Copyright Goodheart-Willcox Co., Inc. 42 Chapter 2 Personal Financial Planning Personal Financial Statements Personal financial statements show information about the financial status of an individual. When applying for credit, the creditor will require that information be given about your income, expenses, and other information. Financial statements report this type of information. Two examples are cash flow statements and net worth statements. Cash Flow Statement A cash flow statement is a summary of the amount of money received and the amount paid for goods and services during a specific period. The cash flow statement shown in Figure 2-5 appears very similar to the budget shown earlier. However, there are important differences. In the cash flow statement: • income is called Cash Inflow • expenses are called Cash Outflow and • the term Actual heads the column of figures instead of Planned. The cash flow statement goes beyond the budget to reflect actual money inflow and outflow for the month. Prepared at the end of the budget period, it shows real income and spending, not what was planned. To get accurate figures for the statement, record cash inflows and outflows in an income and expense log, as shown in Figure 2-6. This log is basically a personal spending diary. Itemize your expenses and record exactly how much money came in. Keep these records until you reach the end of your budget period. You will find that recording cash inflows and outflows leads to more accurate budgeting. Once you finish the cash flow statement, you can prepare the budget for the next month more quickly. Word problems are exercises in which the problem is set up in text, rather than presented in mathematical notation. Many word problems tell a story. You must identify the elements of the math problem and solve it. There are many strategies for solving word problems. Some of the common strategies include making a list or table working backward guessing, checking, and revising and substituting simpler numbers to solve the problem. Solve the following problem. Lena Chang, 23, lives alone in a rented apartment. She earns $2,300 a month after taxes and payroll deductions. She has $1,500 in a savings account. She also owns $2,000 in stocks and some jewelry worth about $1,000. Her largest asset is a car that could sell today for You Do the Math Problem Solving and Reasoning $10,000. She still owes $15,000 on a student loan. Her monthly expenses include: • $200 savings • $750 rent • $250 student loan payment • $250 utilities • $200 gas, car insurance, and registration • $230 groceries • $50 donations to a charity • $350 extras such as entertainment, eating out, and clothing Is her net worth statement positive or negative?