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Personal Finance Notes - 9/2 Interview a wise person ask...

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9/2 Interview a wise person, ask them: o Biggest financial mistake in their life? o Any advice to give to prevent such mistakes? 9/7 You can avoid being turned down for a personal loan by having o Good credit score o Have to keep your debt payments under 15% of your disposable income Income and Expense Statement (Over a specific past time period) o Money is flowing (in & out) o Income – Expenses (fixed variables) = Net Gain or (Loss) Retirement – Pension, SS, Personal Funds Assistance – Unemployment, workman’s compensation, disability, WIC, SS (non-pension), Food Stamps, Child Care, Education grants or loans, housing, medical Other – Military allotments, Veteran’s benefits, gaming distributions Expenses – paid by income o Fixed Expenses: Usually paid in the same amount each time period, often contractual Scheduled payments Examples: Loan payments Insurance premiums Rent payments Difficult to reduce a fixed expenses Need to be paid even if you lose your job o Variable Expenses: Controllable expenses that usually occur in the short run Individual has considerable control Examples: Food Entertainment Clothing Household supplies Disposable or Discretionary Income? o Income Gross Income – Tax = Net Income o Expenses
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Fixed – Variable = Net Gain or (Loss) o Disposable Income – at my disposal pay my bills o Discretionary – to spend, save or to invest Income has nothing to do with wealth Income is flow, wealth is accumulation of money Net Worth Statement o Assets Monetary (liquid) Tangible (physical) Investment (capital) o Liabilities Long term Short term o Net Worth (positive or negative) = Assets – Liabilities Assets o Monetary Asset/Liquid Asset Easily/readily converted to cash with no loss in market value or penalty Maintenance of living expenses Emergencies, saving, payment of bills o Tangible Asset/Lifestyle Contributes to a particular quality of life Maintenance of one’s lifestyle Generally depreciates over time Examples: House, condo, mobile home Appliances Furniture Auto Jewels Tools o Investment Assets/Capital Assets Provides additional income May increase over time Generally appreciate o Fair Market Value What any given buyer will give any given seller on any given day (Selling a car on Autotrader.com) Short Term Liability – Less than one year to pay off Long Term Liability – More than one year to pay off Financial Statements o Income o Assets
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Monetary Cash in wallet $ in savings Tangible Signed photo of Mickey Mantle Investment o Expenses – Money that is already paid Fixed Car Payment Child Care Payment Variable Flu shot Cable Bill $3.80 coffee at Biggby o Liabilities – Money that is still owed Short term $550 charged to VISA Consumers bill unpaid Long term Student loan Money left on car loan
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