Personal Finance

Chapter 4: Personal
Financial Statement and
Spending Action Plan
A strategy with the aim that the company's
finances are stable and profits increase

[Link]

1
Personal Finance
 Objectives
- Explain personal financial statements, and
personal budgeting methods (CLO2)

- Evaluate and select appropriate budget planning

methods, tools, and financial strategies to achieve
financial goals (CLO5)

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Personal Finance
Chapter’s content
Personal Financial
Statement: Personal
2 Budget Planning
1 Balance Sheet & Income
Statement (Cashflow
statement) & Ratios
1
Financial Peace of Mind Financial Peace of Mind
4
3 Matrix & Personal Matrix and Financial
Finance Calendar Calendar

Saving Plan & The power of

5 Spending Action Plan 6 Compound Interest

3
Personal Finance
1. Personal financial statements
Definition

Financial statements are compilations of personal

financial data that describe an individual’s or
family’s current financial condition

Balance sheet Cash flow statement

(Net worth (Income & Expense
statement) statement)

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Personal Finance
 Personal financial statements

Balance sheet Cash flow statement

✔ Snapshot of assets, liabilities,
✔ Summary of all income and expense over
and net worth on a particular
a specific period
date.
✔ Where did your money come from and
✔ Where are you financially right go?
now?
✔ 3 components:
✔ 3 components:
✔ Cash coming in (Income)
• Assets: What you own
✔ Cash going out (Living expenses)
• Liabilities: What you owe
✔ Cash Surplus (Cash Deficit or Income
• Net worth = Assets - Liabilities
available for savings and investment)
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Personal Finance
 Example 1 of Personal Balance sheet:
ASSETS ($) LIABILITIES ($)
Monetary Assets (Liquid Asset) Short-term liabilities
- Cash on hand 1,200 - Dentist bill due 20
- Savings account 4,200 - Credit card debt 1,600
BS for a - Checking account
- Tax refund due
6,000
700
couple with - Rent receivable 650
Total monetary assets 12,750 Total short-term liabilities 1,820
2 kids at Tangible Assets (Household
Long-term liabilities
1/1/2018 assets)
- Home 192,000 - Vehicle loan 7,700
- Personal property 9,000 - Home mortgage loan 92,000
- Automobiles 9,500
Total tangible assets 210,500 Total long-term liabilities 99,700
Investment assets Total liabilities 101,520
- Mutual funds 9,500
- Stock 2,800
- Bonds (2038) 4,000
- Life insurance cash value 5,400
- IRA accounts 34,300
- Real estate investment 114,000

Total investment assets 170,000 Networth 291,730

Total Assets 393,250 Total liabilities & Networth 393,250

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Personal Finance
 3 components of BS
Fair market value: The amount a willing buyer would pay a
willing seller for an item

Assets Liabilities Networth

- Monetary assets: Assets
- Short-term What is left is
that can be easily
liability: “A measure of
converted to cash
Obligation paid off your financial
- Tangible assets: Personal
within 1 year worth”:
property provide - Long-term
maintenance of one’s
A – L = NW
liability: Debt that If NW <0:
everyday lifestyle
comes due in > 1 insolvent
- Investment assets: acquired
year
for their monetary benefits
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Personal Finance
 Example 2 of Personal
ASSETS
Balance sheet:
thousand VND LIABILITIES
Monetary Assets (Liquid
Short-term liabilities
Asset)
BS for a UEL - Cash on hand 6,000 - Tuition fee due 26,000
- Checking account 80,000 - Rent fee due 24,000
student, - Savings account 0 - Credit card debt 20,000
30/9/2023 - Borrow from friends 10,000

Unit: USD
Total monetary assets 86,000 Total short-term liabilities 80,000
Tangible Assets
Long-term liabilities
(Household assets)
- Home 0 - Vehicle loan 0
- Personal property 25,000 - Home mortgage loan 0
- Motorbike 20,000
Total tangible assets 45,000 Total long-term liabilities 0
Investment assets Total liabilities 80,000
- Stock 0
- Bitcoin 0
Total investment assets 0Networth 51,000
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Total Assets 131,000
Personal Finance
Total liabilities & Networth 131,000
 Q&A 1: How do I determine my wealth?

(1) Create your own balance sheet at present by using any

resource, including websites to value your assets.

