Developing

Budget,
Financial
Statements and
Plans
by: Mara Dominique Anne M. Domingo, MBA
 Objectives
• Construct budget and use it to monitor and control
spending;
• Describe the role of financial statements, special
planning concerns, and professional financial planners in
the personal financial planning process;
• Put a monetary value on financial goals using time value
of money concepts;
• Prepare a personal balance sheet;
• Generate a personal income and expense statement; and
• Develop a good recordkeeping system and use ratios to
interpret personal financial statements.
 Developing Your Budget
• Raising money enough to cover up your expenses.
• Two basic ways to develop your budget: (1) lessen your
expenditures, or (2) increase the sources of your income.
• Budget - plan stated in financial term.
• Plan - goal or target or aim that you want to be accomplished in
time.
• The most basic and first step you have to do is to organize your
finances: assessment of what you have, what are your
expenses, how far can your expenses sustain you and your
family, and how much more is left to you.
 Developing Your Budget
• Financial Statement - organized system of financial documents
which serves as a basis for successfully handling your finances.
• It also serves as a basis for the following:
1. Handling daily business transactions, such as payment of
bills on or before time.
2. Planning and gauging financial progress.
3. Completing required tax reports and necessary supporting
documents.
4. Making effective investment decisions such as purchasing
stocks or a house.
5. Determine available resources for current, future and
emergency buying or expenses.
 Keeping All Your Financial Records
• Financial Records are ideally kept for one year.
• Documents like receipts for long term payments should be
kept until all accounts have been settled.
• It should be kept in a place where you can keep its
appearance and reliability not to be damaged: Home
Files, Safe Deposit Box and Database.
 Keeping All Your Financial Records
Home Files - files at home and could include the most
important personal records you should keep for official
transactions.
1. Personal and Employment Records - current resume,
employee benefits record, SSS/GSIS number, Tax
Identification Number, Pag-ibig Number, etc.
2. Money Management Records - current budget, recent
balance sheet and cash flow statement, list of financial
goals, list of safe deposit box content.
3. Tax Record - Paycheck stubs, BIR forms such as ITR
form.
 Keeping All Your Financial Records
Home Files
4. Financial Service Records – Checkbooks/unused
checks, bank statements/cancelled checks, savings
statements.
5. Credit Records – Unused credit cards, payment books,
receipts/monthly statements/list of credit account
numbers and telephone number of issuers.
6. Consumer Purchase and Automobile Records –
warranties, receipts of major Purchases, owner’s
manual for major appliances, automobile service and
repair records, registration and owner’s manual.
 Keeping All Your Financial Records
Home Files
7. Housing Records – Lease Contract in case you are
renting, property tax records, maintenance receipts
(home repair/improvement).
8. Insurance Records – Original insurance policies, list of
insurance premiums, amounts and use dates, medical
information, claim reports.
9. Investment Records – Records of stock/bond and
mutual fund brokerage statements, dividend records,
company annual reports.
 Keeping All Your Financial Records
Home Files
10. Estate planning and Retirement Records – Last will
and testament, pension plan document, retirement plan
documents, SSS/GSIS information, trust agreements.
 Keeping All Your Financial Records
Safe Deposit Box – usually available or being offered by
banks with particular pay according to length of time and
space needed.
1. Certificates
2. Citizenship papers
3. Adoption, custody papers
4. Military papers
5. Serial numbers, receipts, documents of expensive items
6. Photographs or video of valuable belongings
7. Certificates of deposit
 Keeping All Your Financial Records
Safe Deposit Box
8. List of checking and savings account numbers of issuers
9. Mortgage papers, title deed
10. List of credit card numbers and telephone numbers of
issuers
11. Mortgage papers, title deed
12. Automobile title
13. List of insurance policy numbers and company names
14. Rare collections – such as coins, stamps, etc.
15. Copy of last will and testament
 Keeping All Your Financial Records
Database
Examples:
1. Previous, current and estimated budget or financial
statements.
2. Summary of checks written and other banking transaction
documents.
3. Past income tax returns prepared with tax preparation
software.
4. Account summaries and performance results of
investments.
5. Computerized version of wills, estate plans and other
documents
 Personal Balance Sheet
• Also called Net Worth Statement or Statement of
Financial Position.
• A report of what you own and what you owe.
 How to Prepare Your
Personal Balance Sheet?
A. Identifying items or property which could be considered as an
asset. List down items of value:
1. Personal Asset – includes personal belongings of great value
or recorded at its current market value.
2. Liquid Asset – either cash or valued item that could be easily
converted into cash.
3. Investment Asset – includes funds set aside for future needs or
for a long term financial needs.
4. Real Estate Asset – includes a house and lot, apartments,
townhouses, condominium, vacation property or other land
that an individual or a family owns and recorded at its current
market value.
 How to Prepare Your
Personal Balance Sheet?
B. Determining amounts that are considered as liabilities such as the
current amounts due that you have to pay.
1. Current Liabilities – amounts due monthly or due for less than a
year.
2. Long-term Liabilities – amounts you can pay for a period of
time such as long term loans.
 How to Prepare Your
Personal Balance Sheet?
C. Computing your Net Worth.
• Net Worth is identified as the result of deducting your
liabilities from your assets.
• Formula: Assets – Liabilities = Net Worth
• There are 2 basic options on how to increase your net worth.
It could be:
1. Reduce your expenses.
2. Increase your source of income.
Identifying Your Financial Position and
Evaluating Progress
Identifying Your Position
• Cash flow Statement is also termed as personal income and
expenditure statement. It is a summary of cash receipts and
payments for a given period.
• Formula: Cash Inflows – Cash Outflows = Cash Surplus or Deficit
• Cash Inflows includes income that adds in your cash/savings such
as:
1. Wages
2. Salaries
3. Income
4. Investment income
5. Commissions
Identifying Your Financial Position and
Evaluating Progress
Evaluating Progress
There are different kinds of ratios that can be used in gauging
your progress. These are as follows:
1. Liquidity Ratio – serves as an indicator of the number of
months in which living expenses can be paid if an emergency
arises. If the result of liquidity is high, that means positive or
good. (Liquid Asset / Monthly Expense)
2. Debt Ratio – relationship between debt and net worth. Debts
should be lower than your net worth, otherwise you won’t have
gains. Hence, lower debt ratio is better. (Liabilities / Net
Worth)
Identifying Your Financial Position and
Evaluating Progress
Evaluating Progress
3. Current Ratio – identifying your liquid assets to match with
your current liabilities. The higher the ratio, the better. (Liquid
Assets / Currently Liabilities)
4. Debt Payments Ratio – measurement on how much you are
earning and how much of this earnings go to your debts. A
debt payment ratio is recommended to have less than 20%.
Percentage lower than 20% is considered to be tolerable.
(Monthly payments / take home pay (gross income less tax))
Identifying Your Financial Position and
Evaluating Progress
Evaluating Progress
5. Savings Ratio – ration that identifies your earnings from your
income less expenses. (Monthly savings / Net Income)
 Time Value of Money
• Identifying the value of your money being invested to
earn specific rates of interest for a specific period of
time.
Thank You!
God Bless!
Stay Safe!