Personal Finance: 1-3

Standard Deduction

A set amount on which no taxes are paid

Balance Sheet

A financial statement that reports what an individual or a family owns and owes; also called a net worth statement or statement of financial position.

Cash Flow Statement

A financial statement that summarizes cash receipts and payments for a given period; also called a personal income and expenditure statement

Financial Plan

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities.

Inflation

A rise in the general level of prices.

Bankruptcy

A set of federal laws allowing you to either restructure your debts or remove certain debts.

Budget

A specific plan for spending income; also called a spending plan

Excise Tax

A tax imposed on specific goods and services, such as gasoline, cigarettes, alcoholic beverages, tires, and air travel

Liabilities

Amounts owed to others

Tax Credit

An amount subtracted directly from the tax owed

Tax Deduction

An amount subtracted from adjusted gross income to arrive at taxable income

Tax Shelter

An investment that provides immediate tax benefits and a reasonable expectation of a future financial return

Liquid Assets

Cash and items of value that can easily be converted to cash

Assets

Cash and other property with a monetary value

Money Management

Day-to-day financial activities necessary to manage current personal economic resources while working toward longterm financial security

Long-Term Liabilities

Debts that are not required to be paid in full until more than a year from now

Current Liabilities

Debts that must be paid within a short time; usually less than a year

Take-Home Pay

Earnings after deductions for taxes and other items; also called disposable income or net pay

Itemized Deductions

Expenses that can be deducted from adjusted gross income, such as medical expenses, real estate property taxes, home mortgage interest, charitable contributions, casualty losses, and certain work-related expenses

Tax-Exempt Income

Income that is not subject to tax

Tax-Deferred Income

Income that will be taxed at a later date

Time Value of Money

Increase in an amount of money as a result of interest earned.

Income

Inflows of cash to an individual or a household

Discretionary Income

Money left over after paying for housing, food, and other necessities

Earned Income

Money received for personal effort, such as wages, salary, commission, fees, tips, or bonuses

Taxable Income

The net amount of income, after allowable deductions, on which income tax is computed

Capital Gains

Profits from the sale of a capital asset such as stocks, bonds, or real estate

S-M-A-R-T

Specific, Measurable, Action-Oriented, Realistic, and Time-Based

Cash Flow

The actual inflow and outflow of cash during a given time period

Deficit

The amount by which actual spending exceeds planned spending

Surplus

The amount by which actual spending is less than planned spending

Future Value

The amount of which current savings will grow based on a certain interest rate and a certain time period.

Present Value

The current value for a future amount based on a particular interest rate for a certain period of time.

Budget Variance

The difference between the amount budgeted and the actual amount received or spent

Net Worth

The difference between total assets and total liabilities

Values

The ideas and principles that you consider correct, desirable, and important.

Insolvency

The inability to pay debt when they are due because liabilities far exceed the value of assets

Personal Financial Planning

The process of managing your money to achieve personal economic satisfaction.

Marginal Tax Rate

The rate used to calculate tax on the last (and next) dollar of taxable income

Adult Life Cycle

The stages in the family situation and financial needs of an adult--is an important influence on your financial activities and decisions.

Economics

The study of how wealth is created and distributed.

Tax Evasion

The use of illegal actions to reduce one's taxes

Tax Avoidance

The use of legitimate methods to reduce one's taxes

Average Tax Rate

Total tax due divided by taxable income

Opportunity Cost

What you give up by making a choice.

Exemption

a deduction from adjusted gross income for yourself, your spouse, and qualified dependents

Tax Audit

a detailed examination of your tax return by the Internal Revenue Service (IRS)

Safe Deposit Box

a private storage area at a financial institution with maximum security for valuables

Estate Tax

a tax imposed on the value of a person's property at the time of death

Inheritance Tax

a tax levied on the value of property bequeathed by a deceased person

Exclusion

an amount not included in gross income

Adjusted Gross Income (AGI)

gross income reduced by certain adjustments, such as contributions to an individual retirement account (IRA) and alimony payments

Passive Income

income resulting from business activities in which you do not actively participate

Investment Income

money received in the form of dividends, interest, or rent from investments; also called portfolio income