PERSONAL FINANCE I CHAPTER 3 MONEY MANAGEMENT STRATEGY

budget

A plan for using money to meet wants and needs.

surplus

Extra money that can be spent or saved, depending on a person's financial goals and values.

liabilities

The debts that you owe.

deficit

The financial situation that occurs when more money is spent than is earned or received.

personal financial statement

A document that provides information about an individual's current financial position and presents a summary of income and spending.

insolvency

A financial state that occurs if liabilities are greater than assets.

consumer price index (CPI)

A measure of the changes in prices for commonly purchased goods and services in the U.S.

safe-deposit box

A small, secure storage compartment that you can rent in a bank, usually for under $100/year.

wealth

An abundance of valuable material possessions or resources.

assets

Any items of value that an individual or company owns, including cash, property, personal possessions, and investments.

liquid assets

Cash and items that can be quickly converted to cash.

how to calculate net worth

First, determine assets and liabilities. Subtract liabilities from assets.

characteristics of a good budget

It is carefully planned, practical, flexible, and written and easily accessible.

take-home pay

Known as net pay, the amount of income left after taxes and other deductions are taken out of your gross pay.

real estate

Land and any structures that are on it, such as a house or any other building that a person or family owns.

four categories of wealth

Liquid assets, real estate, personal possessions, and assets.

ways that organizing your financial documents help you manage your money

Organizing these will help you plan and measure financial progress, handle routine money matters, determine how much will be available to spend now and in the future, and make savings decisions.

money management

Planning how to get the most from your money. This can help you keep track of where your money goes so that you can make it go farther.

personal balance sheet

This is also called a net worth statement and is a financial statement that lists items of value owned, debts owed, and a person's net worth.

how income should be recorded on a cash-flow statement

Record all income for the month as cash flow; ensuring you record the exact amount available (take-home pay, not gross); include any interest income from investments or savings.

7 steps to preparing a budget

Set your financial goals, estimate your income, budget for unexpected expenses, budget for fixed expenses, budget for variable expenses, record what you spend, and review spending and saving patterns.

steps to create a home filing system

Sort through personal financial records, arrange them according to type, and label all files.

net worth

The difference between the amount that you own and the debts that you owe; it is a measure of your current financial position.

budget variance

The difference between the budgeted amount and the actual amount that you spend.

discretionary income

The money left over after paying for the essentials, such as food, clothing, shelter, transportation, and medication.

cash flow

The money that actually goes into and out of your wallet and bank accounts.

income

The money you receive.

market value

The price at which property would sell.

advantages of using a safe-deposit box to store your personal financial documents

They are kept in locked, fireproof rooms available only during banking hours, can be opened only with two separate keys, loss from fire and other disasters is rare, and the institution that owns the box is insured for such losses if they occur.