Personal Finance: Chapter 2 – Measuring Your Financial Health and Making a Plan

Personal Balance Sheet A statement of your financial position on a given date. It includes the assets you own, debt and liabilities, and your level of net worth.
Assets What you own. Includes: monetary, investments, retirement plans, housing, automobiles, and personal property.
Liabilities Something that is owed or the borrowing of money. Includes current debt(e.g. utility bills) and long-term debt
Net Worth or Equity A measure of the level of your wealth. It is determined by subtracting the level of your debts or borrowing from the value of your assets.
Fair Market Value What an asset could be sold, rather than what it cost or what it will be worth in the future.
Monetary Assets A liquid asset – one that is either cast or can be easily turned into cash with little or no loss in value. They include: the cash you hold, your checking and savings account balances, and your money market funds.
Investments Financial assets that includes common stocks, mutual funds, or bonds. Their purpose is to generate wealth.
Tangible Asset A physical asset, such as a house or a car, as opposed to an investment.
Insolvent The condition in which you owe more money than your assets are worth.
Income Statemenet A statement that tells you where your money has come from and where it has gone over some period of time.
Variable Expenditure An expenditure over which you have control. You are not obligated to make that expenditure. It may vary from month to month.
Fixed Expenditure An expenditure over which you have no control. You are obligated to make this expenditure, and it is generally at a constant level each month.
Budget A plan for controlling cash inflows and cash outflows. A budget can limit spending in different categories.
Current Ratio A ratio aimed at determining if you have the liquidity to meet emergencies:current ratio = monetary assets/current liabilites
Month’s Living Expenses Ratio monetary assets / (annual living expenditures / 12)
Debt Ratio Aimed at determining if you have the ability to meet your debt obligations:total debt or liabilities / total assets
Long-Term Debt Coverage Ratio total income available for living expenses / total long-term debt payments
Savings Ratio Aimed at determines how much you are saving:income available for savings and investment / income available for living expenditures

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