(2) Create your expected balance sheet when you are 25 years

old

(3) Sorting Game: [Link]

k=173M65RDHwEK2wortRgUxFI93U8f0fMt8y-am4UGg7Xg
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Personal Finance
 How to increase your Net Worth?

Basic Principle of
Personal Finance: Paying off
Diversifying Inncrease debt
Cut
income streams income spending
and clarifying
expense

“People do not get wealthy by earning an income. Real wealth comes from
increases in the value of assets over time

Financial success by comparing with others does not make

you feel better Personal
10Finance
 Personal Cash Flow Statement

01 02 03

Cash Coming In: Cash going out: Where your

money goes. Cash Surplus (Cash
Where your money
Deficit): the amount
comes from • Fixed expenses: inflexible, of cash remaining or
• Salary/ Wages contractual. Ex: rent net cash flow
• Bonuses / payments, installment Surplus (deficit) =
Commissions loans
Total income – total
• Scholarships • Variable (flexible)
expenses
• Pension income expenses: Food,
• Interest & dividends transportation, utilities,
received credit card payments....
• ....

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Personal Finance
 Example 1 of Personal Cash Flow Statement (1/2)
INCOME Dollars Percent
Gross salary 85,000 88.8%
Interest and dividends 1,800 1.9%
Bonus 1,000 1.0%
Tax refunds 200 0.2%
CF Net rental income 7,720 8.1%
Total income 95,720 100.0%
Statement EXPENDITURES
for a couple Fixed Expenses
Mortgage loan payments 14,400 15.0%
with 2 kids, Real estate taxes 4,800 5.0%
Homeowner's insurance 1,200 1.3%
from 1/1 to
Automobile loan payments 6,000 6.3%
31/12/18 Automobile insurance and
Unit: USD registration 2,100 2.2%
Life insurance premiums 1,200 1.3%
Medical insurance 2,800 2.9%
Emergency fund savings 2,400 2.5%
Revolving savings fund 1,800 1.9%
Income taxes 13,200 13.8%
Other taxes 7,520 7.9%
Retirement IRAs 6,000 6.3%
Total fixed expenses 63,420 66.3% 12
Personal Finance
 Example 1 of Personal Cash Flow Statement (2/2)
Variable Expenses Dollars Percent
Food 7,000 7.3%
Utilities 3,600 3.8%
CF Gasoline and maintenance 4,200 4.4%
Statement Medical expenses 3,400 3.6%
Medicines 1,750 1.8%
for a couple
Clothing and upkeep 1,950 2.0%
with 2 kids, Church 2,400 2.5%
from 1/1 to Gifts 1,400 1.5%
31/12/18 Personal allowances 3,000 3.1%
Unit: USD Children's allowances 3,200 3.3%
Miscellaneous 400 0.4%
Total variable expenses 32,300 33.7%
Total Expenses 95,720 100.0%
SURPLUS (DEFICIT) 0 0%

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Personal Finance
 Example 2 of Personal
INCOME
Cash Flow Statement
thousand VNĐ Percent
Parent's allowance 48,000 50.1%
Part time job salary 12,000 12.5%
Scholarship 13,000 13.6%
CF Statement Lucky money
Rewards & others
4,000
5,000
4.2%
5.2%
for a UEL Total income
EXPENDITURES
82,000 85.7%

