COMMERCE 4FP3 Lecture Notes - Lecture 2: Cash Flow Statement, Debit Card, Savings Account
21 views2 pages
5 Mar 2019
School
Department
Course
Professor
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 you’ve 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