Module 3 Goal setting and budjetting Flashcards
The 4 steps of financial planning
1) Goal setting
2) Action Plan
3) Take action
4) Monitor progress
What are the 3 qualities of a good goal
It is spé, quantified and has a dead line
Family balance sheet
A snapshot of assets, liability and net worth at a spé date. Articulation that is necessary for business balancesheet and income statement isn’t necessary for personal finance
Articulation
Income statement items all lead to the balance sheet and net worth is exactly = to the sum of previous income - dividend payed. Example: an increase in the value of the house is recorded in the balancesheet but not on the income statement
Family
Group of people, including single person, sharing their wealth, revenue and expenses
3 types of assets in a family balancesheet
1) Financial asset
2) Personal asset
3) Luxury asset
2 Types of liabilities in a family balancesheet
1) Current liabilities
2) Long term liabilities
3 main decisions with Human Capital
Acquire it
Protect it
Maintain it
Family Income Statement
A record of income expenses, expenditures and net cash flow incurred over a spé period. A family income statement is actualy a cash flow statement since income and expenditures are recorded when received, not when earned. Purchase of car and house do not go on the income statement
Expenses
Cash outlays for current consumption (generaly used up within a year)
Expenditures
Cash outlays for long term consumption. They are long lasting and occur irregularly
2 types of Expenditures
Discretionary
Non-discretionary
Family Budget
Projected income statement projected into periodic terms
3 Purposes of a family Budget
- Control Spending
- Check for Liquidity
- Plan for the future
4 Guidlines for personal debt management
- Consumer debt < 20%
- Family should pay off consumer debt
- Convert consumer loan into investment loan
- Check any new borrowing for negative cash flow
