Ch 3 Money Management Strategy: Financial
Statements & budgeting
Wednesday, February 11, 2026 1:17 PM
Successful money management
- Money Management
○ Refers to day-to-day financial activities necessary to manage current personal
economic resources while working toward long-term financial security
Opportunity cost & money management
- Money management means you give up or trade something a.k.a. trade-off, these are
known as opportunity costs and include:
○ Current spending reduces money available for long-term savings & investing
○ Increase saving & investing for the future lowers what you can spend now
○ Credit payment overtime reduce future income available for spending & saving
○ Using savings to buy things results in lost interest & being able to use savings for
other purposes
○ Comparison shopping results in wiser buying but uses something of value (your
time) that can’t be replaced
Components of Money Management
1. Financial Documents
a. Storing & maintaining personal finance records & documents
2. Financial Statements
a. Prepping a balance sheet & cash flow statement on a regular basis
3. Budgeting
a. Creating & implementing a plan for spending & saving
A personal Financial Records System
• An organized financial system provides
○ Daily business like paying bills
• Measuring Financial Progress
• Completing Tax Forms
• Making Investment decisions
• Determining resources for spending money
Financial records are usually stored:
- In a home file
- Safe deposit box
○ A private storage area in a financial institution w/ maximum security for valuables
& difficult to replace documents that requires two keys, one is key by you & your
financial institution
- Online
○ Download copies of all statements/forms to a storage facility in a system of files &
folders
○ Backup files to an external media or back up service
○ Secure data w/ complex passwords & encryptions
○ Scan copies of documents when you no longer need the papers version
○ Take action to completely erase files when no longer needed
How long should I keep it?
- Certain documents such as a birth certificate, a will & SSC card should be kept forever
- Investments should be kept only for as long as you own them
- Federal Taxes for 3-6 yrs
- Keep audit from the IRS for 7yrs, they may request more info
- Always keep all documents related to purchases/sale of real estate forever
Personal Finance Statements
- Your personal balance sheet & your cash flow statement
- The main purposes of these are:
○ Report your current financial position based on the value of items you own &
amount you owe
○ Progress towards financial goals
○ Maintaining records of your financial activities
○ Providing data for tax form and/or applying for credit
The Personal Balance Sheet
- A Balance sheet (aka net worth statement of financial position)
○ Reports what you owe vs what you own
Step 1: List your items of value
- Your assets
○ Cash, tangible property w/ monetary value
○ There are 4 categories to assets
1. Liquid assets
- Cash & other items that can be easily exchanged for cash
- Both a checking & savings account are considered liquid assets
- The cash value of a life insurance policy
2. Real Estate
- This includes a home, condo, vacation property & other land owned by
family
3. Personal Possessions
- Cars, personal belongings of high value
® Market Value - Pending the object taken and its worth to be sold
dictates what its worth
4. Investment Assets
- Funds set aside for a long term financial need like college, a vacation home
and/or retirement
Step 2: Determine amounts owed
- Liabilities
○ Amounts owed to others but don’t include items yet due i.e. next months rent
1. Current liabilities
- Debts you must pay in a short period of time less than a year, these include:
• Medical bills, tax payments, cash loans & charge amounts
2. Long Term Liabilities
- Debts you don’t have to pay in full until a year later
• Cars, school loans & mortgages
- A mortgage is an amount borrowed from the bank to buy a home/a
piece of land & is to be paid back in approx 15 yrs
Step 3: Compute Net Worth
- Net Worth
• The difference between your total assets vs total liabilities
- Assets - Liabilities = Net worth
Vs
- Assets = Liabilities + Net worth
- Insolvency
• The inability to pay back debts when they are due, bankruptcy maybe an
alternative
- Actions needed to increase your networth are
1. Increase your savings
2. Reduce spending
3. Increase the value of your investments & possessions
4. Reducing amounts owed
The Cash Flow statement: Where did your money go?
