Personal Finance
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
