Personal Finance Chapter 2
Current Liabilities
Debts that must be paid within a short time, usually less than a year
Take-Home Pay
Earnings after deductions for taxes and other items; also called disposable income.
Types of Budgeting Systems
Mental Budget Physical Budget Written Budget Digital Budget
Discretionary Income
Money income left after necessities have been bought and paid for
Budget
Specific plan for spending income; also called a spending plan
Steps of Budget
Step 1) Set Financial Goals Step 2) Estimate Income Step 3) Budget and Emergency Fund and Savings Step 4) Budget Fixed Expenses Step 5) Budget Variable Expenses Step 6) Record Spending Amounts Step 7) Review Spending and Saving Patterns
Saving Techniques
1) Set aside specific amount in savings 2) Payroll Deduction 3) Saving coins/Spending less
Balance Sheet
A financial statement that reports assets, liabilities, and owner's equity on a specific date.
Liquid Assests
Cash or securities that can be immediately turned into cash.
Money Management
Day-to-day financial activities necessary to manage current personal economic resources while working toward long-term financial security.
Long-Term Liabilities
Debts that are not required to be paid in full until more than a year from now
Cash Flow
The actual inflow and outflow of cash during a given time period
Deficit
The amount by which actual spending exceeds planned spending
Surplus
The amount by which actual spending is less than planned spending
Budget Variance
The difference between the budgeted amount and the actual amount that you spend
Insolvency
The inability to pay debts when they are due because liabilities far exceed the value of assests
Savings Ratio
amount saved each month/gross income
Debt Ratio
liabilities/net worth
Current Ratio
liquid assets/current liabilities
Liquidity Ratio
liquid assets/monthly expenses
Debt-Payments Ratio
monthly credit payments/take home pay