Personal finance ch 3

Money mangement Planning how to get the most from your money
Safe-deposit box Small, secure storage conpartment that you can rent in a bank, usually for $100 a year or less
Personal financial statements Documents that provide information about your current financial position and present a summary of your income and spending
Balance sheet Net worth statement A financial statement that lists the items of value that you own, the debts that you owe and your net worth
Net worth Difference between the amount that you own and the debts that you owe
Assets Any items of value that you own inlcuding cash,property, personal possessions, and investments
Liquid assets Cahs and items that can be quickly converted to cash
Real estate Land that a perosn or family owns and anything that is on it, such as a house or any other building
Market value Price at which you could sell that property
Liabilities Debts that you owe
Insolvency Condition that occurs if your liabilities are greater than your assets
Cash flow The money that goes into and out of your wallet and bank accounts
Income Money that a person receives such as a paycheck from a job, an allowance from parents ir interest earned on a savings account
Take-home pay Net-pay Amount if income left after taxes and other deductions are taken out of your gross pay
Discretionary income The money left over after you have paid for essentials such as food,clothing, shelter, transportation, and medication
Deficit Situation that occurs if you spend more than you earn or receive
Surplus Extra money that can be spent or saved, depending on a persons financial goals and values
Budget Plan for using your money in a way that best meets your needs and wants
Consumer price index (cpi) Measure of the changes in prices for commonly purchased goods. And seevices in the us
Budget variance Diffefence between budgeted amount and actual amount that you spend
What’re the benefits of organizing your financial documents -find particular documents quickly -plan and measure your financial progress -handle routine money matters(i.e. Paying bills)-determine how much money you have available to spend now and in the future -make effective decisions on how to save money
Where are the different places you can keep your financial documents Home files Safe-Deposit Boxes Home computers
What can be used to make home files File drawer Series of folders Cardboard box
What should your home file be? Simple and able to access docs quickly
How to make a home filing system 1) sort through personal financial records 2) arrange according to nature and type of document 3) label all folders or boxes 4) train self to file financial docs
What type of docs should you keep in a home file? Bank statements No “hard-to-replace” docs since it’s not fire,water or theft proof
What should you keep in a safe deposit box ? Important docs like car titles, birth certificates, mortgages loan papers, etc
List benefits of safe deposit boxes -kept in locked, fireproof room -two locks(bank and you)-sometimes insurance to cover losses
Name some things you can store in a home computer Current and past budgets Resume Summaries of checks written
What’re the four steps for creating a personal balance sheet 1. Determine yours assets 2. Determine your liabilities 3. Calculate your net worth 4. Evaluate your financial situation
What’re the different types of assets and examples -Liquid assets (Money in savings and checking accounts, stocks, bonds)-Real estate -Personal possessions (Cars, TVs ) -investment assets (Stocks and bonds)
What’re the different kinds of liabilities Current liabilities Long term liabilities
What are current liabilities and examples Short term debts that have to be paid within one year (Medical bills, cash loans, taxes)
Long term liabilities and examples Debts that don’t have to be fully repaid for at least a year (Car loans, student loans, mortgage loans)
True or false Liabilities are only money that you for longer than a month so phone bills don’t qualify True
How to calculate net worth Assets-liabilities= net worth
True or false Even if you have a high net worth you can still have trouble paying your bills True
When should you update your balance sheet Every few months
Steps to create a cash flow statement 1. record your income(take home pay, interest earnings on investments and savings ) 2. Record your expenses3) determine net cash flow
True or false The higher your discretionary income, the better off you are True
What are the two kinds of expenses Variable and fixed
Variable expenses Expenses that may change from month to month (Food, clothing, electricity)
Fixed expenses Expenses that are more or less the same each month (rent, bus fare for school, tv charges)
How to determine net cash flow Income-Expenses= Net Cash Flow
What can you do with surplus cash from net cash flow? Can be saved( adding to assets) orCan be spent (pay off previous debts to reduce liabilities)
What can you do to make up for deficit Borrow money(increasing liabilities) Draw from savings( decrease assets)
Negative cash flow? Positive cash flow? DeficitSurplus
True or false Every time your net cash flow changes does your net worth True
Steps to create a budget 1) set financial goals 2) estimate income 3) budget for unexpected expenses and savings(medical bills, car wreck, vacation fund)4) budget for fixed expenses(mortgage, student loan payments)5) budget for varied expenses (medical costs, heating costs) 6) record what you spend 7) review spending and saving patterns(review financial progress and revise goals/adjust budget)
What should and shouldn’t you include as you estimate your income Shouldn’t:Bonuses and gifts Should: take home pay and income on investments and savings
What are important characteristics of a good budget? 1. Carefully planned 2. Practical 3. Flexible 4. Easily accessible
What’re the different ways to increase your savings -Set aside fixed amount for savings before paying bills(pay yourself first) -Employer offers payroll savings deduction -Spend less each day; put money saved into a savings account

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