Independent living chapter 9 review
Liabilities
debts or obligations owed to others
True or False fixed expenses are often the easiest expenses to cut
false
True or False If you charged $2,000 in vacations expenses on your credit card, your net worth would increase.
false
What should you consider when choosing a storage option?
balance the need to safeguard the documents from fire, theft, and other dangers with the need for easy access
The amount of money you expect to receive after paycheck deductions is a. earned income b. fixed income c. gross income d. net income
d
The most likely reason for keeping a record of donations to charity is a. for legal proof b. for loan applications c. for medical purposes d. for tax purposes
d
How do you assess current finances?
After you define your goals, evaluate the current state of your finances by creating a balance sheet. You will take the difference of your assets and liabilities to get your net worth. Because this net worth changes, your should update your balance sheet at least once a year and whenever your assets or liabilities change dramatically
How do you plan for financial goals?
After you know where your are financially and where you want to be, you can plan. Along the way, remember to use management skills. Translate your general financial goals specific ones that can be measured and achieved. Identify your resources and look for ways to use them effectively. Use the management process to create, organize, implement, and evaluate your plan. Follow the decision-making steps to make wise financial choices and above all, take person responsibility for your own financial plan
True or False A family's daily living expenses decrease as more children are born.
false
True or False ATM receipts should be kept for 3 years
false
credentials
licenses, certifications, or degrees that indicate that a person is qualified to perform a certain service
What documents can help you analyze your past spending?
bank statements, receipts, tax forms, and similar records
The purpose of a balance sheet is to determine your a. budget b. credit card debt c. income d. net worth
d
Identify 3 main tasks involved in budgeting.
estimate your income, estimate your expenses, and bring the two into balance
discretionary expenses
expense categories that are not absolutely necessary
variable expenses
expenses that normally increase or decrease
True or False Creating a budget involves three main tasks: estimating income, estimating expenses, and balancing your checkbook
false
True or False a home safe is the most secure place to store important documents
false
True or False backup discs of electronic financial records should be stored near the computer
false
True or False with good planning, financially sound families can live beyond their means.
false
If you move, who should you provide you new address and phone number to?
financial institutions, creditors, insurance companies, utilities, voter registration office, your employer, your state motor vehicle office, previous post office, clubs, magazine publishers, friends, and family members
What are benefits of financial planning?
financial planning is important to every household because it allows you to identify priorities, clarify financial goals, and determine how to reach them. It also helps you pay your expenses and live within your income, reducing the need to buy on credit. Knowing that youre prepared for everyday AND unexpected expenses can reduce anxiety about financial health and helps you stay in control of financial matters and develop a sense of financial independence.
Assets
Items of value that you own, including money
To calculate your net worth, you must know the amount of your a. budget b. debts c. expenses d. income
b
safe deposit box
a locked box that can be rented in a secure area of a bank
Balance sheet
also known as a net worth statement, a statement of what you own, and what you owe
What kind of expenses are the easiest to cut
discretionary expenses
pro bono
at no charge
What are the steps of goal setting?
1. decide what you want to achieve 2. identify all resources that are available to you 3. plan your course of action 4. stay committed to reaching your goal
How do US consumers spend their money?
32% on housing 18% on transportation 14% on food (8 at home and 6 away from home) 11% on person insurance and pensions 6% on health care 5% on entertainment 4% on apparel and services 10% on other
Why should you make a budget?
A budget is all about making your own choices, as it's simply a plan for saving and spending your money in ways that best meet your needs and wants. Having a budget is helpful not matter how large or small your income. If created and used effectively a budget can help you: avoid running out of money between paychecks evaluate your spending habits and make better choices set aside savings for unexpected expenses work toward your financial goals
What should you do if your consistently spend more than you budgeted in a particular category?
Adjust your spending, by analyzing why you spend more. keep closer track on the category so you can see where your money goes such as impulse purchases. See if you can save by shopping more carefully at best buys, and think of creative ways to change your habits or make situations so you can stay within your planned spending amount Revise budget amounts, by finding that some of your estimates don't reflect real costs or needs. You might remember additional expenses that need to be added. If you need to increase the amount of money available in some budget categories you'll have to reduce the amount of money in other budget categories to cover the differences.
