SQ3R Chapter 3 - homework PDF

Preview

Summary

homework...

Description

Brandon Walker Chapter 3 SQ3R WHY is net worth important? * Your net worth is basically what you are worth when everything is paid off. So if you have a lot of income and assets that outweigh your expense, you will have a positive net worth. The more assets you have and the less expenses, the higher your net worth. For me, I doubt my net worth is super high. I don’t have many liabilities or expenses, but I also don’t have many assets. * “The dollar amount left when what is owed is subtracted from the dollar amount of what is owned. Your net worth is the true measure of your financial wealth” (pg. 71). “You can increase your net worth by increasing assets, decreasing liabilities, or doing both” (pg. 72). If net worth is the true measure of my financial wealth, then increasing my net worth will increase my overall financial wealth. I have the desire to have a high net worth to benefit my family in the future. If I have a high net worth and then something happens to me, it could be of benefit to my family. WHAT are fixed expenses vs. variable expenses? * Fixed expenses are things that come up at a regular time and a regular dollar amount. Things like monthly water, utility, or electric bills. Variable expenses are things that are changing or more flexible. Expenses like food, clothes, gifts, etc. are examples of variable expenses. I know for me, I have to control my variable expenses. I am not a fan of spending money, but when I do, it is almost always spent on food. I have no problem dropping 5-7 dollars a day on a good meal. But that is going to add up to much more than I think. When budgeting, I need to better at setting out certain amount for variable expenses and not just fixed ones. Otherwise I will keep spending everything just left over in my wallet on burgers and pizza. * “Fixed expenses are usually paid in the same amount during each time period; they are typically inflexible and often contractual. Examples of such expenses include rent payments and automobile installment loans. Variable expenses are expenditures over which an individual had considerable control. Food, entertainment, and clothing are variable expenses, for example” (pg. 75). There is no set definition of what goes in these categories. It is ultimately up to you. So you decide what fits your needs best. For me, food would probably be a fixed expense since that is high up on my priority list. HOW do you use the envelope system? * The envelope system involves getting envelope and labeling them with certain expenses. Each time you get income, you put a set amount in the envelope so when the time comes to pay that expenses, you will have exactly what you need to spend. It is a great way to prevent over spending since you can only spend what you literally have in that envelope. I am so happy this was in the book because this is exactly what I do with my money! I am not perfect at it, but I have been doing this same type of system since I was young. The older I get, the more envelopes I have had to create. Right now in my drawer, my envelopes include expenses such as: tithing, cell phone bill, gas, fast offerings, car insurance, wedding ring payments, and honeymoon. The

last two are the most recent envelopes since I will be getting engaged in February.  * “The envelope system of budgeting entails placing exact amounts of money into envelopes for purposes of strict budgetary control. As expenditures are made, record them on the appropriate envelope and remove the proper amounts of cash. When an envelope is empty, funds are exhausted for that classification” (pg. 91). WHEN do I set my financial goals? * I should set financial goals as the beginning steps of my financial planning. They should be set before anything else happens really. I always thought you see what kind of money you make and spend for a while and then set goals, but it seems like it is important to set the goals first as a guideline for spending and saving. I am not super good at goals. I have the envelopes like I mentioned which are sort of like goals, but those aren’t super long term. The longest term goal is a honeymoon in July. So I could improve by creating longer term goals. * “Before establishing your budget, take action to set financial goals. Goals must be specific. They should contain dollar-amount targets and specific dates for achievement” (pg. 82). Don’t forget to include short-term and intermediate-term goals along with long term goals. The shorter term goals help you keep on track for the longer term goals. WHAT if I have leftover money at the end of the month? * If you have leftover money at the end of your budgeting time, whether or not it is a month, you have many options for what you can do with that money. From what I remember, the book says you can spend it on whatever you want! It would be sort of like a bonus or reward for doing well that month. If you want, you can also use it to give you some breathing room for the next month by putting into some fund or folder. This reminds me of how my dad saves all his $1 bills. It isn’t leftover from budgeting, but it is just his change. He saves them in a jar and then uses it for my parent’s anniversary. When he counted it on Saturday, he had over $300 dollars save in less than a year! So every little bit you can scrape and save makes a difference. * “People handle the net surplus (the amount remaining after all budget classification deficits are subtracted from those with surpluses) in any of the following ways: Put the money into savings, carry the surpluses forward to the following month, pay toward credit card debt, put surpluses toward a mortgage or other loan, put the money into a retirement account, spend surpluses like “mad money” on anything you want” (pg. 93-94). I like the idea of spending it on something fun or using it in a retirement fund. That would motivate me to try and underspend the next month too, and so on....