Business and Personal Finance- Chapter 2
personal assets
car or computer
Income taxes
(money owed to the government on earned income)
liquid assets, real estate, personal, investments
4 categories of wealth
Blueprint of how to build a house
A financial plan is created like a
Net Worth =
Assets - Liabilities
real estate
Buildings and land that an individual owns is example of what?
No. Lenders might loan you more than you are really able to pay back.
Can you rely on a lender to lend you the appropriate amount of money? Explain.
Budgeting involves forecasting future expenses and income.
Define budget planning.
more education you have the higher your income will be
The effect that education and career has on your income
health care
For consumers under 25 years old which is the smallest annual expense? Health care, housing, food, transportation
Money management ensures that you have enough cash available for immediate needs, and credit management ensures that you have access to credit to cover shortfalls or make major purchases.
How are they used?
The issue of taxes paying for them and reducing exposure to them requires planning and may affect some of your decisions.
How do tax laws affect the budgeting process?
Net worth is calculated by subtracting liabilities from assets.
How is your net worth calculated?
Liquidity
How much readily available cash you have on hand for meeting immediate wants and needs
then the risk is higher
If there is a greater chance of you suffering a financial loss
not true
In order to determine how much you can save you need to have an accurate estimate of assets?
less your payments will be
Longer you take the
liquidity management
Money Management and Credit management decisions are both involved in
the interest rate and the time period for paying back the loan
Payment terms include information about
Income
The money coming in through wages earned, allowance, or other sources
true
True or false? The payments on most long term loans are usually due on a monthly basis?
Components of a financial plan are 1) budgeting and taxes, 2) managing liquidity, 3) financing large purchases, 4) managing risk, 5) investing money, 6) planning for retirement and transferring wealth, 7) communicating and keeping records.
What are the components of a financial plan?
A person must establish net worth, income, expenses, and the impact of taxes.
What elements must be assessed in budget planning?
Factors include your creditworthiness, the interest rate, and time period for paying back loans.
What factors determine how much you can borrow?
Education and career choice are critical in determining income.
What factors influence income?
Liquidity refers to the amount of cash you have readily available.
What is liquidity?
Money management and credit management are the two factors in managing liquidity.
What two factors are considered in managing liquidity?
Knowing expenses makes it possible to determine if your income is sufficient to meet your needs.
Why is an accurate estimate of expenses important in budget planning?
Knowing your net worth is like knowing your starting point on a map. It helps you know where you are beginning in your quest to reach your goals.
Why is knowing your net worth important?
Assets
are anything we own, such as cars or baseball cards
Liabilities
are what we owe, or our debt
Budget and taxes Managing liquidity, or ready access to cash Financing large purchases Managing your risk Investing your money Planning for retirement and the transfer of your wealth Communication and record keeping
good financial plan includes 7 key components
insolvent
if you dont have enough money to pay your bills you are what?
personal financial plan
involves specifying financial goals including the spending, financing, and investing plans needed to reach the goal
Interest
is like rent on money
real estate
land and anything attached to it
savings account, checking account
liquid assets
sell
liquidate
Equity
means ownership
housing
people over 65 spend most of their money on
housing
people under 25 spend most of their money on
current liabilities
something you owe but can pay back in less than a year
long term libailities
something you owe but take more than a year to pay back
investment
stocks and bonds
finance
take money out and pay it back
Budgeting
the process of forecasting future expenses and income
budgeting
the process of forecasting future expenses and income
jewelry, car
things you can liquidate
current and long term
two types of liabilities