Empowerment Series

Personal Finance Management

Jumoke Olaniyan 7th September, 2011

1

Outline

Develop and implement a budget

Calculate your net worth using a balance sheet

Develop a personal income statement and use it to analyse your spending

Conclusion

Budgeting
Almost everyone hates to budget, however you must have a good idea of your income and expenses Budgeting is viewing your money on a timeline

First step is to know your spending habit; keep track

of every kobo you spend for a month Budgeting is a star to set your sights by, not a stick to

beat yourself with

Budgeting Process
Define your goal
Write down your goals. What do you want to accomplish? E.g. School Fees, buy a car/Laptop) , marriage, wealth? Remember your goal will change with time so must your budget There are different methods to track spending: Checks and credit cards paper trail(account statements) Cash - Record expenditures in a notebook (Keep receipts) The goal is to generate a monthly income and expense schedule

Compare and make changes

Track your spending

A plan for controlling cash inflows and outflows to help you spend money for what is really important to the goal You pay your tithes, yourself second, and then live on the rest
Try the budget for a month Record all transactions in the proper category by date and note balances in each category at the end of the month Adjust the plan or expenses as necessary to maintain the plan

Implement your budget

Develop your cash budget

Compare your budget to actual Adjust your expenses as necessary to maintain the plan Stick with the plan

Outline

Develop and implement a budget

Calculate your net worth using a balance sheet

Develop a personal income statement and use it to analyse your spending

Conclusion

Calculate your Net Worth

What is a Personal balance sheet? A financial snapshot of your financial position on a given date How do you calculate your net worth or equity? Assets (things you own of value)

- Liabilities

(what you owe others)

Net Worth(the value of your holdings) Note: There are different ways to value your assets and liabilities. Do it correctly and be prudent!
6

Types of Assets
Assets that generate income or capital gains which may eventually allow you to have income without your having to work E.g. Stocks, Bonds, Mutual Funds, rental property
Income generating assets These are assets which may or which have historically appreciated in value E.g. Property, Land These are assets which depreciate. Often, the minute you take ownership of these assets E.g. Cars, phones, Laptops

Appreciating assets

Depreciating assets

Categories of Liabilities
Current liabilities Liabilities that must be paid-off within the next year E.g. Credit cards, utility bills, rent, tuition, books, food Long-term liabilities Liabilities that extend beyond one year E.g. Auto loans, home mortgage, consumer loans, credit card debt that you do not expect to pay off within a year

The Difference: your net worth

Do you owe more than you own? If so, you are insolvent, if not you are solvent Your net worth could fluctuate depending on the level of the financial planning pyramid you are at that point in time What is a good level of net worth? Depends on your goals and your life cycle Good is relative. Where are you now

Life cycle planning periods

Pre-retirement
Disposable income

Peak accumulation retirement mid career early career

Life cycles
9

Outline

Develop and implement a budget

Calculate your net worth using a balance sheet

Develop a personal income statement and use it to analyse your spending

Conclusion

10

Personal Income Statement

This is a financial record of your inflows and outflows of cash. The statement is based entirely on actual cash flows, not accruals Sources of such inflow include: Salaries, tips, royalties, bonuses and commissions Expenditures: Where your money goes; two types of expenses Fixed expenses: Expenses you dont directly control Mortgage, rent, professional exam fees, books, etc

Variable expense: Expenses you can control Food, entertainment, clothing, dates, cable TV, new rims for the jeep, jewelries, Brazilian hair etc
11

Income Spending Ratio

5% 5%
10%

5%
30%

10%

10%
10%

15%

Housing Savings

Food Clothing

Utilities Entertainment

Auto Miscellanous

Debt

According to money Magazine, this is the best way to split your pay check Using percentages helps you stick to the budget as income increases or decreases However , remember that time and circumstances change, so adjust the percentages and dont be rigid

Source: Money Magazine

12

Outline

Develop and implement a budget

Calculate your net worth using a balance sheet

Develop a personal income statement and use it to analyse your spending

Conclusion

13

Things to remember
You cant have everything you want

Prioritize your wants; use a budget

Spend less than you earn; save early and save often Use credit wisely Remember marginal analysis. More is not necessarily better

You work for your money; make it work for you

14

The Last Word

Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones!!!!!

15

FDHL ..where markets matter

Someday, Sometime, Somehow, you will need us