Business and Personal Finance- Chapter 2

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personal assets

car or computer

Income taxes

(money owed to the government on earned income)

liquid assets, real estate, personal, investments

4 categories of wealth

Blueprint of how to build a house

A financial plan is created like​ a

Net Worth =

Assets - Liabilities

real estate

Buildings and land that an individual owns is example of what?

No. Lenders might loan you more than you are really able to pay back.

Can you rely on a lender to lend you the appropriate amount of​ money? Explain.

Budgeting involves forecasting future expenses and income.

Define budget planning.

more education you have the higher your income will be

The effect that education and career has on your income

health care

For consumers under 25 years old which is the smallest annual expense? Health care, housing, food, transportation

Money management ensures that you have enough cash available for immediate​ needs, and credit management ensures that you have access to credit to cover shortfalls or make major purchases.

How are they​ used?

The issue of taxes paying for them and reducing exposure to them requires planning and may affect some of your decisions.

How do tax laws affect the budgeting​ process?

Net worth is calculated by subtracting liabilities from assets.

How is your net worth​ calculated?

Liquidity

How much readily available cash you have on hand for meeting immediate wants and needs

then the risk is higher

If there is a greater chance of you suffering a financial loss

not true

In order to determine how much you can save you need to have an accurate estimate of assets?

less your payments will be

Longer you take the

liquidity management

Money Management and Credit management decisions are both involved in

the interest rate and the time period for paying back the loan

Payment terms include information about

Income

The money coming in through wages earned, allowance, or other sources

true

True or false? The payments on most long term loans are usually due on a monthly basis?

Components of a financial plan are​ 1) budgeting and​ taxes, 2) managing​ liquidity, 3) financing large​ purchases, 4) managing​ risk, 5) investing​ money, 6) planning for retirement and transferring​ wealth, 7) communicating and keeping records.

What are the components of a financial​ plan?

A person must establish net​ worth, income,​ expenses, and the impact of taxes.

What elements must be assessed in budget​ planning?

Factors include your​ creditworthiness, the interest​ rate, and time period for paying back loans.

What factors determine how much you can​ borrow?

Education and career choice are critical in determining income.

What factors influence​ income?

Liquidity refers to the amount of cash you have readily available.

What is​ liquidity?

Money management and credit management are the two factors in managing liquidity.

What two factors are considered in managing​ liquidity?

Knowing expenses makes it possible to determine if your income is sufficient to meet your needs.

Why is an accurate estimate of expenses important in budget​ planning?

Knowing your net worth is like knowing your starting point on a map. It helps you know where you are beginning in your quest to reach your goals.

Why is knowing your net worth​ important?

Assets

are anything we own, such as cars or baseball cards

Liabilities

are what we owe, or our debt

Budget and taxes Managing liquidity, or ready access to cash Financing large purchases Managing your risk Investing your money Planning for retirement and the transfer of your wealth Communication and record keeping

good financial plan includes 7 key components

insolvent

if you dont have enough money to pay your bills you are what?

personal financial plan

involves specifying financial goals including the spending, financing, and investing plans needed to reach the goal

Interest

is like rent on money

real estate

land and anything attached to it

savings account, checking account

liquid assets

sell

liquidate

Equity

means ownership

housing

people over 65 spend most of their money on

housing

people under 25 spend most of their money on

current liabilities

something you owe but can pay back in less than a year

long term libailities

something you owe but take more than a year to pay back

investment

stocks and bonds

finance

take money out and pay it back

Budgeting

the process of forecasting future expenses and income

budgeting

the process of forecasting future expenses and income

jewelry, car

things you can liquidate

current and long term

two types of liabilities


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