Personal Finance Chapter 2

Money Management Day-to-day financial activities necessary to manage current personal economic resources while working towards long term financial security
Net Worth The difference btwn total assets and total liabilities
Budget Variance The difference bwtn the amount budgeted and the actual amount received or spent
variance When you calculate a budget ___, you determine the difference btwn the actual amount spent or received and the amount budgeted
Steps of Budgeting 1. Set financial goals2. Estimate expected income3. Allocate an emergency fund and savings4. Budget expenses5. Record spending amounts6. Review spending and saving patterns
Components of Money Management 1. Storing financial records2. Creating personal financial statements3. Creating a plan for spending and saving
Cash Flow The actual inflow and outflow of cash during a given time period
Liabilities Amount owed to others
surplus Cash inflows less cash outflows during a given period of time result in a cash ___ when inflows are greater than outflows.
Cash Flow Statement A personal income and expenditure statement is a summary of cash receipts and payments for a given period
Home File Used to keep records for current needs and documents with limited value
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
Take-Home Pay & Net Pay Person’s earning after deductions for taxes and other items
Which of the following are basic reasons to prepare a balance sheet? Apply for a loan, find net worth, and analyze your financial strengths and weaknesses
7 Years Copies of tax returns should be retained for at least ___
Variable Expenses Flexible payments that change from month to month
Liquid Assets Cash and Items of value that can easily be converted to cash
Discretionary Income Money left over after paying for housing, food, and other necessitites
SMART SpecificMeasurableActionRealisticTime-based
ratios To measure changes taking place in your financial situation, you need to calculate financial…
Personal Financial Statements Tells you…-Report point of financial journey-measure progress towards finance goals-maintain info about activities-provide data for tax forms
Insolvency The inability to pay debts when they are due; occurs when a person’s liabilities far exceed available assets
Solvency Is the ability to pay your bills as they come due because your assets exceed you liabilities

Leave a Reply

Your email address will not be published. Required fields are marked *