COMMERCE 4FP3 Lecture Notes - Lecture 2: Cash Flow Statement, Money Management, Personal Finance

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23 Jan 2017
Department
PERSONAL FINANCE
Chapter 2 Money Management Strategy: Financial Statements and
Budgeting
PLANNING FOR SUCCESSFUL MONEY MANAGEMENT
- Your daily spending and saving decisions are at the center of financial
planning
o Coordinate these decisions with your needs, goals, and personal
situation
- Maintaining financial records and planning your spending are essential
to successful personal financial management
- Money management day-to-day financial activities necessary to
manage current personal economic resources while working toward
long-term financial security
OPPORTUNITY COST AND MONEY MANAGEMENT
- Examples of trade-off situations, or opportunity costs, include the
following:
COMPONENT OF MONEY MANAGEMENT
- The three money management activities are interrelated
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2
- Personal financial records and documents are the foundation of
systematic resource use
o Provide written evidence of business transactions, property
ownership, and legal matters
- Personal financial statements enable you to measure and assess your
financial position and progress
- Budget (spending plan) is the basis for effective money management
A SYSTEM FOR PERSONAL FINANCIAL RECORDS
- Invoices, credit card statements, insurance policies, and tax records
are the basis of financial record keeping and personal economic
choices
- An organized system of financial records provides a basis for:
- Most financial records are kept in one of 3 places: a home file, a safety
deposit box, or a home computer
o Home file used to keep records for current needs and
documents with limited value
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May be a series of folders, a cabinet with several drawers,
or even a cardboard box
It must be organized to allow quick access to required
documents and information
o Safety deposit box a private storage area at a financial
institution with maximum security for valuables and difficult-to-
replace documents
Access to the contents of a security deposit box requires 2
keys
(1) issued to you
(2) kept by the financial institution where the safety
deposit box is located
examples of items kept in a safety deposit box: stock
certificates, contracts, a list of insurance policies, and
valuables, such as rare coins and stamps
- Financial records and documents can easily be organized into 10
categories
- How long should you keep personal finance records?
o Records such as birth certificates and wills should be kept
permanently
o Records on property and investments should be kept as long as
you own these items
o Federal tax laws dictate the length of time you should keep tax-
related information
o Copies of tax returns and supporting data should be saved for 6
years
o Financial experts recommend keeping documents related to the
purchase and sale of real estate indefinitely
- If people lose contents of their safety deposit boxes through theft,
fire, or natural disasters, such losses are usually, but not always,
covered by the fiaial istitutio’s isuae
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