- Cash Flow
○ The actual inflow & outflow of cash during a period of time
- This includes income &interest on a savings account
- Cash flow statement
○ Aka personal income & expenditure statement (a budget track sheet)
- Step 1: Record income
• The inflow of cash includes
® Wages, salaries, commissions & self employment business
income
® Savings and investment income
® Gifts, grants, scholarships, social security, public assistance &
unemployment benefits
◊ Take home pay/Net pay
◊ Usually from a job in a persons earnings after
deductions for taxes
® Discretionary income
◊ Money left over after paying housing, food & other
necessities
- Step 2: Record Cash outflows
• Cash payments for living expenses & other items are 2nd
components of a cash flow statement, there are two major
categories
® Fixed vs Variable expenses
◊ Fixed - payments that don’t change from month to
month i.e. Rent, mortgage,
◊ Variable - flexible payments that change from month
to month
- Step 3: Determine Net Cash Flow
• The difference between incomes & outflows are either positive
(surplus) or negative (deficit)
® A deficit occurs when more cash goes out compared to what
goes in
• A surplus can be sent to an emergency fund
® An emergency fund is a savings account that can be used for
un expected expenses
® Emergency funds can be used for:
1. Short term account
2. Long term financial security/retirement account
Budgeting for Skilled Money Management
- An Achiever
○ Someone w/ strong financial base
- An Explorer
○ Someone looking for the next level of financial success
- A Striver
○ Someone who has very limited resources who plans carefully
Step 1: Set your Financial goals
- Remember to be S.M.A.R.T (Specific, Measurable, Action orientated, Realistic & Time
based)
1. Balance time sheet reports your current position - where are you?
2. Cash Flow Statement reports what your earned & spent
3. Your budget is setting a plan for spending & saving
Step 2: Estimate your income
- A common budgeting period is about a month to track payments like rent/mortgage,
utilities & credit card payments that occur at the end of the month
○ When making payments ONLY use/rely on money you know you are receiving
○ Unexpected income should not be considered until you actually have the money
○ Plan your bills around your playdates i.e. bi weekly, monthly etc
- Try to keep spending on the low side if you have an income that is not very stable
Step 3: Budget an Emergency fund & Savings
- Set aside money for unexpected expenses & future financial security
○ Advisors suggests an emergency savings fund of 3-6 mo’s
- This would be considered adequate for someone who has a stable income
○ Someone w/ erratic or seasonal income may need an emergency fund of 6 mo’s +
• This was seen most notably during COVID-19 Pandemic
○ Sinking Funds - AKA non-monthly expenses
• I.E. an insurance due every 6mo’s, can be used for vacation
• These can be saved in a separate account know as savings buckets
Step 4: Budget Fixed Expenses
1. Set a Financial goal
- increase emergency fund
2. Estimate expected income from all sources
- your salary
3. Budget for an emergency fund
- Include vacation, bills, etc
4. Budget for set amounts you MUST pay
- Insurance, loans, taxes, mortgage/rent etc
5. Budget estimated amounts for home/living expenses
- Health care, entertainment, education etc
6. A record showing actual in & outflow of cash that is compared to budgeted amounts
- These are various purchases that are tracked by amount not actual purchase
7. Evaluation
- Looks at what needs to be revised in your spending & savings plan
Step 5: Budget variable expenses
- Have an estimate of what is going to be spent for various household & living expense
• Keep in mind your health & economic conditions
• Have 60% of your income budgeted for variable living costs
Step 6: Record Spending Amounts
- Budget Variance
• The difference between the amount budgeted for & the actual amount
received/spent
- Deficit
• When actual spending has exceeded the planned spending amount/limit
- Surplus
• When actual spending is less than planned for
Step 7: Review Spending & Savings Patterns
- Review your financial progress
- Revise your goals & budgets based on wants vs needs
Characteristics of Successful budgeting
- Well planned
• Take time & effort to prepare your budget
- Realistic
• Goals will seam more attainable over time
- Flexible
• Have space for emergencies & unexpected expenses
- Clearly Communicated
• All involved in the budget need to be aware of any changes either written or online
Types of Budgeting System
1. Mental
- All planned and stored in your head but can be unreliable if you forget something
2. Physical
- Envelops, folders, containers or Reciepts that all help you track ins & out of income &
spending that can help you visualize your budget
3. Written
- Can provide details written in a notebook
4. Digital
- Can be used in the form of a spread sheet, w/ a software program such as excel or
spreadsheet or on an app or website
Money Management Financial Goals
- Identifying Savings Goals
• Your personal financial statements/budgets are to help you:
1. Balance a report sheet of your current situation
2. A cash flow statement detailing income & spending for the month
