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