Personal Finance Essay

Words: 3505
Pages: 15

Foundations for Financial Success
Volume 1, Issue 1, March 3, 2011 TABLE CONTENTS

What is financial literacy and why is it important?
Financial literacy is the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being. More specifically, it refers to the set of skills and knowledge that allow an individual to make informed and effective decisions through their understanding of finances. Financial literacy involves a number of different areas of understanding. Learning about money and how it works is an important aspect, as well as understanding products like credit, loans, and investments. Competency in managing money appears to be a skill that doesn’t come naturally to
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In Stephanie Spratt’s example, purchasing a morning coffee every day at the cost of $3.25 per coffee added up to approximately $100 per month. She has given up the possibility of using that money to save toward next month’s deficiency.
“Net Cash flow = Total Income LESS Total Expenses”

Opportunity cost: what you give up as a result of a decision

Get involved in Personal cash flow statements
Let’s examine the following cash flow statement that Stephanie Spratt has provided. Stephanie Spratt wants to determine whether she will have sufficient funds this month to cover the additional expenses she will incur.  Car maintenance expenses are an additional $600 this month, primarily because Stephanie's car needs to have its brakes replaced. Figure 1 Cash Flow Statement demonstrates that LAST MONTH’s cash flow was a positive balance of $330.00, and THIS MONTH’s cash flow is a negative balance of $270.00. Therefore, Stephanie Spratt will not have sufficient funds to cover the additional expenses. How can Stephanie Spratt budget for this anticipated expense knowing that she has an additional $330.00 from last month’s cash flow? (refer to page 2)


Foundations for Financial Success, Volume 1, Issue 1, February 2011

` Budgeting Title Newsletter

Page 3

The next step in expanding your financial literacy the amount of excess cash that you will have availais to understand the budgeting process and how to allo- ble to plan an emergency