Chapter 2: Money Management Skills

Records on property and investments should be kept...

as long as you own these

Debt Payment Ratio

monthly credit payments/take home pay

Records such as birth certificates, wills, and social security data should be kept ________

permanently

Net worth

the difference between total assets and total liabilities assets - liabilities = net worth

Balance Sheet

"net worth statement" reports what you own and owe

Steps of Budgeting

1) Set financial goals 2) estimate expected income 3) Allocate an emergency fund and savings 4) Budget known expenses 5) Budget estimated expenses 6) Record spending amounts and evaluate revisions

Copies of tax returns should be kept for at least...

7 years

Budget

A "spending plan" for making and spending money

fixed expenses

Costs that do not change from month to month (rent, cable/internet, monthly train ticket)

Money Management

Day-to-day financial activities necessary to manage current personal economic resources while working toward long-term financial security.

Savings Ratio

Monthly savings/gross income

Cash flow statements show a summary of cash ________ and payments for a given period such as a month or year.

Receipts

safe deposit box

a private storage area at a financial institution with maximum security for valuables and difficult-to-replace documents

variable expenses

flexible payments that change from month to month (food, clothing, medical expenses, gifts)

Invoices, credit card statements, _____ policies and tax forms are the basis of financial record keeping and personal economic choices.

insurance

Debt Ratio

liabilities/net worth

Current Ratio

liquid assets/current liabilities

Liquidity Ratio

liquid assets/monthly expenses

Financial Ratios

used to measure changes in your financial situation. These relationships indicate progress toward an improved financial position

After categorizing assets and calculating total assets, what do you do next when preparing a balance sheet? a) total the liabilities and then calculate net worth b) classify liabilities, total the liabilities, and calculate the net worth c) Calculate net worth and subtract from liabilities

B

Which one of the following statements are true about a balance sheet that you are reviewing on 1/15/2020 that shows an "as of" date of 12/31/19 and assets of $600,000 and liabilities of $425,000 a) the net worth is $175,000 as of 1/15/2020 b) the net worth is $175,000 as of 12/31/2019 c) the assets of 1/15/2020 have a market value of $600,000 d) the liabilities are $425,000 as of 12/31/2019 and 1/15/2020

B

T/F: Insolvency is defined as having adequate liquid assets to pay off all the debts of a person

False

T/F: Personal balance sheet and the cash flow statement come from financial institutions, businesses, or the government

False; you create it