Personal Finance Chapter 2

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.

Types of Budgeting Systems

Mental Budget Physical Budget Written Budget Digital Budget

Discretionary Income

Money income left after necessities have been bought and paid for

Budget

Specific plan for spending income; also called a spending plan

Steps of Budget

Step 1) Set Financial Goals Step 2) Estimate Income Step 3) Budget and Emergency Fund and Savings Step 4) Budget Fixed Expenses Step 5) Budget Variable Expenses Step 6) Record Spending Amounts Step 7) Review Spending and Saving Patterns

Saving Techniques

1) Set aside specific amount in savings 2) Payroll Deduction 3) Saving coins/Spending less

Balance Sheet

A financial statement that reports assets, liabilities, and owner's equity on a specific date.

Liquid Assests

Cash or securities that can be immediately turned into cash.

Money Management

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

Long-Term Liabilities

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

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

Budget Variance

The difference between the budgeted amount and the actual amount that you spend

Insolvency

The inability to pay debts when they are due because liabilities far exceed the value of assests

Savings Ratio

amount saved each month/gross income

Debt Ratio

liabilities/net worth

Current Ratio

liquid assets/current liabilities

Liquidity Ratio

liquid assets/monthly expenses

Debt-Payments Ratio

monthly credit payments/take home pay