Finance Chapter 3

Money management Day to day financial activities necessary to manage current personal economic resources while working toward long-term financial security
Safe deposit box A private storage area at a financial institution with maximum security for valuables
Balance sheet A financial statement that reports what an individual or family owns and owes (AKA net worth statement)
Assets Cash and other property with a monetary value
Liquid assets Cash and items of value that can easily be converted to cash
Liabilities Amounts owed to others
Current liabilities Debts that must be paid within a short time, usually less than a year
Long-term liabilities Debts that are not required to be paid in full until more than a year from now
Net worth The difference between total assets and total liabilities
Insolvency The inability to pay debts when they are due because liabilities far exceed the value of assets
Cash flow The actual inflow and outflow of cash during a given time period
Cash flow statement A financial statement that summarizes cash receipts and payments for a given period
Income Inflows of cash to an individual or a household
Take-home pay Earnings after deductions for taxes and other items (AKA disposable income)
Discretionary income Money left over after paying for housing, food, and other necessities
Budget A specific plan for spending income
Budget variance The difference between the amount budgeted and the actual amount received or spent
Deficit The amount by which actual spending exceeds planned spending
Surplus The amount by which actual spending is less than planned spending
If expenses for a month are greater than income, an increase in net worth will result. False
Current liabilities are amounts that must be paid within a short period of time, usually less than a year True
Current liabilities differ from long-term liabilities based on: When the debt is due
Which of the following situations is a person who could be insolvent? Assets: $40,000Liabilities: $45,000
Monica has determined that the value of her liquid assets is $4,500, the value of her real estate is $128,000, the value of her personal possessions is $62,000 and the value of her investment assets is $73,000. She has also determined the value of her current liabilities is $7,500 and the value of her long term liabilities is $98,000. What is Monica’s net worth? Assets: $4,500$128,000$62,000$73,000=$267,500 Net worth=$162,000Liabilities:$7,500$98,000=$105,500
Phoebe has determined the following information about her own financial situation. Her checking account is worth $850 and her savings account is worth $1,200. She owns her own home that has a market value of $98,000. She has furniture and appliances worth $12,000 and a home computer and laptop worth $3,300. She has a car worth $12,500. She has recently purchased a 2 year certificate of deposit worth $5,500 and she has a retirement account worth $38,550. What is the value of her liquid assets? $2,050Liquid Assets:Checking account $850Savings account $1,200
The Lopez family budgets $420 a month for food. Last month they spent $413, which creates: A budget surplus of $7
Assume the following as monthly amounts: Gross Salary: $4,000 Take Home Pay: $2,600 Savings: $450 Credit Card Payments: $500 What would be your savings ratio? Savings ratio: monthly savings/gross monthly pay450/4,000= 11.25%
A savings amount of $5,000 on deposit for 8 years at 4 percent interest (compounded annually) would earn about ______ in interest. $1,840
A budget deficit would result when a person’s or family’s: Actual expenses are greater than planned expenses
Assume the following:Liquid assets $ 14,670Current liabilities $ 2,670Long term liabilities $66,230Investment assets $ 9,340Household assets $90,890What is this person’s net worth? $46,000
If a student has a net worth of $50,000 and liabilities of $40,000, what are his/her total assets? $90,000
Assume the following:Assets = $110,000Liabilities = $70,000Net Worth = $35,000Monthly credit payments = $1,640Take home pay = $8,200What is the debt ratio and debt payments ratio for this individual? Debt ratio: liabilities/net worth=2.0Debt payments ratio: monthly credit payments/take home pay=0.20
Which of the following is considered a liquid asset? A long term bond held in a taxable brokerage account

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