chapter 2 personal finance
Jim has $1000 income from his job and $200 stock dividend income this month. This month Jim has rent and utilities of $300 and he spent $300 on groceries and $200 on clothing. What is his cash inflow this month?
$1,200
davids liquidity ratio is 3.0. he has $1000 in current liabilities. therefore, he has _______ worth of liquid assets
$3,000
Jim has $1000 of salary and $100 of dividend income this month. this month he also has rent and utilities of $300 and he spent $200 on groceries and $100 on clothing. What is jims net cash flow this month?
$500
Allison expects her monthly cash inflow after taxes to be $3000. she also has the following monthly expenses: rent $750, student loan payment $200, utilities $150, food $300, recreation $600, car expenses $200, clothing $150. What is Allisons net cash flow for the current month?
$650
margaret has $5000 in her checking account, a home with a market value of $175000 and stocks valued at $10,000. margaret also has a credit card debt of $15000. margarets liquidity ratio is
.33
cash flow statement
a financial statement that measures cash inflows and outflows
which of the following is NOT considered an asset for a family
a leased car
balance sheet
a summary of assets, liabilities, and net worth
a personal balance sheet is comprised of
assets, liabilities, net worth
investment assets include all of the following EXCEPT
automobiles
in budgeting, it is useful to compare _____ with the budgeted amounts to determine the accuracy or error of the budget and adjust it as necessary
both actual inflows and outflows
a ________ is a forecast of your future cash inflows and outflows
budget
a cash flow statement that is based on forecasted cash inflows for a future time period is called a
budget
analyzing your expected income and expenses over the coming 6 months is
called budgeting and is worthwhile no matter your life stage
which of the following is NOT a cash inflow
car payment
which of the following is a liquid asset
cash in a savings account
the personal cash flow statement measures
cash inflows and outflows
if you do not budget for unexpected expenses in a given month, you will likely experience a
cash shortage
creating a cash flow statement requires that you determine
cash used for expenses
which of the following is not a liquid asset
corporate stock you own outright
which of the following will not increase your net worth
country club dues paid monthly
the cash flow statement reports a persons or families
current income and payments
debts that are to be paid off within a year are called
current liabilities
if you sell stock from your portfolio to pay off your car loan, your debt ratio of 0.5 will
decrease
you save the same dollar amount from each paycheck during your career. as your income increases, you savings rate will
decrease
paying cash for an alaskan cruise would
decrease assets
for most people, the first step in finding where their money goes each month is to correctly assess their true net income
false
forecasting for more than a month at a time is not helpful because you can't plan for unexpected expenses in the future
false
getting financial help from family and friends is easy and should be your first option in case of an emergency
false
long-term liabilities are debts that will be paid at least 3 years into the future
false
salary or wages are the only cash inflows for working people
false
stocks are considered liquid assets since they are easy to sell without a loss in value
false
the most common error people make is to underestimate cash inflows and overestimate cash outflows
false
your cash outflows are the same as your liabilities such as the amount you owe on your car or home
false
liquid assets
financial assets that can be easily sold without a loss
the term "liquid assets" refers to
financial assets that can be easily sold without a loss in value
bonds
financial instruments issued by borrowers to raise funds
stocks
financial instruments representing partial ownership of a firm
if you have liquid assets of $20000 and current liabilities of $10000, then you
have a current liquidity ratio of 2 20,000/10,000
a budget will not do which of the following
help determine if cash outflows will be sufficient to cover cash inflows
liquid or household asset- furniture
household
if both husband and wife are employed, their consumption will tend to
increase
your current liquidity ratio is 2.0. if you take money out of your savings account to pay off a credit card you liquidity ratio will
increase
describe one way to increase your cash inflows and one way to decrease your personal outflows
increase inflows through more income such as a pay increase or another job. to decrease outflows, cut expenses on a variety of personal expenditure
which of the following is not an appropriate approach to solving the problem of an annual budget deficiency
increase short-term, flexible expenditure items
in the balance sheet, a _______ in assets ______ net worth
increase;increase decrease; decrease
cash flow can be increased by all of the following except
increasing credit card purchases
the net worth of an individual or family can be increased by
increasing income
when you retire, which of the following will be key sources of cash flow
interest and dividends, social security and 401k
which of the following is NOT an asset you might find on a personal balance sheet
inventory
when a person owns corporate stocks, government or corporate bonds, or mutual funds, these are called
investment assets
the amount you would receive if you sold an asset today is called the assets
market value
the primary goal of financial planning is to
maximize wealth
which factor does not affect a households cash inflows
monthly spending on non-essentials
an investment company that sell shares to individuals and then invests the proceeds in stocks or bonds is called a
mutual fund
another term for your wealth calculated by deducting the amount that you owe from the value of the things you own is
net worth
the best measure of a persons or familys wealth is
net worth
the difference between assets and liabilities is called
net worth
paying off a credit card with cash will have which of the following effects on net worth
no effect
many individuals tend to _____ their cash inflows and ____ their cash outflows
overestimate, underestimate
which of the following is NOT a true statement about mutual funds?
