Exam One Financial Management
Personal Mission Statement
Your personal mission statement should reflect your strengths (the things you do best),passions (the things you enjoy doing), Page 13gifts (the things you naturally do well), and stakeholders (those who have helped you and those who you have helped).
Future Value Interest Factor
a factor multiplied by today's savings to determine how the savings will accumulate over time
401k Plan
a form of retirement plan where employees and employers can make tax-deferred contributions to a trust and direct funds to be invested across a number of provided options, taking payment when they retire or leave employment
Reverse Mortgage
a loan secured by the value of one's home whereby the homeowner receives either a monthly or a lump sum from the lender; the loan is paid in full from the proceeds of the sale of the house when the homeowner dies or moves out of the house
Credit Union
a nonprofit depository institution that serves members who have common affiliation
Mission
a purpose for being
A regular savings account usually offers:
a safe place to put your money
Negotiable Instrument
an agreement that is dated, payable for a specific amount of money, signed by the person who owns the account, and payable to another party
Budget
an estimate of income and expenditure for a set period of time.
Certificate of Deposit (CD)
an instrument used by a bank that guarantees the payment of a fixed interest rate for holding a sum of money until a designated time in the future; also called time deposits
Personal Values
are unique to you and influence your actions and decision making.
One method to help paying yourself first is to set up_________transfers from your paycheck to your savings account.
automatic
A stop payment order is designed to
avoid payment of a specific check
Frugal
avoiding waste; to be resourceful when filling ones needs for goods and services
A positive net cash flow results when cash inflows are greater than cash outflows and is also known as being in the_______.
black
Debts due within short time, usually the next 12 months, would be classified as_______(current/noncurrent) liabilities.
current
Present Value
current value of an asset to be received in the future
Private Banker
customer service representative and/or loan officer trained to provide special services and help meet the financial needs of high net worth customers
Current Liability
debt due within a short time, usually a year
Unearned Income
defined by the IRS as income from investments and savings
Vision Statement
defines a sense of purpose and paints a picture of the future. Your vision will tie directly into your long-term goals.
_______deposits include checking accounts and other payment methods.
demand
Which investment method can be utilized with an automatic investment plan?
dollar-cost averaging
Annual Percentage Yield
effective yearly rate of return taking into account compounding interest
A 401k plan is a plan offered by:
employers
Which life stages is typically making the most money in their career?
empty nest
A person who understands what they value will
help in creating a financial plan, reduce inner conflict
If you have equity in your home then you can borrow money in the form of
home equity line of credit
When using a debt card, the money is deducted from the account:
immediately
Dollar-Cost Averaging
is the practice of investing a fixed dollar amount at regular intervals of time, regardless of market conditions or your personal financial outlook
Financial Independence
is when passive income exceeds expenditures
What is an investor lacking in the SMART approach if their goal is making more money for the rest of their life?
lacking a set time frame to meet
Foreclosure
legal process in which the lender can seek a court-ordered sale of the property due to the nonpayment by the borrower; money from the sale of the property goes to paying off the debt of the mortgage
Needed to calculate the time value of money
length of time, principle, interest rate
People usually spend_____when they use cash as opposed to credit cards.
less
Home Equity Line of Credit
line of credit secured by a mortgage on a home; similar to a credit card
Financial_________is the ability to understand how money is earned, invested, spent, and to understand the risks and rewards of investments.
literacy
80-10-10 Rule
living on 80% of income, saving 10%, and giving away 10%
When people first begin planning for retirement, saving for a Childs education, and planning the purchase of a vacation home they usually are:
long term goals
A bison statement is related to your______goal.
long-term
Spending money from your savings account means:
lost intrest
Intermediate Goal
may be attained in one to five years
Short Term Goal
may be reached in less than one year
Personal Cash Flow Statement
measures your cash inflows and outflows in order to show your net cash flow for a specific time period
Which combination of liabilities would be classified as current liabilities or net worth statement?
