Chapter 2 Study Guide Questions
If I had cash income of $50,000 and expenses of 48,000 - what would be my cash surplus amount?
$2,000 is Cash Surplus
Calculate the net worth: Assets = $225,000, Liabilities = $175,000 Net Worth =
$50,000
A cash budget has value only if you:
1. You use it !!! 2. You keep careful records of your income and expenses
Using Appendix A, what is the future value an investment of $7,000 in 5 years at 3 %?
1.159 $7,000 x 1.159 = $8,113
Using Appendix D, calculate the present value of an annuity if you would be willing to pay up front that will pay $800 a year for 5 years and earning a 5% return?
4.329 $800 / 4.329 = $184.80
Using Appendix B, what is the future value of an annuity of $40,000 in 5 years while earning an interest rate of 5%?
5.526 $40,000 / 5.526 = $7,238.50
What is the formula for future value?
Amount invested x future value factor
True or False: Preparing an income and expense statement answers the question "where did my money go".
True
How often should you prepare your personal balance sheet at least __________.
once a year, but preferably every 3-6 months.
If I had cash income of $50,000 and expenses of $53,000 - what would be my cash deficit amount?
-$3,000 is Cash Deficit
Using Appendix C, calculate the present value of a retirement fund of $500,000 in 20 year at a rate of 3%?
0.554 $500,000 x 0.554 = $277,00
Explain the 50/30/20 rule:
1. 50% of living expenses and needs. 2. 30% of flexible spending/Wants. 3. 20% of saving/investing .
What are the names of the 4 Appendix tables:
1. Appendix A-Future Value 2. Appendix B-Future Value Annuity 3. Appendix C-Present Value 4. Appendix D-present Value of Annuity
A Balance Sheet has 3 parts. Explain each part:
1. Assets. 2. Liabilities. 3. Net Worth.
The cash budget preparation process has three stages. What are they:
1. Forecasting (predicting) income. 2. Estimating Expense. 3. Finalizing the Cash Budget.
A cash budget is a valuable money management tool that helps you:
1. Helps you maintain necessary information to monitor/control financial. 2. Helps you to decide where income goes to reach goals. 3. Helps you keep disciplined spending habit-waiting for the next paycheck. 4. Reduce unnecessary spending: increase investments. 5. Archive long term financial goal.
What are the five categories of household expenditures (costs):
1. Housing. 2. Transportation. 3. Food. 4. Personal Insurance pension. 5. Health Care.
What are 5 ways to spend less?
1. Make a budget and use it to set financial goals. 2. Use your savings account first and checking account last. 3. Spend Cash-Don't Depend on credit cards . 4. Have someone hold you accountable. 5. THINK before you buy, consider alternative.
Four important money management ratios are:
1. Solvency Ratio. 2. Liquidity Ratio. 3. Savings Ratio. 4. Debts Ratio.
What is the formula for yearly savings?
Future amount of money desired / Future value of Annuity Factor