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Personal Finance Record Keeping: - Coggle Diagram
Personal Finance Record Keeping:
Key Concepts:
Saving/investing now ↓ current spending
Buying on credit → ties up future income
Using savings → lost interest & depletion
Comparison shopping saves money but takes time
Spending now ↓ savings & investmen
Benefits of Organized Records:
Track financial progress
Prepare tax reports
Make investment decisions
Determine resources for buying
Pay bills on time
Components:
Budgeting → plan for spending & saving
Personal Financial Statements → Balance sheet + Cash flow
Records Maintenance → organize & store documents
Record Storage:
Home File → employment, tax, banking, purchases, housing, insurance, investments, retirement
Safe Deposit Box → birth certs, wills, titles, military papers, collectibles
Computer Records → budgets, tax returns, investment summaries, wills & estate docs
Financial Statements:
Balance Sheet (Net Worth Statement)
Assets – Liabilities = Net Worth
Assets: liquid, lifestyle, investment
Liabilities: current (<1 yr), non-current (>1 yr)
Cash Flow Statement
Surplus = savings, Deficit = debt risk
Income (inflows) vs Expenses (outflows)
Record:
Retention
Birth certs, wills, SSN → indefinitely
Tax returns → 6–7 years
Real estate docs → indefinitely
Property/investments → as long as owned
Storage
Home File → employment, tax, banking, purchases, housing, insurance, investments, retirement
Safe Deposit Box → birth certs, wills, titles, military papers, collectibles
Computer Records → budgets, tax returns, investment summaries, wills & estate docs
Expenses
Fixed (Inflexible) → mortgage, car loans, insurance
Variable (Flexible) → food, clothing, utilities, travel
Ratios for Financial Health*
Inflation Impact
→ compare nominal vs real income
Liquidity
Liquid Assets ÷ Take-home Pay (×12 → 3–6 = safe range)
Current Ratio = Liquid Assets ÷ Current Liabilities (>1 = good)
Debt
Debt Ratio = Liabilities ÷ Assets (≤30% private, ≤40% public)
Debt Service Coverage Ratio = Take-home Pay ÷ Debt Charges (higher = better)
Budget
Personal Budget
Definition
→ Plan aligning financial goals & resources
Goals Hierarchy
1st: Financial independence
2nd: Living standard, children’s education, retirement
3rd: Specific yearly savings & consumption
Preparation
Master Budget → annual, future-focused
Monthly Plan → income vs expenses