Financial Statements and Budgeting

Question 1

Personal net worth statement

Answer 1

Summarizes client’s assets and debts as of a specific date

Question 2

Statement of cash flow

Answer 2

Tallies a client’s income and expenses over a period of time

***Budgeting starts with cash flow statement

Question 3

Solvency Ratio

Answer 3

Net worth / Total assets

Question 4

Savings Ratio

Answer 4

Cash surplus / After-tax income

Question 5

Emergency fund planning

Answer 5

3 to 6 months of salary set aside for emergency cash needs

Question 6

Discretionary expenses

Answer 6

Expenses related to items which the individual desires, but are not required for basic survival (travel and entertainment)

Question 7

Non-discretionary expenses

Answer 7

Expenses related to items required for basic survival (food, clothing, shelter etc.)

Question 8

***Strategies to improve client’s cash flow situation

Answer 8

1) Reduce discretionary expenses (refinance high interest debt)
2) Reorganize investments (tax sheltered vehicles)
3) Increase income