Statement of Financial Position
Who is wealthier?

Ian
•Mitchell

Income $30,00
•Income-$85,000

Net Worth $45,000 •Net Worth-$28,000
Statement of financial position

Your net worth = wealth!
 Net worth: the objective measure of financial
wealth.
 Wealth: Measurement of how much a
person or household owns once all debts
have been paid
Net Worth

Net Worth is more about how you
MANAGE your income.
 Someone can have a high income, but low
net worth.
 Living within your means will help build your
net worth.

Your net worth is actually the difference
between your assets and liabilities.
How do you determine your net
worth?

Statement of financial
position: that describes an
individual or family’s financial
condition on a specified date.
 Uses assets, liabilities, and net
worth.
3
components of Statement
of Financial Position:
1. Assets
2. Liabilities
3. Net worth
Assets

Asset: everything a person owns with
monetary value
 Can be cash
 Can also be value of personal possessions
 Examples: Checking account, savings account,
money in stocks, value of current home or car
○ The value of these assets must be what you
can realistically sell them for TODAY, not the
purchase price.
 Kellybluebook.com
Liabilities

Liabilities: debt or obligations owed to
others
 Can be bills or loans that are due
 Can also be value owed on credit cards
Liabilities

What is recorded in the liabilities section
of a personal financial statement?
 The amount you owe if you were to pay the
amount owed in full today.
○ Example: You have an auto loan that you pay
$180 per month on; if you continued payments
till it was paid off $6300.
○ If paid the loan off in full today $5490
Amount recorded on statement.
Net Worth

The difference between your liabilities
and your assets is your Net Worth.
 Assets – Liabilities = Net worth
Assets
Liabilities
Checking Account $540
Savings Account $3250
Current Bills Due $1,250
Credit Cards Owed $4500
Stocks & Bonds $10,000
Home Value $92,000
Mortgage Owed $68,000
Car Value $2,300
Total: $108,090
Total $73,750
Net Worth:$34,340
How to increase Net Worth

Your net worth increases when your
assets increase or your liabilities
decrease.
Ideal assets
Ideal Liabilities
Update your personal financial statement at least once a year,
Especially if there are dramatic changes to assets or liabilities
How to Increase Net Worth

By properly using money management
tools!
 Statement of financial position (updated
yearly)
 Income and Expense Statement
 Using a spending plan
So…
Who is wealthier?

Ian
•Mitchell

Income $30,00
•Income-$85,000

Net Worth $45,000 •Net Worth-$28,000
Income and Expense Statement
Jessica is paid once a month.
 She puts enough money in the bank to
cover her expenses every month; but
still runs out of money before all
expenses are paid.

Meet Jessica…
-Jessica made a list of all her
expenses
-Doesn’t expect to have more
than $1000 in expenses every
month; but still runs out!
-Where is her money going?
Expense
Amount
Rent/Utilities
$500
Health Insurance $100
Renter’s
Insurance
$10
Car Insurance
$40
Gas
$100
Groceries
$100
Cell phone
$70
Personal Care
$30
Entertainment
$50
Total
$1000
Jessica…
Jessica forgot to account for the $1.50
coffee she buys every morning and the
lunch she has with friends about once a
week.
 $1.50 $45 $540 on Coffee!
 $8.00 $32 $416 on Lunch!

○ Jessica is forgetting $77 that she thinks is
minimally nothing!
The costs add up
Item
Avg Cost Of
Item
Cost/Month if
purchased daily
Approximate
cost per year if
purchased daily
16 oz pop
$1-$2
$30-$60
$365-$730
16 oz Energy
Drink
$2-$3
$60-$90
$730-$1095
16 oz Starbucks
coffee
$2.50-$4
$75-$120
$900-$1440
Candy Bar
$1
$30
$360
Income and Expense Statement

A statement that lists and summarizes
income and expense transactions that
have taken place over a specific period
of time, usually a month or year.
○ Can help evaluate past financial decisions to
increase net worth
Income and Expense Statement

3 Components
 Income: Money received
 Expenses: money spent
 Net Gain/Net Loss: Your income minus your
expenses
Spending Plans
Think of a personal/financial goal.
 Based on your current spending, is it
realistic to achieve your goal?
 Think of how you can adjust your
spending to achieve this goal…

 This is the beginning of a spending plan!
Spending Plan

A document used to record both planned
and actual income and expenses over a
period of time.
 A BUDGET!
Spending Plan
Look at your current financial position
and how you have managed money in
the past.
 Determine what changes to make &
then make changes!

Why is a spending plan so
important for financial planning?
Manage $ in a positive manner
 Increase net worth
 Help set and reach goals
 Analyze opportunity costs and trade offs
to maximize financial well being
