Chapter 8 Finance

Consideration

-something of value exchanged for something else of value. -may be an item of value, money, a promise, or a performed service. -If one person is to receive something but gives nothing in return, the contract may not be enforceable.

Steps in planning a budget

1.Estimate your total expected income for a certain time period. Include all money you expect to receive. 2.Estimate your expenses, or money you will need for day-to-day purchases 3.Decide how much of your income you want to save—to set aside for future needs. Most experts advise saving 10 percent of your disposable income each pay period. 4. Balance your budget. If your expenses plus savings exceed your income, adjust your budget to make them balance.

When is a contract binding?

A contract is legally binding when it contains these four elements: Agreement Consideration Contractual capacity Legality

Notarized

A process that verifies the signature of a person who signs a document

Negotiable

An instrument that is legally collectible

What does financial planning help you with

Determine and evaluate your choices. Prioritize your choices so your money goes as far as possible. Avoid careless and wasteful spending. Organize your financial resources (sources of income) so you can achieve your financial goals. Avoid money worries by planning your saving, spending, and borrowing to live within your income.

liabilities

Money or debts you owe to others

What do financial experts recommend about fixed expensesWhen you subtract your liabilities from your assets

Most financial experts recommend that a family have fixed expenses of no more than 50 to 60 percent of take-home, or net, pay

What can you keep records on?

Taxes, personal property inventory, net worth statement, credit cards, car titles, insurance policies, birth and marriage certificates, passports

maker

The person who creates and signs the promissory note and agrees to pay it on a certain date

Statute of Frauds

The purpose of this law is to prevent harm due to fraudulent conduct. This law requires that some contracts be in writing and signed to be legally binding. These types of agreements must be in writing because they involve special rules.

How could you balance your budget

To do this, you may have to delay buying some items you want but don't need. Or, you may decide to save a little less this month. If you can't cut your expenses, then you have to increase your income.

Counteroffer

When one person makes an offer and another person changes it, the second person is making a counteroffer.

Net Worth

When you subtract your liabilities from your assets

Legality

a contract must have a lawful purpose

Contract

a legally enforceable agreement between two or more people

A personal property inventory is?

a list of the valuable items you own, along with their purchase prices and approximate current values. Personal property includes anything of value inside your home—clothing, furniture, appliances, and so forth. It should include other items you own as well, including investments, savings accounts, and CDs.

When assets are greater than liabilities?

a person is said to be solvent, or in a favorable financial position.

A Net worth statement

a person's net worth based on his or her assets and liabilities.

budget

a spending and saving plan based on your expected income and expenses. In a budget, money coming in (earnings! plus borrowing) must equal money going out (spending plus saving).

Warranty

also called a guarantee, is a statement assuring quality and performance of a product or service.

Variable expenses

are costs that vary in amount and type, depending on the choices you make

Assets

are items of value that a person owns. Assets accumulate over your lifetime and are called wealth.

Express contracts

can be oral or written. What makes them express is that the parties have stated the terms of their agreement in words.

Fixed Expenses

costs that do not change from month to month. You are obligated to pay them regardless of income changes

Two types of expenses

fixed expenses and variable expenses

What does a budget help you with?

helps you plan your spending and saving so that you won't have to borrow money or use credit to meet your daily needs

Tax records

include the tax return itself (a copy of the signed form), W-2 forms, and other receipts verifying income and expenses listed on each return. Keep your tax records in a safe place in case of an audit.

When liabilities are greater than assets?

insolvent at certain times during their lives, such as when they are attending college and until they can get a good job to start paying off their student loan

database

is a computer program that organizes data for easy search and retrieval

Financial plan

is a set of goals for spending, saving, and investing the money you receive

Implied contract

is not written but is created by the actions or conduct of someone.

disposable income

is the money you have left to spend or save after taxes and other required deductions are taken.

Agreement

must express a voluntary intent to be bound.

payee

person to whom the note is made payable

Contractual capacity

refers to the competence (legal ability) of the parties to enter a contract. Competent parties are people who are legally capable of agreeing to a binding offer. Those who are unable to protect themselves because of mental deficiency or illness, or who are otherwise incapable of understanding the consequences of their actions, cannot be held to contracts.

When do you use a personal property inventory?

useful in the event of ire, theft, or property damage. -help you list lost items and their value when you make an insurance claim. -helps you see what you have to show for the money you have spent. -help you assess your spending patterns

When does genuine agreement not exist?

when there is a mistake, fraud (an intentional misrepresentation), duress (threats), or undue influence (having free will overcome by a person who has a special interest, such as a parent or guardian).

limited contractual capacity

which means that they may legally set aside contractual obligations. This privilege is allowed in order to protect minors from those who would take advantage of them.