Personal Finance Chapter 3

Liabilities

amounts owed to others but do not include items not yet due, such as next months rent.

Liquid Assets

cash and items of value that can easily be converted to 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 you do not have to pay in full until more than a year form now.

Current Liabilities

debts you must pay within a short time, usually less than a year.

Investment Assets

funds set aside for long-term financial needs.

opportunity costs

give up something for something else.

Investment

includes stock and bond reports

Discretionary Income

money left over after paying for housing, food, and other necessities.

Balance Sheet (net worth statement, statement of financial position)

reports what you own and what you owe. To create you: take items of value (what you own) and subtract what you owe = your net worth/ wealth

Cash flow

the actual inflow and outflow of cash during a given time period. Can serve as the basis for the budget categories used by an individual/family.

Personal Financial Statements

Statements you create yourself

The Budgeting Process: A PIE :)

1. Assess your current situation 2. Planning your financial direction 3. Implementing your budget 4. Evaluating your budgeting program

What Percentage of Americans have no Emergency Fund?

25%

How long should most tax documents be kept for?

7 years

Insolvency

the inability to pay debts when they are due; it occurs when a person's liabilities far exceed available assets.

Safe Deposit Box

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

Assets

Cash and other tangible property with a monetary value.

Consumer price index

a measure of the general price level of consumer goods and services in the US.

Budget (spending plan)

a specific plan for spending income. (an estimate)

Cash flow statement (personal income and expenditure statement)

a summary of cash receipts and payments for a given period, such as a month or a year.

Examples of what could be in a Safe Deposit Box

documents hard to replace, birth, marriage and death certificates, certificates of deposit, mortgage papers, etc.

A home file should be used for

financial records for current needs

Budget Variance

the difference between the amount budgeted and the actual amount received or spent

Net worth

the difference between your total assets and your total liabilities.