How does parenthood affect the plan?
As children arrive, the plan must reflect both the children's food, clothing furnishings and other daily living expenses, but also the plans for their future. These needs such as child care, summer camp, and college will change depending on the age of the children, and the family may decide to become a dual income or two-income family
How does aging affect the plan?
As family members grow old, their financial needs change. A home loan may be paid off, elimination a substantial expense, or some expenses such as health insurance may increase. Family who have planned for retirement may cash in investments to pay for their living expenses. They may choose to maintain some of their investments for future use.
What are family life stages and how do they affect your financial plan?
As you move from one stage to another, you need to review and make revisions to the financial plan, where some new goals will be added, some goals might be discarded and the financial plan may need to be altered. The stages are marriage, parenthood, children moving out, and aging
rent is an example of a a. discretionary expense b. fixed expense c. net expense d. variable expense
b
How long should you keep records?
Birth certificate-permenantly Social security card-permenantly Bank statements/canceled checks-6 years ATM receipts- until you have used them to verify bank statement Credit card statements-3 years Utility bills-3 months Repair records/warranties- for length of warranty Pay stubs- until you verify the W-2/withholding documents Tax returns/related documents-7 years Real estate/property tax documents- 1 year past the sale or past when the lease or rental agreement expires
What are the 3 ways expenses can be estimated?
By your past spending, where you keep a spending record such as bank statements, receipts, tax forms, and similar records to identify what you've spent in the recent past. By expert recommendations, where you look in magazines and online for qualified financial experts. Some recommend that food expenses should be no more than 8-15% of income; use these recommendations as only a guide, adjusting them to fit your situation By national averages, such as the Consumer expenditure survey, which shows how consumers spend their money
How and why do you identify financial goals?
Defining financial goals will help you take the right steps to reaching them. They should be guided by what's important to you and your family Ex: saving for a college education, moving to a neighborhood with better schools and parks, being able to afford the supplies for your hobby
Why and how do you analyze your spending habits?
Doing this can help you better understand where your money goes because even small expenses can add up to large amounts over time. As an individual or family, you can do this by keeping a record of all spending during a typical month. Keep receipts for purchases and record all checks in the check register. At the end of the month, review your spending habits by separating spending into useful categories such as food, housing, clothing, transportation, entertainment, and so on, or whatever way works for you. Then analyze your expenses by thinking of why certain expenses are so high. Perhaps you can find out ways to decrease this spending. Also, be on the lookout for poor spending habits since awareness of this can help you make better decisions.
Why do you need to define your financial goals?
Doing this will help you take the right steps to reach those goals
Financial planning allows family members to a. buy more supplies on credit b. buy stocks at bargain rates c. eliminate energy bills d. clarify financial goals
d
What is the difference between fixed expenses and variable expenses?
Fixed expenses are regular payments that don't vary in amount. Variable expenses are expenses that normally increase or decrease
Why should you keep records, and what records would be used for that reason?
For identification- brith certificate, driver's license, and passport For legal proof- canceled check, auto title For loan applications- document income and assets for a car loan For tax purposes-filing tax return, donations to charity For budgeting purposes-estimating income/expenses To verify transactions-billing statements, W-2 forms For reference-home inventory, warranties For medical reasons-medical insurance, allergies, treatments
Why is it a good idea to analyze your spending habits?
It can help you better understand where your money goes because even small expenses can add up over time
Why is it a good idea to treat savings just like any other expense category?
It has to be paid by putting aside money, which can build up an emergency fund
What does living within your means involve?
It involves making smart choices about your spending based on the resources you have available and postponing some purchases rather than going into debt to have the biggest house, fastest car, and newest clothing all at once
Premature affluence gives some teens a false sense of a. ability b. intelligence c. security d. wealth
d
Identify two advantages of setting up a system for storing records and documents.
It reduces clutter and ensures that you can find information when you need to
How should you add in the plan of savings to budgets?
It's one of the most overlooked yet important categories: savings. They're thought of as money left over, but should be treated as another expense category that must be paid. By setting aside money each month, you can build up an emergency in case of job loss or unexpected expenses. Putting aside savings also helps to reach long term financial goals
What does it mean to live within your means?
