Personal Finance

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When creating a budget, it is important to-

"pay yourself first" by setting aside savings before other expenses are budgeted

A current ratio of 2 means

$2 in liquid assets are available for every $1 of current liabilities

An example of a fixed expense is

A mortgage payment

Which of the following is a liquid asset

All of the above

The equation to calculate net worth si

Assets - Liabilities = Net worth

A high debt ratio is best

False

After having established a spending plan, it is important to

Keep track of your actual income and expenses

Which of the following is most correct?

Tax records belong in a home file

A balance sheet reports what an individual or family owns and owes

True

Current liabilities are the debts you must pay within a short time, usually less than a year

True

When completing a cash flow statement, deductions are subtracted from gross salary to determine take-home pay

True

All of the following are fixes expenses except

Utilites

A budget system that can be kept on notebook paper or accounting paper is called a

Written budget

Disposable income equals

disposable income

Which of the following is most correct

Rare coins and stamps belong in a safe deposit box

How long should you keep documents relating to the purchase and sale of real estate?

Indefinitely

How long should you keep copies of your tax returns?

Seven years

Which of the following are two personal financial statements that you create yourself

Personal balance sheet and cash flow statement

When creating a personal balance sheet, which of the following is considered to be a personal possession asset?

A five-year-old television set

The main purposes of personal financial statements are to

All of the above are correct

How long should you keep documents relating to investments?

As long as you have these items

Items with monetary value are referred to as

Assets

Which of the following situations describes a person who could be insolvent?

Assets $40,000; Liabilities $55,000

Net worth =

Assets - Liabilities (ignore inflow/outflow)

Another name for a statement of financial position is a

Balance sheet

The document that would be most useful to plan spending and saving to achieve financial goals is the

Budget

Which of the following ratios indicates that liquid assets are available to pay current liabilities for a household?

Current ratio

Money management refers to-

Day-to-day financial activities

Which of the following ratios indicates the amount of a person's earning that goes for payments for credit cards, auto loans, and other debt? (not mortgage)

Debt payments ratio

Which of the following ratios shows the relationship between debt and net worth?

Debt ratio

Which of the following will increase the net worth of a household?

Decrease spending by $5 per day

The money left over after paying for housing, food, and other necessities is called

Discretionary income

A budget is a record of how a person or family has spent their money

False

A home file should be used to keep-

Financial records for current needs

A debt ratio of .5 indicates

For ever dollar of net worth, debt equals $0.50

Which of the following is a cash inflow

Income from employment

Which of the following financial documents would most likely be stored in a safe deposit box or fireproof home safe?

Marriage certificates

When creating a personal balance sheet, which of the following is a current liability

Medical bill

Discretionary income equals

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

Debt-payments ratio

Monthly credit payments/take-home pay

Take-home pay is also called

Net pay

All of the following are sources of income except

Social security taxes

Which of the following is a deduction to determine take-home pay?

Social security taxes

Which of the following is NOT a main purpose of a budget?

Spend your money without care

Financial advisers suggest that an emergency fund should cover one to two months of living expenses

False

Financial documents that you may need quick access to should be kept in a safe deposit box

False

Net worth is the amount owed to others

False

When creating a personal balance sheet, which of the following is an investment asset

Retirement account

Which of the following ratios shows the relationship between gross income and money saved?

Savings ratio

Which of the following is a component of money management?

All of the above

An organized system of financial records provides a basis for reducing credit card usage

False

Birth certificates, wills, and Social Security data should be kept for up to 7 years

False

Financial experts recommend monthly savings of _____ of gross income

5-10%

When household budgets must be cut, which of the following categories would be most difficult to cut?

Auto insurance

An example of a variable expense is an

Electric bill

Brokerage statements are an example of an _____record

Investment

When creating a personal balance sheet, which of the following is a real estate asset?

Vacation property

Liquid assets can be easily converted to cash and include money in checking accounts and personal possessions

False

Money management refers to annual financial activities necessary to manage personal economic resources

False

One method to spend more money is to deduct an amount automatically from your salary in a direct deposit system

False

The two personal financial statements that you create yourself are the personal balance sheet and a credit card payoff statement

False

When completing a cash flow statement, take-home pay less deductions equals gross salary

False

When creating a budget, it is important to save the amount you have left at the end of the month

False

Financial experts recommend a debt/payments ratio of less than _____ of take home pay

20%

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

Budget variance

The document that would tell you what you received and spent over the past month is the

Cash flow statement

A cash flow statement uses this equation: Assets - Liabilities = Net worth

False

A mortgage is an amount borrowed to buy a TV or other personal possession

False

Annual investment account statements should be shredded

False

Copies of tax returns and supporting data should be saved for 10 years

False

If a household has $195,000 of assets and $70,000 of liabilities, then their net worth would be $125,000

False

In an organized system of financial records, credit card records belong in a safe deposit box

False

All of the following are ways that household can increase their net worth except

Increase their debt ratio

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

Insolvency

A personal balance sheet reports

Items owned and amounts owed

Debt ratio percent =

Liabilities/net worth

A cash flow statement uses this equation: Total cash received during the time period - Cash outflows during the time period = Cash surplus (or deficit)

True

Which of the following appears as a cash outflow on a cash flow statement?

Variable expenses

A budget deficit would result when a person's or family's

actual spending exceeds planed spending

In an organized system of financial records, birth and marriage certificates belong in a safe deposit box

True

In an organized system of financial records, investment records belong in a home file, home computer, or online

True

In an organized system of financial records, medical info belongs in a home file

True

Money management refers to day-to-day financial activities necessary to manage current personal economic resources while working toward long-term financial security

True

One method to save more money is to write a check each payday and deposit it in a separate savings account

True

Programs are available to help low-income people around the world improve their money management skills or financial literacy

True

The current financial position of an individual or family is a common starting point for financial planning

True

The current financial position of an individual or family is best presented with the use of a

Balance sheet

The document that would report your current financial position is the

Balance sheet

Current ratio =

Liquid assets/current liabilites

Liquidity ratio

Liquid assets/monthly expenses

Which of the following ratios indicates the number of month in which living expenses can be paid if an emergency arises

Liquidity ratio

Which of the following appears as a cash outflow on a cash flow statement

Loan payment

Savings ratio

Monthly savings/gross income

The amount you would have left if all assets were sold and all debts were paid in full is called your

Net worth

When creating a budget, which of the following statements is true?

Numbers in a budget are estimates

How long should you keep your most current will?

Permanently

The statement that includes liquid assets, real estate, personal possessions, and investment assets is known as a

Personal balance sheet

A budget system that involves envelopes, folders, or containers to hold money slips of paper is called a

Physical budget


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