COMMERCE 4FP3 Lecture Notes - Lecture 2: Cash Flow Statement, Debit Card, Savings Account

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PERSONAL FINANCE
COMMERCE 4FP3
CHAPTER 2: MONEY MANAGEMENT STRATEGY
OBJECTIVES
Recognize relationships among financial documents and money management activities
Create a system for maintaining personal financial records
Develop a personal balance sheet and cash flow statement
Create and implement a budget
Calculate savings needed to achieve financial goals
CASH FLOW STATEMENT
A financial statement that measures a person’s income and expenses
o First we record our income money in (e.g. salary, interest income from investments,
dividends or capital gain from investments, guardian support, osap)
o Then we record our expenses (credit card, rent, living expenses
May be an emotional experience
Using credit and debit cards = much easier way of tracking expenses (all purchases
documented for you and can be printed)
Net cash flow = your disposable after tax income MINUS your expenses
INCOME
What effects your income?
o Most importantly the stage in your career
E.g. as a student perhaps you are only working part time in school making the bulk of
your income coming from a summer job
o Type of job
High paying? High demand? Level of skills required to complete the job?
FACTORS AFFECTING EXPENSES
Age
How many people are in your family
o The more people living under one roof the more expensive it tends to be
Cost of living + spending habits (most important)
o Some big spenders, some big savers
CREATING YOUR BUDGET
Budget: cash flow statement forecasted into the future
Useful because we can anticipate:
o Cash surplus (extra)
o Cash deficit (shortage)
When anticipating a cash shortage (e.g. changing oil in vehicle) your budget will provide
warning of a shortage so you can prepare for them
Important to assess the accuracy of our budget
o Compare anticipated budget you created with the actual budget youve had this month
With this information we can use it to get a glimpse of our finances over the year
o We use this as a base for a typical month (will vary as expenses do like going back to school or
doing some shopping)
CREATING YOUR BUDGET (ANNUAL)
By extending your budget out for longer periods of time
Large changes in cash flow could be a result of changes in income or in expense
Improve your budget
o Constantly reviewing the budget each month monitor revenues and expenses
o Explore ways to save money (sales, limit social spending etc.)
BUDGET STRATEGIES
Pay yourself first method (most important budgeting strategy)
o Forced savings habit
o Idea is to transfer money out of your checking account and into your savings account
automatically this transfer would coincide when money is deposited into your account
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