Its something financially sound families do, where they make smart choices about their spending based on the resources they have available. They postpone some purchases rather than going into debt to have the biggest house, fastest car, and newest clothing all at once.
How can you adjust your budget when you have a negative number?
Look at how much money you use for discretionary expenses, which are usually the easiest to cut. Then think of ways to trim other variable expenses such as food by dining out less often and using more coupons Then, reduce fixed expenses usually is more difficult but can be done by finding a better deal on auto insurance or driving a less expensive car Finally, you can consider ways to increase income such as putting in more hours at work, aim toward a promotion, look for a better paying job, or take on an additional job. Keep in mind that the new job may result in increased expenses
What are the elements of financial planning?
Making a budget (plan for spending and saving your money) choosing investments that allow your money to grow over time establishing credit and managing it wisely obtaining adequate insurance to protect against loss making decisions about retirement plan choices and other employee benefits setting up an estate plan to administer your property according to your wishes
How does marriage affect the plan?
Married people assume each other's assets and liablities, and each partner's financial choices affect the other. Identifying and working toward financial goals with another person is an important key to financial health
Why do family members need to review and revise their financial plan as they go through different life stages?
No matter how extensive the plan is, you can't predict the future. Goals will be added, discarded, and the plan will be altered due to changes such as marriage, parenthood, children moving out and aging.
Why do you need to adapt to changing needs?
No matter who extensive your planning is, you can't predict the future, so you have to adjust your planning as personal or family circumstances, needs, and values change.
What are 4 good ways to begin creating a financial plan?
Since putting together a sound financial plan takes time, a good way is by identifying goals, taking stock of your current finances, and analyzing your spending habits. Then you can begin planning how to reach your financial goals.
A home filing cabinet is an appropriate place to store all of the following EXCEPT a. bank statements b. copies of tax returns c. insurance policies d. property deeds
d
How do you estimate expenses?
You can group them into general categories, such as food, housing, auto, and education. These categories help identify whether the ways you budget and spend your money are consistent wit your goals. Some are easy to figure out because they are fixed expenses such as rent or car loan payment. Others you'll need to find the average of because they are variable expenses such as groceries, clothing, or utility bills
Why does living within your means be a challenge for teens who have their own income?
Teens don't have to pay for their expenses such as groceries, electric bills, and rent. They have the freedom to spend their money on other things they want. This freedom could give some teens a false sense of wealth known as premature affluence. They can have difficulty adjusting when they suddenly have to take on essential living expenses as they become more independent. Teens who begin their working lives with a plan for saving/spending their money are cultivating good financial sense
How do you estimate income?
You figure out how much annual income you expect to have. The budget can be based on either gross or net income. If you use gross income treat paycheck deductions such as taxes as expense categories. If you don't know your annual income, estimate it based on several paychecks. Be sure to include an estimate of irregular income from sources such as tips, bonuses, interest from savings, and cash gifts
Why is it a good idea to keep canceled checks?
You might need it for legal proof that you made a payment
Explain goals
They can be financial, educational or family based. They are accomplishments you plan to achieve whose importance is to provide a target in which to direct your energy. They can be short or long term. Short term ones are done by daily, weekly, or monthly, such as acing a test. Long term goals want to be accomplished over several months or years such as getting a diploma. All goals need 4 things: they must be realistic, specifically stated, have a time frame and include a plan of action.
Identify 4 ways a person can increase income in order to balance a budget
They can put in more hours at work, aim towards a promotion, look for a better paying job or take on an additional job
How should you evaluate the budget?
You should review and adjust it every month, and in addition, take time 1-2 times a year to evaluate if its meeting your needs and goals and if you want to change anything. if its too complicated, simplify it. Also, remember that it must be adaptable as your circumstances and goals change. Family events should be reflected in it. When you allow flexibility, it can do its job as the engine of your financial planning for years to come
How do you determine your net worth?
You take the difference of your assets and liabilities
According to Bureau of Labor Statistics, the two largest categories for US consumer spending are a. food and clothing b. food and personal insurance c. health care and utilities d. housing and transportation
d
How can family crises affect the plan?