student Fixed Expenses

Installment loan payment 10,000 10.4%
(2022), unit: House Rent
Other loan payments
24,000
6,000
25.1%
6.3%
thousand VND Utilities (internet, water, electric) 3,360 3.5%
Medical insurance 2,500 2.6%
Emergency fund savings 0 0.0%
Total fixed expenses 45,860 47.9%
Variable Expenses Dollars Percent
Food 25,200 26.3%
Transportation (gasoline, parking) 6,000 6.3%
Clothing 3,000 3.1%
Personal care 2,000 2.1%
Gifts 2,000 2.1%
Education (book, online courses) 3,000 3.1%
Miscellaneous / Other 1,000 1.0%
Charity 0 0.0%
Total variable expenses 42,200 44.1%
Total Expenses 88,060 92.0%
SURPLUS (DEFICIT) (6,060) 0%
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Personal Finance
 Example 3 of Personal Cash Flow Statement
Cash inflow (Income)
- Disposable income (after tax) 10,000,000
- Interest income -
- Dividend -
Total income 10,000,000
Cash outflow (Expenses)
- House rent 1,500,000
- Utilities (electricity, water, internet, phone) 300,000
Needs (50%)
- Food 3,000,000
- Transportation 400,000
- Insurance/ For parents 1,000,000
- Personal care (cosmetic, clothes...) 500,000
Wants (30%)
- Miscellaneous 300,000
- Other / Recreation 1,000,000
Total expense 8,000,000
Savings (20%) Surplus or Net cash flow 2,000,000
 Các yếu tố ảnh hưởng đến dòng tiền
Dòng tiền Dòng tiền
vào ra
- Các giai đoạn của sự - Quy mô gia đình
nghiệp – life cycle (lớn, nhỏ)
- Loại công việc (kỹ - Độ tuổi
năng, nhu cầu)
- Hành vi tiêu dùng
- Số lao động chính
cá nhân
trong gia đình
 Using Ratios: Financial Thermometers

• Financial ratios allow you analyze raw data in the balance

sheet or income statement then compare it to targets.

• Ratios help you understand how you are managing financial

resources.
Question 1: Do I Have Enough Liquidity
to Meet Emergencies?

– Should be greater than 1.0

– Aim for above 2.0

– Should aim for 3 to 6 months of liquid assets

– Less if enough credit and insurance
 Question 2: Can I Meet My Debt Obligations?

– Should decrease as you get older

– Less than 2.5 is a red flag

• Solvency ratio = Net worth/ Asset

Question 3: Am I Saving as Much as I Think I Am?

–Effective saving is by paying yourself first

–The 80/20 or 50/30/20 rule: 20% of your income should
go towards savings
Reaching your goals through Budgeting: Your
spending/ savings action plan

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Personal Finance
 What is Budget?
- A budget is a paper or electronic document used
to record both planned and actual income and
expenditures over a period of time. Your budget
represents the major mechanism through which
your financial plans are carried out and goals are
achieved.

- Your budget is your plan for spending and saving.

Budgeting forces you to consider what is
important in your life, what things you want to
own, how you want to live, what it will take to do
that, and, more generally, what you want to
achieve in life.
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Personal Finance
Sample Monthly Budgets for various family units (1/3)

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Personal Finance
Sample Monthly Budgets for various family units (2/3)

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Personal Finance
Sample Monthly Budgets for various family units (3/3)

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Personal Finance
 Budgeting: Spending/Saving plan

Set Goals
Set financial ✔ Long-term, Intermediate-
term, short-term goals
goals
✔ SMART vs HARD Goals

Plan CF Make and Budget estimates:

✔ Cash Flow or Financial Plan Cash Reconcile Projected dollar amounts to receive or
spend in a budgeting period.
Calendar Flow Budget Revise Budget estimates 🡪 identify your
✔ Revolving savings fund
Estimates priorities

Personal Finance 26
Poplular Budgeting Strategies or Methods

The 50/30/20 or
Traditional
80/20 Budget
Budget Method

Pay yourself Envelope Budget

first or zero-based
method
 (i) Traditional Budget
Method
How Pros Cons
- List your income - Know well
- List your where your - Consume too
expenses money went; much time
- Find the identify wasteful and
difference spending, focus management
- Try to track the on value-added resources
expenses and set activities - No motivation
saving goals to start
🡪 for people who are detail-oriented and who have more time. It's not so great
for people who are "big-picture" thinkers, creative types, and busy people.
 (ii) Pay yourself first/ Reverse budget

Pros Cons
How
- Easy to maintain, - Encourage
- Savings are prioritised undisciplined
- the first “bill” you pay
no need to track
spending when you
every month is to your every single
can spend the
savings account. expense balance however
- Use the rest to pay - Build saving you like
other bills discipline.