medical bills, income tax payments owed, insurance premiums to be paid next month, and charge accounts
Drawbacks of CD
minimum deposit, early withdrawal penalty
Wealthy families are creating______statements to reduce feuds and pass on the moral values of families.
mission
Asset
money and other items of value that you own
Passive Income
money received through investments and savings
Sustainable consumption means:
not spending more than you make
One of the best resources for learning about different careers is
occupational outlook handbook
Current liabilities are liabilities due within:
one year
Every financial decision has a trade off also known as:
opportunity cost
Investment Account
outlay of money into a bank or stock with the objective of making a profit
Online payments do not include
smart cards
Three steps that will help with your current financial situation:
spending journal, cash flow statement, understand personal financial situations
Methods used to compute time value of money
spreadsheet software, financial calculator, formula calculator
When your investments are increasing you may also be concerned with any amount of growth. What is one way to ensure that you do not lose sight of your actual goal-taken from the SMART approach?
state your goals in specific and measurable terms
Commercial banks are in business to make money for their______.
stockholders
Annuity Due
stream of equal payments that occurs at the beginning of a period
Ordinary Annuity
stream of equal payments that occurs at the end of a period
When preparing a personal balance sheet, do not:
subtract assets from liabilities to determine net worth
Which activities for Empty Nest Life Stage
take less risk for investing as retirement nears, pay in cash, consider moving to a smaller home
Long-Term Goal
take more than five years to attain
Tax-Defered
taxes are not paid on the money or interest earned until the year is withdrawn; a delay in taxation meaning that funds are taxed at the time of the withdrawal; IRA and 401 (k) grow tax deferred, but they are taxed when the retiree taps them
What measures the increase in amount of money as a result of interest earned?
time value of money
Activities for people in the Independent Life Stage:
track spending, buy and sell at consignment shops, research college grants and scholarships
Debit Card
transfers money from a checking account to the account of the retailer
One of the main sources of cash inflow for most people is the income from their wages.
true
Savings institutions are usually for nonprofit and locally owned
true
The opportunity cost of going to college is the money you would have earned had you worked instead.
true
The personal cash flow statement is a summary of cash receipts and payments for a given period.
true
You should have a personal financial plan if you want to meet your financial goals
true
Home Equity
value of the house minus any loans secured by the house
Personal______are the ideas and principles that a person develops early in life and are influenced by family, religion, social groups, and culture.
values
Typical time Frame for an intermediate goal
1-5 years
Financial experts recommend savings of ____ of your earnings for each pay period for retirement and emergency fund.
10%
Your genes contribute to how much of your happiness?
50%
Commercial Bank
A financial institution that accepts demand deposits and makes loans and personal loans and provides other services for the public
Demand Deposit Account
A transaction account that is payable on demand; commonly referred to as a checking account
Personal Financial Plan
Based on an analysis of what you owe (liabilities), the money you have coming in and going out (cash flows), and your savings and investments, a good financial plan will provide a strategy to improve your financial situation.
Overdraft Fee
Charge assessed by the financial institution for taking more money out of the account than is in it
Liquidity
How quickly and easily an asset can be converted into cash without loss
SMART Goal
S - Specific M - Measurable A - Attainable R - Realistic T - Time-bound
Annual Percentage Rate (APR)
The annual rate that is charged for borrowing (or made by investing), ignoring the effect of compounding
Opportunity Cost
The cost of an alternative that must be forgone in order to pursue a certain action.