proceeds are only invested in stocks
if spending exceeds the amount of your income over a period of time, your best option is probably to
reduce your spending
a persons net worth would increase as a result of
reducing amounts owed to others
real estate
rental property and land
allison anticipates an additional car expense two months from now of $400 for new tires that she has not previously budgeted for. What action should allison take?
revise her car expenses over the next two months to allow for the additional cost of the new tires
which cash inflow will probably be discontinued after retirement
salary
which of the following is NOT a cash outflow
salary
net cash flows
the difference between cash inflows and outflows
a personal cash flow statement is usually the starting point for an individuals or families budget
true
careful budgeting and controlled spending lead to self-reliance and a feeling of financial freedom
true
detecting future cash flow shortages improves with practice in the budgeting process
true
individuals who switch from a low-demand industry to a high-demand industry usually earn higher incomes
true
net cash flows are the difference between cash inflows and cash outflows and can be either positive or negative
true
one advantage of budgeting several months in advance is that you will be warned of potential deficiencies and can determine how to cover them
true
which of the following will NOT increase your liquidity
using cash to purchase a home entertainment system
a low liquidity ratio means that
you probably will have trouble paying your current bills
all of the following affect cash outflows except
your education level
which of the following usually affects cash inflows the most
your job skills
Luis has the following cash inflows and outflows: $500 rent, $200 car payment, $100 car repair, $100 discretionary purchases, $300 food, $150 electric bill, $3500 monthly salary after deductions for tax, $200 cell phone, $400 repayment of loan to dad, and $500 planned spending on weekend fun. What is Luis net cash flow?
$1050
bills annual savings rate is 9%. if bill currently saves $6750 annually, how much more will he need to save to increase his savings rate to 11%?
$1500
a family with $45000 in assets and $22000 in liabilities would have a net worth of
$23,000
if your cash outflows are $600 and your cash inflows are $1000, you can increase your net worth by
$400
jerry has assets of $200000, a net worth of $150000, and an annual income of $100000. what are jerrys liabilities
$50,000 $200,000- 150,000
at which time do cash inflows tend to be the highest
20 years into the career
nancy has $40,000 of annual disposable income and saves $8000 a year. Her savings rate is
20%
if your monthly disposable income equals $1500 and you currently save $500/month, your savings rate is
33%
if jo ann has $4000 in liquid assets and $1000 in current liabilities, her liquidity ratio is
4.0
if kims current debt ratio is 45%, this means that ______ of kims assets are purchased on credit
45%
if your net cash inflows exceed your net cash outflows, you can increase your net worth by investing the difference in more
assets
a personal balance sheet summarizes
assets, liabilities, and net worth
the current financial position of an individual or family is best presented with the use of a
balance sheet
list 3 components of your personal balance sheet and 2 components of your income statements
balance sheet- assets, liabilities, net worth income- income and expenses
jennifer has assets of $100000 and $10000 of debt. She could
borrow more money, since her debt ratio is low
which of the following will increase your debt
borrowing funds to buy a car
current liabilities
debt that will be paid within a year
the main source of cash outflows for most people are
every expenditure is a cash outflow
Cash outlfows are also called
expenses
cash inflows tend to be higher for younger individuals and lower for individuals in their 50s
false
during the final stage in the life cycle, retirement, people experience higher incomes from their demanding careers
false
liquid or household asset- home
household
liquid or household assets- car
household
property such as a persons home, car, and furniture is called
household asset
mutual funds
investment companies that sell shares to individuals and invest the proceeds in stocks and bonds
which of the following statements about stocks is NOT true
investments in stocks are considered liquid assets
a personal balance sheet presents
items owned and amounts owed
household assets
items owned by a household such as a home or a car
liquid or household asset- cash
liquid
liquid or household asset- checking account
liquid
liquid or household asset- savings account
liquid
the cash in your wallet, your checking account balance, and your savings account comprise your _____ assets
liquid
student loans, car loans, and housing loans are good examples of
long term liabilities
which of the following would increase your liquid assets
making regular deposits to a savings account at your bank
balance sheet assets should be valued at
market value
a document that shows you cash inflows and cash outflows is called a
personal cash flow statement
the main source of cash flow for most people is
salary and wages
why is it important to monitor your debt levels
so it does not become so high that you cannot cover the monthly payments
liabilities can be calculated by
subtracting net worth from assets
long term liabilities include all of the following EXCEPT
the amount due on a credit card
corporations issue stocks for all of the following reasons EXCEPT
to loan money to shareholders
a high debt ratio indicates an excessive amount of debt and should be reduced over time to avoid any debt repayment problems
true
one of the problems in making a monthly budget is that some expenses fluctuate quite a bit from month to month
true
some people with large incomes spend their entire paychecks within a few days, while others with small incomes may be big savers
true
your net worth can change even if your net cash flows are zero
true
