chapter 2: Personal Financial Statement

FORMAT

example

a. ASSETS (OWN)

i. LIQUID ASSETS / CURRENT ASSETS cash or other assets that can be readily converted to cash with little or no loss in value.

Ex: cash on hand, current account, savings account and checking account

iI. INVESTMENT ASSETS are assets being purchased for getting extra or side income.

Ex: preferred stocks, common stock, bonds, mutual funds and ASB

III. LIFESTYLE ASSETS are assets that help achieve desired quality of life.

Ex: residence, automobiles, jewelry, clothing, hand phone

b. LIABILITIES (OWE)

I. CURRENT LIABILITIES / SHORT TERM DEBT – debt due within 1 year.

Ex: utilities bills, payments for loans installments balance that are due within one year such as payments for personal loan or computer loan

II. NON CURRENT LIABILITIES / LONG TERM DEBT debt due in 1 year or more. 1) non-current portion of loans with specific repayment schedules.

Ex: installment loans on cars (balance) , equipment, house or other property. 2) non-current portion of liabilities without specific repayment schedules. Ex: mortgage loans.

c. NET WORTH = (TA-TL)

Equity = actual ownership in an asset

The Concept of Solvency

Solventnet worth is positivesufficient assets to cover financial obligations

Insolvent net worth is negativeinsufficient assets to cover financial obligations

Net Worth is a signal of one’s financial position. Alternative to increase net worth are: •To increase savings •To reduce spending •To increase the value of investment and other assets •To reduce liabilities

Detail breakdown of cash income and expenses for a particular period of time.Importance. 1) it will indicate a person’s financial position. 2) It helps in doing the person’s budget

A. INCOME

Cash inflow or sources of income.

EX: The major income source of income for an individual will be salary or wages.Bonuses, interest and dividends, proceeds from sale of assets, child support, tax refunds, gifts

B. EXPENSES

WHAT? Cash outflows.Needed to sustain a person’s life.

FIXED

Has little control in the short run

Mortgage payments, car loan, insurance premium payments, rent.

Also known as sunk cost- cannot avoided.

VARIABLES

Can control especially in short run. Home maintenance, doctor’s bills, dentist's bills.

Expenses that can be predicted. Buying foods, clothing

Expenses that are paid and can be inflexible expenses. Ex: water bills, electricity bills.

Expenses that can go up and down along with income. Ex increase in the traveling expenses as increase in traveling allowance (official duty).

importance:

FORMAT

financial planning report that helps achieve short-term financial goals and how one uses his/her resources.Master budget – detail planned income, expenses and contribution of savings.For a period of one year.Monthly income and expenses plan – after doing the master budget, then preparing the monthly budget. To determine how income and expenses will take place.

INCOME

EXPENSES

DEALING WITH DEFICIT:

IMPORTANCE:

FORMAT

6 TYPES

1.SOLVENCY RATIO

FORMULA

2. CURRENT RATIO/LIQUIDITY RATIO

FORMULA

3. LIQUID ASSET TO TAKE HOME PAY

FORMULA

4.SAVINGS RATIO

FORMULA

5.DEBT SERVICE COVERAGE RATIO

FORMULA

6.DEBT RATIO

FORMULA