meal plan ­ Clothing and personal care o Clothes, toothpaste, haircare, toilet paper ­ Transportation o Auto loan payments, rental/lease o Gas, repairs, etc. ­ Medical o Co­pays, prescription, tests, etc. ­ Insurance premiums o Auto, life, health, LTC, etc. ­ Recreation o Need to classify what you consider “recreation” o Movies, T.V., football games, etc. (entertainment)  ­ Other: anything not listed above o Savings, investments, retirement, etc. ­ Don’t double count credit card payments!! o Include under proper expense category ­ Non­regular payments o Insurance premiums ­ Investments as expenses o Savings, investment, retirement, etc. Expenses­ BEWARE!! ­ Main mistakes: o Double counting o Forgetting what you pay only once or twice a year o Tuition o Investments in expense Budgeting ­ Crucial for your financial future ­ Relatively simple but few people do it ­ Review your goals ­ Review your income statement ­ Take best guesses ­ Estimate income o Gross income/net of income taxes ­ Build savings o 20­25%, 10% at least ­ Incorporate “fudge factor” of 10%­20% o Unexpected situations Main Financial Ratios:  1. Months Living Expense: Total monetary assets / total monthly living expenses a. 3­6 months is the bench mark 2. Debt Payment/Income: Total debt payments / Gross income a. 38%­40% is the bench mark 3. Savings Ratio Savings and investment / Gross income a. 10% is the bench mark Green – low risk (good) Yellow – Caution area (slow down and try making changes) Red­ high risk (STOP!) Record keeping ­ People keep records mainly for taxes ­ Keeps track ­ CYA­ “Cover You’re A**” in case of lawsuit ­ Emergencies and the 5 D’s o Disease o Disability o Divorce o Disasters o Death ­ Other D’s o Drugs o Dependence o Dumbness o Debt o Etc. Where to keep records ­ Filing cabinets ­ QuickBooks ­  Fire­proof safe ­ Safe deposit box (at the bank) Keep tax records for 3­7 years Keep debt records for life of loan and 3 years’ after


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