🡪 Suitable for those who want to prioritise savings first, may not be suitable for
those who have too much debt to pay off.
(iii) The 50/30/20 or 80/20
How
Allocating income into three categories: 50%
for needs, 30% for wants, and 20% for
savings and debt repayment.
Pros
- implicity, flexibility, and a focus on balanced
financial priorities
Cons
- difficulty in distinguishing and
controlling between needs and wants
- May not be suitable for those who have
too much debt to pay off.
 (iv)The (Cash) Envelope Budget
method How
create different spending
categories and allot a fixed amount of
money to each one. Once you reach the
limit, you can't spend more until the next
标题 Pros
month.
- prevents you from overspending 🡪 financial
discipline
- It forces you to pay with cash, and studies show
that consumers spend less this way compared to
paying with Cons
a debit or credit card.
Paying by cash may be inconvenient and
unsafe
Required to predict expenses correctly
🡪 best for people with predictable spending who lack financial discipline.
Which budget method to select?

It depends. Many methods can be combined:

-The first stage of practicing financial discipline
and tracking expenses: traditional methods.
-Once you get used to it, the pay yourself first
and 50/30/20 methods may be suitable
 Budget-
ing and
Financial
Calendar

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Personal Finance
Budgeting and Financial Calendar – Irregular Expenses

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Personal Finance
 Revolving saving fund for
irregular expenses

Irregular Expenses
Ex: twice-a-year auto insurance bill, vacations, travel, tuition and fees,
property taxes, back-to-school supplies, vet grooming and checkups, dental
cleanings, magazine subscriptions, special haircuts, one-time tickets for
whatever, birthdays, and Christmas (travel, decorations, gifts).

Revolving saving fund

This is a variable expense classification budgeting tool into
which funds are allocated in an effort to create savings
that can be used to pay irregular expenses and to meet
occasional deficits due to income fluctuations.

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Personal Finance
Budget controls: Wants and Needs
The classification of human wants and needs is not a rigid concept.
What is comfort for one person can be a necessity for another

Definition Example

essential expenses
required for a person's Basic food, shelter, clothing,
NEEDS basic survival and well- Healthcare, basic transportation
being (must have)

non-essential items and

services that can enhance Entertainment, dining out, vacations,
one's quality of life but are luxury items, hobbies and leisure
WANTS activities
not necessary for survival
or basic well-being (wish to
have

Personal
36Finance
Budget controls: Behavioral economics and Overspending

Behavioral Overspending
Economics & Undersaving

- Behavioral economics looks at - overspend with credit cards

how financial decisions are and debit cards in particular
affected by emotional, because they’re disconnected
psychological, cognitive, and from the actual money they’re
social factors. spending
- Loss Aversion, Mental
Accounting...

Personal Finance
37
 Budget controls: Some tips to control spending
Techniques of planned spending to maintain control over personal spending so that
planned amounts are not exceeded.

Track what you spend & credit transactions

Use the Envelope System for
the Strongest Control
Budget for shopping trips

Control
Choose to postpone buying
anything expensive for two Spending
Be goal-oriented
months to see if the “need”
about savings and
is still strong
investments

Shop purposefully (by asking “Do I

really need it?”)

Personal
38Finance
What will you do with net income (surplus): Time
value of money

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Personal Finance
What will you do with net income (surplus): TVM
• Factors affecting Time Value of Money

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Personal Finance
What will you do with net income (surplus): Interest

• Interest rate is a way to calculate the time value of money

• Present value (PV) and future value (FV) measure how much
the value of money has changed over time.
• The future value (FV) measures the nominal future sum of
money that a given sum of money is "worth" at a specified time
in the future assuming a certain interest rate, or more generally,
rate of return.
• Interest and Interest rate

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Personal Finance
 Compound Interest: Definition

• Simple interest: only the original money invested or borrowed

(called the principal) generates interest over time
• Compound interest: the principal generates interest, then the
principal plus the interest generate more interest, and so on.
• Interest may be compounded:
annually - once a year
semi-annually - twice a year
quarterly - four times a year
monthly - twelve times a year
 Compound Interest: The Formula

FV= PV.(1+i) n

PV: The principle (t=0)

FV: compound amount or accumulated value of PV at the end of n
periods (include the principle and interest)
i: interest rate for the compounding period
n: total number of compounding periods in the investment term
Use Excel:
• FV(rate,nper,pmt,[pv],[type])
• PV(rate, nper, pmt, [fv], [type])
 Compound Interest: Examples

Find the compound amount if P23,000 is invested for

4 years at the rate of 12% compounded:
a. annually
b. semi – annually
c. quarterly
 Building wealth is..... hard

