Copyright Goodheart-Willcox Co., Inc. 45 Section 2.1 Personal Financial Landscape • Fixed assets include investments, such as stocks, bonds, and invested funds, that are set aside for long-term goals, such as the education of children or retirement needs. Fixed assets also include a home, auto, personal possessions, and other durable goods that enrich your life through use. Assets tend to change in value from year to year, so they should be listed at their current or market value. This amount is an estimated worth at the time the net worth statement is made. Liabilities are also divided into two categories: • Current liabilities are debts due soon, usually within the year. They include medical bills, taxes, unpaid bills from credit cards and charge accounts, and the amount you borrowed for lunch last week. • Long-term liabilities include obligations to be paid over a long period of time, such as an auto loan or a home mortgage. Subtract your total liabilities from your total assets. If you own more than you owe, you have a positive net worth. This means that you can meet your financial obligations and possibly reach some of your important financial goals. If you owe more than you own, your net worth will be a negative figure. You need to find ways to reduce expenses or increase income. Start with a careful look at expenses. Try to reduce or eliminate all the items that are not essential. Pay credit debts and do not take on more credit obligations. Consider ways to increase income by working more hours or assuming more responsibilities on the job. A job change or additional training may also lead to higher income. Do all you can to create a positive net worth. This may not seem necessary now, but as you move into the adult world, your circumstances can change rapidly. Tracking finances will become more complicated and more important. The net worth statement helps chart your financial future. Wealthy individuals have assets far in excess of their liabilities. Wealth includes investments, property, a business, cash, and other items of value that contribute significantly to financial security and a high standard of living and giving. Case Study Making Plans At 28, Myra is a top-notch professional photographer. She is single and does not have any children. She does not plan to get married or start a family in the future. Myra earns $70,000 annually. She also receives outstanding benefits through her job, including health, disability, and life insurance, as well as retirement contributions. Myra’s parents are in good health, and they both work. Her two brothers have jobs and families of their own. Myra lives in a rented apartment and is thinking about buying a home closer to where she works. She has always dreamed of being a homeowner. Case Review 1. What changes in Myra’s situation could alter her financial needs and plans? 2. What are some financial steps Myra should take before purchasing a home? What additional expenses will home ownership bring? 3. What are some key differences in financial planning for those with dependents and those without dependents? 4. How does an individual’s age relate to financial planning and decisions?