Financial goals describe your destination.

Balance Sheet Major Headings Solvent when your Net Worth is Positive
Financial Statements and Budgets are the ASSETS: (LIRPA) Insolvent when your Net Worth is Negative
tools that help you determine exactly where
Total Liquid Assets -----------------------------------------------------------
you are in the journey.
Total Investments Personal Income Statements are prepared
Balance Sheet reports your Assets,
on the Cash Basis
Liabilities, and New Worth as of a specified Total Real Property
date. A method of preparing financial statements
Total Personal Property
in which only transactions involving actual
Income and Expense Statement reports
Total Assets cash receipts or actual cash outlays are
how you did over a period of time, month or
recorded.
year LIABILITIES AND NET WORTH: (CLLWL)
Cash Surplus is an excess amount of
----------------------------------------------------------- Total Current Liabilities income over expenses that results in
RELATIONSHIP BETWEEN FINANCIAL Total Long-term Liabilities increased net worth.
PLANS AND FINANCIAL STATEMENTS
Total Liabilities Income is Earnings received as wages,
Financial Plans: salaries, bonuses, commissions, interest and
Net Worth dividends, or gain or loss from the sale of
• Evaluate and plan major outlays assets. Items are recurring, increases assets
• Manage credit Total Liabilities and Net Worth
and no impact on liabilities.
• Secure adequate insurance coverage -----------------------------------------------------------
• Establish savings/investment Expenses are Money spent on living costs
programs Net Worth: Assets – Liabilities = Net Worth and to pay taxes, pay for assets, or repay
• Manage employee benefits debt.
Assets The fair market value of what you
• Reduce taxes own -----------------------------------------------------------
• Implement retirement program
• Minimize estate taxes Liabilities: Income Statement Major Headings

Budgets: Current – Amount you owe that is Income: (WSBIPOT)

due within one year
• Monitor and control income, living Wages and Salaries
expenses, purchases, and savings Long-term – Amount you owe that is
Self-Employed Income
on a monthly basis. due more than one year from date
Bonuses and Commissions
Financial Statements: Fair Market Value What you can sell an
asset for, that is the Net Realizable Value Investment Income
Actual Financial Results:
• Balance Sheet ----------------------------------------------------------- Pensions
• Income and expense statement Other Incomes
-----------------------------------------------------------
Total Income Debt Service Ratio:
Total Monthly Loan Payments / Monthly
Gross Income
Expenses: (HFTMCIAROT)
----------------------------------------------------------
Housing and Utilities
Cash budget reports the forecasted or
Food
estimated cash receipts and the forecasted
Transportation or estimated cash expenses for the year. By
reporting the cash budget by month, you can
Medical identify the month that you may have a
Clothing and Personal Care problem such as short of cash.

Insurance and Taxes By comparing the actual cash receipts and

expenses to the budget, you can control your
Appliances and Furniture spending. The difference is called a
variance.
Recreation
Positive Variance If actual income is
Other Expenses
greater than budgeted income
Total Expenses
Negative Variance If actual expenses are
----------------------------------------------------------- greater than budgeted expenses

BALANCE SHEET RATIOS Inflation is the most prominent source of

investment risk.
Solvency Ratio:
Net Worth / Total Assets

Liquidity Ratio:
Total Liquid Assets / Total Current Debt
(Liabilities)

Savings Ratio:
Cash Surplus / Net Income