3. A budget recording plans for spending & savings for financial goals
- Balance sheets can be on a period/timeline basis i.e. 3 or 6 mo’s
Identifying Savings Goals
- Reasons for savings include
○ An emergency fund
○ To replace appliances, car issue’s and/or down payment for a home
○ To pay for expensive sport equipment or a vacation
○ To afford education and/or retirement
○ To earn income from interest on savings to pay current living expenses
Selecting a savings technique
1. U.S. payroll deductions or an app that auto deposits funds into a separate savings
account
2. A regular savings account where you send 5-10% of your income - ALWAYS PAY
YOURSELF FIRST
3. Employer matching retirement fund contributions
Calculating Savings Amounts
Statements & budgeting
Wednesday, February 11, 2026 1:17 PM
Successful money management
- Money Management
○ Refers to day-to-day financial activities necessary to manage current personal
economic resources while working toward long-term financial security
Opportunity cost & money management
- Money management means you give up or trade something a.k.a. trade-off, these are
known as opportunity costs and include:
○ Current spending reduces money available for long-term savings & investing
○ Increase saving & investing for the future lowers what you can spend now
○ Credit payment overtime reduce future income available for spending & saving
○ Using savings to buy things results in lost interest & being able to use savings for
other purposes
○ Comparison shopping results in wiser buying but uses something of value (your
time) that can’t be replaced
Components of Money Management
1. Financial Documents
a. Storing & maintaining personal finance records & documents
2. Financial Statements
a. Prepping a balance sheet & cash flow statement on a regular basis
3. Budgeting
a. Creating & implementing a plan for spending & saving
A personal Financial Records System
• An organized financial system provides
○ Daily business like paying bills
• Measuring Financial Progress
• Completing Tax Forms
• Making Investment decisions
• Determining resources for spending money
Financial records are usually stored:
- In a home file
- Safe deposit box
○ A private storage area in a financial institution w/ maximum security for valuables
& difficult to replace documents that requires two keys, one is key by you & your
financial institution
- Online
○ Download copies of all statements/forms to a storage facility in a system of files &
folders
○ Backup files to an external media or back up service
○ Secure data w/ complex passwords & encryptions
○ Scan copies of documents when you no longer need the papers version
○ Take action to completely erase files when no longer needed
How long should I keep it?
- Certain documents such as a birth certificate, a will & SSC card should be kept forever
- Investments should be kept only for as long as you own them
- Federal Taxes for 3-6 yrs
- Keep audit from the IRS for 7yrs, they may request more info
- Always keep all documents related to purchases/sale of real estate forever
Personal Finance Statements
- Your personal balance sheet & your cash flow statement
- The main purposes of these are:
○ Report your current financial position based on the value of items you own &
amount you owe
○ Progress towards financial goals
○ Maintaining records of your financial activities
○ Providing data for tax form and/or applying for credit
The Personal Balance Sheet
- A Balance sheet (aka net worth statement of financial position)
○ Reports what you owe vs what you own
Step 1: List your items of value
- Your assets
○ Cash, tangible property w/ monetary value
○ There are 4 categories to assets
1. Liquid assets
- Cash & other items that can be easily exchanged for cash
- Both a checking & savings account are considered liquid assets
- The cash value of a life insurance policy
2. Real Estate
- This includes a home, condo, vacation property & other land owned by
family
3. Personal Possessions
- Cars, personal belongings of high value
® Market Value - Pending the object taken and its worth to be sold
dictates what its worth
4. Investment Assets
- Funds set aside for a long term financial need like college, a vacation home
and/or retirement
Step 2: Determine amounts owed
- Liabilities
○ Amounts owed to others but don’t include items yet due i.e. next months rent
1. Current liabilities
- Debts you must pay in a short period of time less than a year, these include:
• Medical bills, tax payments, cash loans & charge amounts
2. Long Term Liabilities
- Debts you don’t have to pay in full until a year later
• Cars, school loans & mortgages
- A mortgage is an amount borrowed from the bank to buy a home/a
piece of land & is to be paid back in approx 15 yrs
Step 3: Compute Net Worth
- Net Worth
• The difference between your total assets vs total liabilities
- Assets - Liabilities = Net worth
Vs
- Assets = Liabilities + Net worth
- Insolvency
• The inability to pay back debts when they are due, bankruptcy maybe an
alternative
- Actions needed to increase your networth are
1. Increase your savings
2. Reduce spending
3. Increase the value of your investments & possessions
4. Reducing amounts owed
The Cash Flow statement: Where did your money go?
