FCS-340 CH. 1-3

for people who are unmarried or surviving spouse who has a child or dependent relative

"head of household" filing status

In a recent month, Ken Grossman has cash inflows of $3,100 and cash outflows of $2,950, resulting in a surplus of

$150

A tax credit of $50 for a person in a 28 percent tax bracket would reduce a person's taxes by

$50

Financial experts recommended a monthly savings ration of at least ___ of gross income.

10%

Amanda and Jack are working on their taxes and need to determine which form to file. They had wages, interest, and dividends. In addition, they bought a house this past year and are thinking of itemizing their deductions. Which form should they use?

1040

A family with $49,000 in assets and $25,000 of liabilities would have a net worth of

24,000 (assets - liabilities = net worth)

How long should you keep documents relating to tax returns?

7-10 years

What are some actions that could be taken to improve your financial standing?

A budget, financial planning system and envelope system

What does a personal balance sheet present?

A financial statement that reports what an individual or a family owns and owes; also called a net worth statement or statement of financial position.

What is a cash flow statement?

A financial statement that summarizes each receipts and payments for a given period; also called a personal income and expenditure; Step 1- Records Income, Step 2- Record cash outflows, Step 3- Determine Net Cash Flow

Liabilities

Amounts owed to others

When should you evaluate and revise your actions in your financial plan?

Any time you have major life changing event. Retire, Marriage, New job, etc

How do you compute a person's net worth?

Assets - Liabilities = Net Worth

Name two personal financial statements that you construct yourself

Balance sheet and cash flow statement

What type of financial documents would most likely be stored in a safe-deposit box?

Birth certificates Marriage certificate Adoption and custody papers Mortgage papers and titles List of insurance policy numbers Stock and bond certificates Copy of will

Assets

Cash and other property with a monetary value

What are examples of tax credits?

Child care and dependent care expenses

Joseph needs to complete his income taxes for the year. He has already calculated his adjusted gross income. What does he need to do next?

Compute his taxable income

the amount by which actual spending exceeds planned spending

Deficit

Money left over after paying for housing, food, and other necessities

Discretionary income

the amount of money that households have available for spending and saving after income taxes have been accounted for

Disposable income

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities.

Financial Plan

Which payment items should be budgeted first? Fixed or variable expenses?

Fixed Expenses

payments that do not vary from month to month

Fixed expenses

the total amount of an employee's earnings before deductions are taken out

Gross pay

Higher consumer prices are likely to be accompanied by _______ interest rates

Higher

What does it mean to be insolvent?

Inability to pay debts when due, Liabilities far exceed assets

What is the time value of money?

Increase in an amount of money as a result of interest earned

How can a person increase net worth?

Increase savings Reduce spending Increase the value of investments and other possessions Reduce amounts owed PAY OFF DEBT Increase earnings, decrease spending

Have a time frame of two to five years.

Intermediate

Involves financial plans that are more than 5 years off, such as retirement, money for children's college education, or the purchase of a vacation home.

Long Term Goals

What goals should be considered as a part of the saving component of financial planning?

Main Goal---Have an Emergency Fund

What is the main responsibility of the Fed?

Maintain an adequate supply of money

What expenses can be included in the itemized deductions of a taxpayer?

Medical expenses, real estate property tax, home mortgage interest, charitable contribution, casualty losses, certain work related expenses(like buying uniforms).

What is an example of a long-term liability?

Mortgage, Medical bills, Tax payments

What type of records should be kept in a home file?

Personal and employment records Money management records Tax records Financial services records Credit records Consumer purchase and auto records Housing records Insurance records Investment records Estate planning and retirement records Medical receipts

Give an example of a long-term financial strategy

Retirement; money for children's college education ;purchase of a vacation home.

What are the characteristics of a well-written goal?

S- Specific M- Measurable A- Action-oriented R- Realistic T- Time-based

Will be achieved within the next year or so, such as saving for a vacation, or paying off small debts.

Short Term Goals

the amount by which actual spending is less than planned spending

Surplus

earnings after deductions for taxes and other items; also called disposable income.

Take-home pay

The Fed

The Federal Reserve System

What does liquidity refer to?

The ability to convert financial resources into usable cash with ease

What is inflation risk?

The amount to which current savings will grow based on a certain interest rate and certain time period

The Form 1040 is most helpful to whom?

Those earning more than $50K

What actions can you take to reduce your taxes?

Using a tax credit, exemptions and itemize your deductions, own a house, put money in a flexible spending account(medical, etc), municlple bonds

flexible payments that change from month to month

Variable expenses

At the end of the year, Xavier received a form from his employer that reported annual earnings and the amounts deducted for taxes. That form is called a

W-2

What is opportunity cost?

What a person gives up by making a choice

What determines the success or failure of a financial plan?

What resources are you using... What do you have access to and how are you using those. MUST HAVE resources.

The "Obtaining component of financial planning is defined as

You obtain financial resources from employment, investments, or ownership of a business---Obtaining financial resources is the foundation of financial planning, since these resources are used for all financial activities

Profits from the sale of a capital asset such as stocks, bonds, or real estate

capital gains

Liquid assets

cash and items of value that can easily be converted to cash

Future value calculations are also referred to as

compounding

Which type of audit is the least complicated for taxpayers?

correspondence

Long-term Liabilities

debts that are not required to be paid in full until more than a year from now

Current Liabilities

debts that must be paid within a short time, usually less than a year.

The study of how wealth is created and distributed

economics

A tax imposed on a specific goods and services, such as gasoline, cigarettes, alcoholic beverages, tires, and air travel.

excise tax

expenses that a taxpayer is allowed to deduct from adjusted gross income

exemptions

How long should you keep documents relating to Real estate?

forever

Money received in the form of dividends or interest is ________________ income

investment

the rate used to calculate tax on the last (and next) dollar of taxable income

marginal tax rate

If I can invest a dollar today and earn interest on it, then it should be worth _________ in the future

more

Give an example of a tax-exempt investment.

municipal bond income, state bonds, etc.

property tax is based on the value of land and buildings

real estate

An exclusion affects a person's taxes by _____________ the amount of taxable income.

reducing

An exemption affects a person's tax situation by __________ the taxpayer's taxable income.

reducing

Give an example goal of a short-term financial objective

saving for a vacation or paying off small debts.

The use of legitimate methods to reduce one's taxes is _________________.

tax avoidance

An amount subtracted directly from the amount of taxes owed

tax credit

An IRA, Keogh plan, and 401(k) plan are examples of ________________________ retirement plans

tax deferred

The amount of interest is determined by multiplying the amount in savings by the__________period

time

How long should you keep documents relating to investments?

until you sell

Most people pay federal income tax by having amounts ______________from income

withheld

Who is ultimately responsible for supplying accurate and complete information for completing a tax return?

you are