Save 1m/ month & invest 12m per year( unit: million dong)

RoR 5y 10y 15y 25y 30y

0% 60.00 120.00 180.00 300.00 360.00
5% 66.31 150.93 258.94 572.73 797.27
10% 73.26 191.25 381.27 1,180.16 1,973.93
15% 80.91 243.64 570.96 2,553.52 5,216.94
20% 89.30 311.50 864.42 5,663.77 14,182.58
25% 98.48 399.03 1,316.24 12,657.49 38,726.09
30% 108.52 511.43 2,007.44 28,185.64 104,759.83
 Building wealth is..... hard

Save 5m/ month & invest 60m per year( unit: million dong)

RoR 5y 10 y 15 y 25 y 30 y
0% 300.00 600.00 900.00 1,500.00 1,800.00
5% 331.54 754.67 1,294.71 2,863.63 3,986.33
10% 366.31 956.25 1,906.35 5,900.82 9,869.64
15% 404.54 1,218.22 2,854.82 12,767.58 26,084.71
20% 446.50 1,557.52 4,322.11 28,318.86 70,912.89
25% 492.42 1,995.17 6,581.21 63,287.47 193,630.46
30% 542.59 2,557.17 10,037.18 140,928.20 523,799.13
 Look
how
compounding
works!
 THE POWER OF COMPOUND INTEREST

• When Albert Einstein was once asked

what mankind's greatest invention was,
he replied: "Compound interest."
There's even one claim that Einstein
called compound interest the "8th
Wonder of the World.”

• Money makes money. And the money

that money makes, makes
money.”( Benjamin Franklin)
 Recognize (Effective) Interest Rate in Real Life!

• 1 khoản vay 100tr trả nợ trong 12 tháng, lãi suất 12% theo dư
nợ ban đầu
I=?
 Rate of Return – IRR - Ex1

• Cuối năm 2014, bạn mua nhà 4 tỷ sau đó cho thuê mỗi
năm được 240 triệu. Cho thuê đến hết năm 2017, bạn đầu
tư nâng cấp nội thất hết 500 triệu. Sau đó tiền cho thuê
tăng lên thành 300 triệu. Đến cuối năm 2021, bạn bán căn
nhà đi được 7 tỷ. Hỏi TSLN của khoản đầu tư này?
 Rate of Return – IRR - Ex1
Cash outflow Cash inflow Total
2014 -4000 -4000
2015 240 240
2016 240 240
2017 -500 240 -260
2018 300 300
2019 300 300
2020 300 300
2021 7000 7000
11.55%
 Rate of Return – IRR - Ex2

• Điện thoại iphone 13 Pro max 128Gb có giá

là 33,990,000đ. Khách hàng trả trước 50%
tức 16,995,000đ. Số còn lại khách hàng vay
của công ty Home Credit và trả góp mỗi
tháng là 1,856,000 trong 12 tháng. Hãy tính
tỷ suất sinh lợi của Home Credit
 Cash Inflow Cash Outflow Total
Tháng 0 (16,995,000) (16,995,000)
Tháng 1 1,856,000 1,856,000
Tháng 2 1,856,000 1,856,000
Tháng 3 1,856,000 1,856,000
Tháng 4 1,856,000 1,856,000
Tháng 5 1,856,000 1,856,000
Tháng 6 1,856,000 1,856,000
Tháng 7 1,856,000 1,856,000
Tháng 8 1,856,000 1,856,000
Tháng 9 1,856,000 1,856,000
Tháng 10 1,856,000 1,856,000
Tháng 11 1,856,000 1,856,000
Tháng 12 1,856,000 1,856,000
4.43%
 Summary
• Use balance sheets and cash-flow statements to measure your
financial health and progress.
• Collect and organize the financial records necessary for
managing your personal finances.
• Achieve your financial goals through budgeting.
• Don’t forget to identify your irregular expenses and compute
revolving saving funds for them by using financial calendar.
• Control spending is important to achieve your goals!
• Utilize the power of compounding interest to reach your
financial success and be careful with interest rate trap in the
real life
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Personal Finance
ASSIGNMENTS

01 Problems in the book

[1], [2]

02
Case studies

Review Film: The

03
confession of a
shopaholic
Personal Finance 56
THANK
YOU
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Personal Finance