- Cash Flow
○ The actual inflow & outflow of cash during a period of time
- This includes income &interest on a savings account
- Cash flow statement
○ Aka personal income & expenditure statement (a budget track sheet)
- Step 1: Record income
• The inflow of cash includes
® Wages, salaries, commissions & self employment business
income
® Savings and investment income
® Gifts, grants, scholarships, social security, public assistance &
unemployment benefits
◊ Take home pay/Net pay
◊ Usually from a job in a persons earnings after
deductions for taxes
® Discretionary income
◊ Money left over after paying housing, food & other
necessities
- Step 2: Record Cash outflows
• Cash payments for living expenses & other items are 2nd
components of a cash flow statement, there are two major
categories
® Fixed vs Variable expenses
◊ Fixed - payments that don’t change from month to
month i.e. Rent, mortgage,
◊ Variable - flexible payments that change from month
to month
- Step 3: Determine Net Cash Flow
• The difference between incomes & outflows are either positive
(surplus) or negative (deficit)
® A deficit occurs when more cash goes out compared to what
goes in
• A surplus can be sent to an emergency fund
® An emergency fund is a savings account that can be used for
un expected expenses
® Emergency funds can be used for:
1. Short term account
2. Long term financial security/retirement account
Budgeting for Skilled Money Management
- An Achiever
○ Someone w/ strong financial base
- An Explorer
○ Someone looking for the next level of financial success
- A Striver
○ Someone who has very limited resources who plans carefully
Step 1: Set your Financial goals
- Remember to be S.M.A.R.T (Specific, Measurable, Action orientated, Realistic & Time
based)
1. Balance time sheet reports your current position - where are you?
2. Cash Flow Statement reports what your earned & spent
3. Your budget is setting a plan for spending & saving
Step 2: Estimate your income
- A common budgeting period is about a month to track payments like rent/mortgage,
utilities & credit card payments that occur at the end of the month
○ When making payments ONLY use/rely on money you know you are receiving
○ Unexpected income should not be considered until you actually have the money
○ Plan your bills around your playdates i.e. bi weekly, monthly etc
- Try to keep spending on the low side if you have an income that is not very stable
Step 3: Budget an Emergency fund & Savings
- Set aside money for unexpected expenses & future financial security
○ Advisors suggests an emergency savings fund of 3-6 mo’s
- This would be considered adequate for someone who has a stable income
○ Someone w/ erratic or seasonal income may need an emergency fund of 6 mo’s +
• This was seen most notably during COVID-19 Pandemic
○ Sinking Funds - AKA non-monthly expenses
• I.E. an insurance due every 6mo’s, can be used for vacation
• These can be saved in a separate account know as savings buckets
Step 4: Budget Fixed Expenses
1. Set a Financial goal
- increase emergency fund
2. Estimate expected income from all sources
- your salary
3. Budget for an emergency fund
- Include vacation, bills, etc
4. Budget for set amounts you MUST pay
- Insurance, loans, taxes, mortgage/rent etc
5. Budget estimated amounts for home/living expenses
- Health care, entertainment, education etc
6. A record showing actual in & outflow of cash that is compared to budgeted amounts
- These are various purchases that are tracked by amount not actual purchase
7. Evaluation
- Looks at what needs to be revised in your spending & savings plan
Step 5: Budget variable expenses
- Have an estimate of what is going to be spent for various household & living expense
• Keep in mind your health & economic conditions
• Have 60% of your income budgeted for variable living costs
Step 6: Record Spending Amounts
- Budget Variance
• The difference between the amount budgeted for & the actual amount
received/spent
- Deficit
• When actual spending has exceeded the planned spending amount/limit
- Surplus
• When actual spending is less than planned for
Step 7: Review Spending & Savings Patterns
- Review your financial progress
- Revise your goals & budgets based on wants vs needs
Characteristics of Successful budgeting
- Well planned
• Take time & effort to prepare your budget
- Realistic
• Goals will seam more attainable over time
- Flexible
• Have space for emergencies & unexpected expenses
- Clearly Communicated
• All involved in the budget need to be aware of any changes either written or online
Types of Budgeting System
1. Mental
- All planned and stored in your head but can be unreliable if you forget something
2. Physical
- Envelops, folders, containers or Reciepts that all help you track ins & out of income &
spending that can help you visualize your budget
3. Written
- Can provide details written in a notebook
4. Digital
- Can be used in the form of a spread sheet, w/ a software program such as excel or
spreadsheet or on an app or website
Money Management Financial Goals
- Identifying Savings Goals
• Your personal financial statements/budgets are to help you:
1. Balance a report sheet of your current situation
2. A cash flow statement detailing income & spending for the month
3. A budget recording plans for spending & savings for financial goals
- Balance sheets can be on a period/timeline basis i.e. 3 or 6 mo’s
Identifying Savings Goals
- Reasons for savings include
○ An emergency fund
○ To replace appliances, car issue’s and/or down payment for a home
○ To pay for expensive sport equipment or a vacation
○ To afford education and/or retirement
○ To earn income from interest on savings to pay current living expenses
Selecting a savings technique
1. U.S. payroll deductions or an app that auto deposits funds into a separate savings
account
2. A regular savings account where you send 5-10% of your income - ALWAYS PAY
YOURSELF FIRST
3. Employer matching retirement fund contributions
Calculating Savings Amounts
