Personal Finance Chapter 3

Types of assets

1) Liquid 2) Real estate 3) Personal Possessions 4) Investment assets

Current debt

the loans to be paid back this year

Characteristics of a successful budget

well planned, realistic, flexible, clearly communicated

Analyze your current financial condition

1) Identify assets 2) Determine if investments are tax efficient 5) Identify lost, stolen, or damaged assets 6) Summarize the extent of debt/liabilities

Managing a budget

1. Set goals 2. Estimate income 3. Budget emergency fund and savings 4. Budget fixed expenses 5. Budget variable expenses 6. Prioritize/Adjust 7. Review patterns

Components of money management

1. Store and maintain financial records/documents 2. Create personal financial statements 3. Creating and implementing a plan for spending and saving

Net Worth

Assets <<minus>> Liabilities

Fixed Expense

Costs don't change from month to month like rent or car payment

Money management

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

Personal balance sheet

a financial statement that reports what you own and owe (also called net worth)

safety deposit box

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

Debt/Liabilities

amounts owed to others

Saving Techniques

automatic debit payroll deduction saving coins/spending less

Personal Financial Statements

balance sheet, cash flow (in and out)

Assets

cash and possessions you OWN and have a dollar value

Long-term debt

debt when payment is not due this year

Variable Expense

expense changes from month to month like groceries or shopping

Discretionary Income

money left over after bills & necessities are paid for

Take Home Pay

money left over after taxes and other benefit deductions are deducted from paycheck

liquid assets

owned items that can quickly be converted to cash if needed

two-income household

pooled income, sharing the bills, 50/50, proportionate contributions

Cash flow statement

summary of all incoming money and outgoing money over the period of time

Cash flow

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

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