Money Unit 1

assets formula

Assets = Liabilities + Net Worth

personal finance statements

provide information on current financial position, measure your progress toward financial goals, and summarize income and spending (balance sheet, cash flow)

taxes on property

real estate property tax and personal property tax (jewelry, cars, boats)

earned income

received for personal effort (wage, salary, tips)

passive income

received from business activities in which you do not actively participate

investment (portfolio) income

received from dividends, interest, or rent from investments

balance sheet (net worth statement, statement of financial position)

reports what is owned and owed to determine current financial position

taxes on purchases

sales tax and excise tax

what does consumer spending measure and how does it impact the economy?

the demand for goods and services, can drive up GDP and employment if demand is high

net worth

the difference between assets and liabilities

liquidity

the ease with which an asset can be converted into cash

short term goal length

1 year

intermediate term goal

1-5 years

5 steps of personal finance planning

1. determine current financial situation 2. develop goals that are SMART 3. identify alternative courses of action 4. evaluate alternatives 5. create and implement your plan 6. review/revise your plan

List the different classifications of taxpayers

1. married filing jointly 2. married filing individually 3. single 4. head of household 5. widow (only can 2 years after death, then single)

CPI formula

100 x (cost of basket in current year/cost of basket in base year)

long term goal

5+ years

how long should federal tax documents be kept?

7 years

social security tax

A federal tax that uses the money for old-age, survivors, and disability insurance

income statement

A financial statement that shows revenue and expenses

trade deficit

An excess of imports over exports

Federal Estate Tax

A tax imposed on the transfer of personal property at death (taxes on wealth)

W2 form

Each year by January 31st, employer states the amount of money earned and taxes paid throughout the previous year to employee

itemized deductions

Expenses that can be deducted from adjusted gross income (sales taxes, real property taxes, personal property taxes, mortgage interest, disaster losses, gifts to charities, medical expenses)

future value of single sum formula

FV= p x (1+ir)^n

taxes on wealth

Federal estate tax, state inheritance taxes

present value

the current value you need now for a future amount based on a certain interest rate and time period

Liabilities formula

Liabilities = Assets - Net Worth

Net worth formula

Net Worth = Assets - Liabilities

present value of single sum formula

PV= p / ((1+ir)^n)

I9 Form

Used for verifying the identity and employment authorization of individuals hired for employment in the US

SMART goals

Specific, Measurable, Attainable, Realistic, Timely

taxable income formula

Taxable Income= adjusted gross income - tax deductions

what does the money supply measure?

The dollars available for spending in our economy

liquidity risk

The risk that an asset cannot be sold on short notice without incurring a loss

deflation

a decline in prices

inflation

a general increase in prices and fall in the purchasing value of money

budgeting (money management)

a plan for spending and saving, helps you live within your income

annuity

a series of equal regular deposits or payments at a constant interest rate

standard deduction

a set amount on which no taxes are paid

compounding

accumulating interest on an investment over time to earn more interest, allows FV to grow faster

other types of income

alimony, awards, lottery winnings

future value

amount that current money will grow to based on a certain interest rate and time period

tax deductions

amounts subtracted from adjusted gross income before figuring a person's taxable income

exclusion

an amount not included in gross income

asset

anything owned with future probable economic value (cash, inventory, real estate, automobiles)

how long should investment documents be kept?

as long as you own them

what do consumer prices measure?

buying power of a dollar, inflation

rule of 72

calculates the number of years it takes for a certain amount to double; 72/ir

liquid assets

can easily be converted to cash

4868 Form

can file for a 6 month extension to file, but if you owe money, it must be paid by April 15th the next year

statement of cash flows

cash inflows (source) vs outflows (use)

AGI (adjusted gross income)

gross income after any reductions or additions

COLA

cost of living adjustment

money management

daily financial activities necessary to manage personal economic resources while working towards long term financial security

liabilities

debt/obligation based on past transactions (what you owe to others)

W4 form

determines the percentage of an employee's pay that will be withheld for federal taxes, tells if married, single and how many depends you have

trade balance

difference between exports and imports

4 types of income

earned, investment, passive, other

take home pay/net pay/disposable income

earnings after deductions for taxes

insolvency

inability to pay debts

tax on earnings

income tax and social security

tax exempt income

income that is not taxed

tax deferred income

income that is taxed at a later date

1040 Form

individuals file their annual income and tax returns, filed with IRS, no later than April 15

durable product goals

infrequently purchased, expensive, tangible/touchable items (cars, appliances)

CPI (Consumer Price Index)

measure of average change in prices consumers pay for basket of goods and services

tax shelters

investments that provide immediate tax benefits and a reasonable expectation of a future financial return (real estate)

sunset laws

laws that expire after a given time (Tax Cuts and Jobs Act)

Personal finance planning

managing your money to achieve personal economic satisfaction

debt security

money borrowed by companies or governments (bonds)

time value of money

money in the present is worth more than the same sum of money to be received in the future

discretionary income

money leftover after paying for necessities

current liability

must pay in less than a year (medical bills, taxes)

taxable income

net income, after allowable deductions, on which income tax is computed

excise tax

only imposed on specific goods/services (tax on purchases)

long term/noncurrent liability

over a year to pay (loan, mortagage)

corporation term for net worth

owner's equity

equity security

ownership in a corporation (stock)

alimony

payments made to an ex-spouse after divorce

fixed expenses

payments that don't vary from month to month (mortgage, insurance, car payment)

variable expenses

payments that vary from month to month (food, clothing, utilities)

Consumable-product goals

periodic basis, items that are used up quickly (food, clothing, entertainment)

intangible purchase goals

personal relationships, health, education, and leisure

financial statements (money management)

preparing a balance sheet and cash flow statement on a regular basis

4 types of taxes

purchases, property, wealth, earnings

simple interest rate formula

simple interest = p x r x t

adult life cycle

stages in the family that influence financial decisions (kids, retirement, graduation)

financial documents (money management)

storing and maintaining personal financial records

what do interest rates measure?

the cost of money, the cost of credit when you borrow, the return on your money when you save or invest

State inheritance tax

tax imposed on the property left by a dead person's will

1099 Form

tells "non-employee" compensation like part-time jobs, does not deduct taxes, given by Jan 31 following year

income risk

the loss of a job may result from changes in consumer spending or expanded use of technology, so always save

housing starts

the number of new homes being built

interest rate risk

the possible reduction in returns associated with changes in interest rates

marginal tax rate

the rate used to calculate tax on the last and next dollar of taxable income

economics

the study of how wealth is created and distributed

Net Present Value (NPV)

the sum of the expected future cash flows from an investment, minus the cost of that investment

GDP (Gross Domestic Product)

the total market value of all final goods and services produced annually in a country

security

tradable financial asset that holds some type of monetary value