Chapter 16

What is a budget? What are the main purposes of a budget?

A budget allows you to meet your personal goals with a system of saving and wise spending. Helps you be successful with money management.

Federal tax return mistakes can be avoided by

All of the above

The amount of money you plan to use for a certain budget category

Allowance

A record of assets and liabilities at a point in time. Reports what is owned and owed.

Balance sheet

A plan to help you meet your personal goals for saving and spending

Budget

When actual spending is greater than planned spending

Budget deficit

When actual spending is less than planned spending

Budget surplus

A report of net wages and other incomes along with spending for a period of time

Cash flow statement

One of the first things you should do as a part of the financial planning process is to

Create a balance sheet and cash flow statement

If actual spending is greater than planned spending, it is referred to as a

Deficit

Compensation resulting from wages, salary, commission, fees, tips, and bonuses

Earned income

Wages, salary, commission, fees, tips, and bonuses are

Earned income

Involving the accumulation and management of property during one's lifetime and the distribution of one's property at death

Estate planning

A cash flow statement examines changes in the value of your personal assets

False

A tax credit is the amount on which taxes are calculated

False

All people have basically the same financial planning goals regardless of which stage of life they are in

False

An amount of money an insurance company pays to a person who has previously deposited money with the company is called a pension

False

Most financial advisers recommend that an amount be set aside for food and housing as the first part of a budget

False

Tax laws and tax forms seldom change

False

A report that summarizes your current financial condition, acknowledges your financial needs, and sets a direction for your future financial activities

Financial plan

Costs that occur on a regular basis and are for the same amount each time

Fixed expenses

Which of the following is a variable expense?

Groceries

What services could you use for assistance with the preparation of your federal tax return?

IRS, tax publications, online sources, tax preparation software, tax preparation services.

A tax-sheltered retirement plan in which people can annually invest earnings up to a certain amount

Individual Retirement Account (IRA)

This is a tax-sheltered retirement plan in which people can annually invest earnings up to a certain amount; the funds are taxed when they are withdrawn after age 59 1/2

Individual retirement account

The result of earnings from dividends, interest, and rent

Investment income

If you have a budget, you should

Learn how to plan for financial emergencies

Amounts owed to others

Liabilities

When you make a loan payment, your

Liabilities decrease

The day-to-day financial activities associated with using limited income to satisfy your unlimited needs and wants

Money management

The difference between a persons' assets and liabilities

Net worth

The amount of a paycheck after taxes and other payroll deductions are paid

Net/take-home pay

Items of value that an individual owns

Personal assets

Your birth certificate and Social Security card would likely be contained in which category of your financial records filing system?

Personal records

Which of the following correctly shows the budgeting process?

Set financial goals; plan budget categories; maintain financial records; evaluate your budget

A successful budget

Should be flexible

This part of Social Security provides death benefits to dependents of workers who die

Survivors insurance

A charge imposed by a government to finance public services

Tax

An amount subtracted from taxes owed

Tax credit

An amount that reduces taxable income

Tax deduction

Income that will be taxed at a later date

Tax deferred income

Income that is not subject to tax

Tax exempt income

The amount of income on which taxes are calculated

Taxable income

Take-home pay is

The amount you will receive when you cash your paycheck

Define money management

The day-to-day financial activities with using limited income to satisfy your unlimited needs and wants

Your net worth is

The difference between your personal assets and your liabilities

A W-2 is a summary of a worker's earnings for the previous year and includes the amount deducted for taxes

True

A balance sheet reports assets, liabilities, and net worth on a given date

True

A cash flow statement can help you develop and determine budget categories

True

Financial planning generally reduces an individual's financial uncertainties

True

Living costs that differ each time and may not be as easy estimate

Variable expenses

Which of the following would be a personal asset?

Your personal computer

This month Anthony's take-home pay was $1,500. He also earned $20 interest on a savings account. He spent $250 for rent, $100 for groceries, and $300 for other expenses. Anthony's net cash flow this month totaled

$870

A tax on gasoline is known as an

Excise tax

A tax deduction for the taxpayer, a spouse, and each dependent

Exemption

Which of the following would probably be a short-term financial goal?

Purchasing a new CD

All of the following are examples of tax deductions EXCEPT

Rent expense

What should you look for when considering using a financial planner to help you create a financial plan? What questions should you ask when choosing a financial planner?

Someone who is certified and has lots of experience dealing with finances - What experience and training do you have? - How are your fees determined?

This month Anthony's take-home pay was $1,500. He also earned $20 interest on a savings account. He spent $250 for rent, $100 for groceries, and $300 for other expenses. Anthony's total cash inflows this month totaled

$1,520