Unforeseen events like the loss of a job, divorce, death or injury of a spouse, or natural disasters can affect the plan. While they're unexpected, families can take steps to meet economic crises such as keeping and emergency reserve fund of cash, having enough life, health, and home insurance, and seeking help from others to manage the financial strain.
How does children moving out affect the plan?
When children leave home to live on their own, a family's expenses for food, utilities, and car insurance will go down
How do you use your budget?
YOu use discipline to follow through on it and set aside time each week to monitor it. track your acutal income and expenses and compare them to your budget.
How do you balance the budget? or "bring the two into balance"?
You begin by adding all of your projected income for the month. Then subtract all of the projected expenses for that month, and the result should be 0. If its positive, you can add the surplus to the amount for savings. If negative, your expenses exceed your income, and you need to adjust your budget figure. Don't drastically reduce an expense without making sure you have a plan on cutting back on them in real life.
How do you set up your budget?
You can create a budget for 1 year and subdivide it into monthly about using either software or paper, pencil and calculator. The 3 steps you need to use are to estimate the income, estimate the expenses and bring the two into balance
What is a budget?
a plan for saving and spending your money in ways that meet your needs and wants that is helpful no matter how large/small your income is
Budget
a plan for spending and saving your money
What do you need to do if you consistent spend more than you budgeted in a particular budget category?
analyze why, keep closer track of your spending and think of creative ways to change your habits, or make substitutions
A budget can help you do any of the following EXCEPT a. avoid running out of money between paychecks b. earn more income to cover needs and wants c. evaluate your spending habits and make better choices d. set aside savings for unexpected expenses
b
The best description of a budget is a. a financial tool for consumers who have very little money b. a plan for saving and spending your money c. a set of restrictions on how you can spend your money d. a statement of your assets and liabilities
b
How can family life stages be affected?
by changing demographic trends, which means having to do with statistics about a population. Ex: the average life span has been increasing, effecting the timing of family life stages and the goals at each stage
Debts owed to others are called a. assets b. expenses c. liabilities d. trade-offs
c
Of the following, the document most likely to be used as proof of identity is a. canceled check b. an insurance policy c. a passport d. a tax return
c
Tax returns should be kept a. until one year from the filing date b. until 3 years from the filing date c. until 7 years form the filing date d. permanently
c
To archive a document means to a. certify that it is authentic b. discard it by shredding c. put it in long-term storage d. register it at the county clerk's office
c
When should you review records?
once a year; beginning of year is god time so you can gather records you'll need to prepare for your tax return. Discard/archive old records; review contents of safe deposit box, and update list of accounts and inventory of where records are stored.
fixed expenses
regular payments that don't vary in amount
Where can you store documents and records?
safe deposit box, where you can store documents difficult to replace; birth certificate, car title, property deeds. Keep photocopies of these elsewhere Home safe/lock box, which are less secure than a safe deposit box, theft can happen because it's more convenient to access. some are fireproof and different sizes Home filing system, such as a filing cabinet, or in folders/envelopes stored in crates, store store records; bank statements, tax returns, and insurance policies. if you want to keep non-current records, box them up and archive them Electronic storagte, such as financial software files, spreadsheets, and word processing files to store valuable data. Use a scanner to create electronic copies of documents such as insurance policies and keep the copy on a backup disk and store that in a separate safe location Billfold, for identification such as a driver's license in a wallet
net income
the amount of money you expect to receive after paycheck deductions
Net worth
the difference between your assets and liabilities
gross income
the total amount of money you expect to earn before taxes and other paycheck deductions
archive
to put in long-term storage in a less accessible area
allocate
to set aside for a certain purpose
True or False Financially sound families may choose to postpone some purchases.
true
True or False One benefit of financial planning is that it can reduce the need to use credit.
true
True or False a budget surplus can be added to the amount budgeted for savings
true
True or False allocating money for savings is necessary to reach long-term financial goals
true
True or False records of income and expenses are essential for effective budgeting
true
True or False the cost of eating out at a restaurant is a discretionary expense
true
True or False when you move, you should provide your new address to your previous post office
true
When does your net worth decrease?
when your assets decrease or your liabilities increase
When does your net worth increase?
when your assets increase or your liabilities decrease
Why does an effective budget need to be flexible?
your circumstances and goals can change based on family events