Two types of IRA
Traditional and Roth
Present Value Interest Factor
a factor multiplied by a future value to determine the present value of that amount
Annuity
a series of equal payments made at equal intervals over time; a financial product designed to accept and grow funds, and then pay out a stream of payments at a later point of time
Personal Financial Statement
a snapshot of your equity at a given point in time, derived from a summary of your assets and liabilities
Mortgage
a type of long-term loan used to buy property where the property is held as collateral until the loan is paid in full
Personal Financial Success
achieving financial goals and living life in accordance with your values, vision, and mission
Types of mortgage loans
adjustable rate, ballon payment, fixed rate
Net Worth
amount leftover if you sold all your assets and repaid all your liabilities
Net Worth Statement
amount leftover if you sold all your assets and repaid all your liabilities
Face Value
amount of money beneficiary receives when you die
Checking Account
an account that allows the owner to write checks against deposited money
A college_____center offers tools to help students learn about their passions and talents.
career
What should be listed as an asset for your life insurance?
cash
Cash Inflow
cash coming in
Cash Outflow
cash going out
Net Cash Flow
cash inflows - cash outflows
Independent life stage should consider adding:
checking account, individual retirement account
share accounts are typically offered by:
credit unions
Deposit-type institutions that serve as financial intermediariesediaries
credit unions, commercial banks, savings and loans
Liability
debt or obligation that you owe
One method to help stick to a budget is by putting cash in separate_________for every category in your budget.
envelopes
Future Value Interest Factor of Annuity
factor multiplied by the annuity to determine the amount in the account at a future date
Present Value Interest Factor of Annuity
factor multiplied by the annuity to determine the value of the annuity today
Medical bills, credit card balances, and home equity are all examples of current liabilities
false
Personal financial statements can come from financial institutions, businesses, or the government.
false
Financial Intermediaries
financial institutions that accept money for deposits and then lend the money to others
Discounting
finding the present value of some future payment
Expenses that remain the same from month to month
fixed expenses
Individual Retirement Arrangement (IRA)
funds set aside to be drawn out by the age 59.5
What should be included in your personal mission statement?
gifts, passions, stakeholders, strengths
Examples of Voluntary Simplicity Lifestyle:
increase spirituality, to increase time with family, reduce stress, to live more environmental friendly
Financial Plan
is a goal-based activity that incorporates your future income plan (career goals), budget plan (spending goals), investment plan (gaining assets goals), insurance plan (protection goals), and estate plan (giving goals).
529 Plan
is an account—technically called a qualified tuition plan—designed to encourage saving for future college expenses.
Voluntary Simplicity
is selecting a simplified lifestyle and reducing meaningless or idle consumption in order to focus energy on other priorities.
Financial Literacy
is the ability to understand how money is earned, invested, and spent, and to understand the risks and potential rewards of the different investments and financial products and services available to help you achieve your goals.
Financial independence is when_____exceeds expedentures.
passive
Your money_____represents the style and habits of money management you are most comfortable with.
personality
Enough
point at which increased spending has a diminishing rate of fulfillment
Another name for discounting is
present value
Compounding
process whereby the value of an investment increases exponentially over time due to earning interest on interest previously earned
Future Value
projected value of an asset based on the interest rate and time in the account
Goals that should be incorporated into your financial plan:
protection, giving, spending, career
Least liquid asset?
real estate
Comparing your checkbook register with the bank statement each month
reconciliation
Downshifting
reducing spending, cutting back
Share accounts are the same as
regular savings accounts
Normally fixed expenses example:
rent, mortgage payments, car insurance for the year, installment loan plans
90-10 Rule
saving 10% of income and living on 90%
Activities for people in the Dependent Life Stage:
saving money for college, create savings, spending, and will, develop money management skills
Lump Sum
single, one-time payment
Financial Life Stages
that represent the general financial situations that people experience throughout their lifetime. Your current financial life stage impacts your financial plan.
Cash Value
the amount received after giving up a life insurance policy
Share Draft Account
the credit union equivalent of a demand deposit account
Budget Variance
the difference between the budgeted amount and the actual amount that you spend
Time Value of Money
the principle that a dollar received today is worth more than a dollar received in the future
Money Personality
the style and habits of money management you are most comfortable with
Overdraft protection is an automatic loan made checking account customers to cover checks written in excess of:
their balance
When devloping goal setting timelines you should have a set______frame for the goals to be achieved.
time
You should evaluate your budget each_____to compare your spending with what you have budgeted.
week
