Personal Finance Mid Term

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities is a(n) Financial plan.
The consumer price index measures: The average change in prices of goods and services of urban consumers
The actual cost of living increase for a household will be: Either greater than or less than the inflation rate as reported by the CPI depending on the household’s cost of necessities purchased
A tool to determine the number of years until retirement for an employee Used to estimate how fast prices will double using a given annual inflation rate
The Rule of 72 is: Used to estimate how fast prices will double using a given annual inflation rate
Who is less likely to be harmed by inflation? Borrowers
Increased consumer saving and investing is likely to be accompanied by Lower interest rates
A savor or an investor should expect to receive a risk premium for Higher uncertainty about getting his/her money back
Which of the following would increase the interest rate for a loan? Poor credit rating
Attempts to increase income through employment are part of the _____________ component of financial planning. Obtaining
The ‘borrowing’ component in a financial plan relates to Maintaining control over credit-buying habits
What does SMART goals stand for? • S = Specific • M = Measurable • A = Action orientated • R = Realistic • T = Time Based
What are the different goal “terms”? Short term goals: Within 1 yearIntermediate goals: Within 1-5 yearsLong term goals: More than 5 years
_________ goals relate to infrequently purchased, expensive items. Durable-product
Time Value of Money (Mount in Savings)x (Annual Interest Rate) x (Time Period) = Interest
Types of TVM Calculations • Future = Amount that will be available at a later date • Present Value = Current value of an amount desired in the future Future = Amount that will be available at a later datePresent Value = Current value of an amount desired in the future
“Annuity” Series of equal deposits at equal intervals earning a constant rate
Table “1-A” represents… Depositing an amount today and figuring out how much money you will have in that account in the future 1-A : FV = PV(1-A)
Table “1-B” represents… Finding out how much you will have if you deposit an amount of money every yearFV = PV(1-B)
Table “1-C” represents… Finding out how muchmoney I need to deposit today tomeet my future goal in 10 years PV = FV(1-C)
Table 1-D represents… Taking out a set value of money overand figuring out what you need to start withPV = FV(1-D)
6 Steps to Developing a Financial Goal 1. Determine current financial situation2. Develop financial goals3. Identify alternative courses of action4. Evaluate alternatives5. Create and implement financial action plan6. Review and revise plan
The tangible and intangible factors that create a less than desirable situation is referred to as ____________ risk. Personal
A home file should be used to keep… Financial records for current needs.
A Fire proof safe deposit box should be used to keep… Very important, hard to replace documents that do not need to be don’t need to access it frequently
Brokerage statements are an example of a(n) ____________ record. investment
How long should you keep documents relating to investments?As long as you have these items. As long as you have these items.
The current financial position of an individual or family is best presented with the use of a… Time value of money report.
Another name for a statement of financial position is a ____________. Balance sheet.
Items with monetary value are referred to as… Assets.
The amount you would have left if all assets were sold and all debts were paid in full is called your Net worth.
The inability to pay debts when they are due because liabilities far exceed the value of assets is called Insolvency.
Financial experts recommend monthly savings of ____ of gross income. 5-10%
liabilities divided by net worth = Debt RatioShows relationship between debt and net worth.Lower is better.
liquid assets divided by current liabilities = Current RatioIndicates $2 in liquid assets for every $1 of current liabilities.higher is better.
Liquid assets divided by monthly expenses = Liquidity RatioIndicates the number of months in which living expenses can be paid if an emergency arises.Higher is better.
Monthly credit payments divided by take-home pay = Debt-Payments RatioIndicates how much of a persons earnings goes towards debt payments.Recommended to have less than 20%.
Amount saved each month divided by gross income = Savings RatioIndicates the relationship between gross income and money saved.Recommended 5-10%
The money left over after paying for housing, food, and other necessities is called Discretionary income.
Take-home pay is also called Net pay.
Excise tax Sales tax that is set for specific goods
Death Tax A tax that is put on your remaining money after it is paid off when you die (You have to have 11 million in estate to be taxed or 11 million for a couple)
Tax in Earnings Income tax and Social Security
The tax that is a major source of revenue for local governments is called a(n) Real estate property tax.
You may be required to make estimated tax payments if…. You are an independent contractor.
Adjusted Gross Income (AGI) = Your taxable Income
When calculating federal income taxes, “gross income” includes all of the following except Earned income credit.
Income that is not subject to tax is called Tax-exempt income.
Fees, tips, and bonuses are forms of Earned income.
Taxpayers over 65 can only deduct expenses that are greater than 7.5% of adjusted gross income for Medical and dental expenses.
The tax based on the total tax due divided by taxable income is called the Average tax rate.
The rate used to calculate the tax due on the next dollar of income is referred to as the Marginal tax rate.
Alternative Minimum Tax (AMT) Paid by taxpayers with high amounts of certain deductions and various types of income
Tax credit vs. Tax deduction Tax credit reduces your taxes.Tax deduction: Amount of tax Deduction is based on your tax bracket.
The maximum that an individual can contribute to a Coverdell Education Savings Account each year is $2,000.
The maximum that an individual can contribute to a Keogh plan for the 2014 year is 25% of annual income, up to a maximum of $52,000.
The amount of tax exemptions for the 2014 tax year 3,950 per person
A credit card is a type of Loan/borrowing.
A legal agreement that provides for the management and control of assets by one party for the benefit of another is known as… A trust.
ATM stands for Automatic teller machine.
Another name for a regular savings account is a Passbook or statement account.
3 types of endorsements 1. Blank Endorsement: Signature only2. Restrictive Endorsement: “For deposit” only” 3.Special Endorsement: “Pay to the order of”
Certified Check Persons check with guaranteed payment.
Cahier’s Check Check from a financial institution; you pay the face amount, plus fee.
Money Order Purchase at financial institution, post office, store.
Travaler’s Check Sign each check twiceElectronic traveler’s checks – prepaid travel card with ability ti get local currency at an ATM.
How much does the FDIC insure up to? $250,000 per person, per financial institution
Annual percentage yield (APY)= (Rate per period) x (# of periods per year)

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