Money Unit 1
assets formula
Assets = Liabilities + Net Worth
personal finance statements
provide information on current financial position, measure your progress toward financial goals, and summarize income and spending (balance sheet, cash flow)
taxes on property
real estate property tax and personal property tax (jewelry, cars, boats)
earned income
received for personal effort (wage, salary, tips)
passive income
received from business activities in which you do not actively participate
investment (portfolio) income
received from dividends, interest, or rent from investments
balance sheet (net worth statement, statement of financial position)
reports what is owned and owed to determine current financial position
taxes on purchases
sales tax and excise tax
what does consumer spending measure and how does it impact the economy?
the demand for goods and services, can drive up GDP and employment if demand is high
net worth
the difference between assets and liabilities
liquidity
the ease with which an asset can be converted into cash
short term goal length
1 year
intermediate term goal
1-5 years
5 steps of personal finance planning
1. determine current financial situation 2. develop goals that are SMART 3. identify alternative courses of action 4. evaluate alternatives 5. create and implement your plan 6. review/revise your plan
List the different classifications of taxpayers
1. married filing jointly 2. married filing individually 3. single 4. head of household 5. widow (only can 2 years after death, then single)
CPI formula
100 x (cost of basket in current year/cost of basket in base year)
long term goal
5+ years
how long should federal tax documents be kept?
7 years
social security tax
A federal tax that uses the money for old-age, survivors, and disability insurance
income statement
A financial statement that shows revenue and expenses
trade deficit
An excess of imports over exports
Federal Estate Tax
A tax imposed on the transfer of personal property at death (taxes on wealth)
W2 form
Each year by January 31st, employer states the amount of money earned and taxes paid throughout the previous year to employee
itemized deductions
Expenses that can be deducted from adjusted gross income (sales taxes, real property taxes, personal property taxes, mortgage interest, disaster losses, gifts to charities, medical expenses)
future value of single sum formula
FV= p x (1+ir)^n
taxes on wealth
Federal estate tax, state inheritance taxes
present value
the current value you need now for a future amount based on a certain interest rate and time period
Liabilities formula
Liabilities = Assets - Net Worth
Net worth formula
Net Worth = Assets - Liabilities
present value of single sum formula
PV= p / ((1+ir)^n)
I9 Form
Used for verifying the identity and employment authorization of individuals hired for employment in the US
SMART goals
Specific, Measurable, Attainable, Realistic, Timely
taxable income formula
Taxable Income= adjusted gross income - tax deductions
what does the money supply measure?
The dollars available for spending in our economy
liquidity risk
The risk that an asset cannot be sold on short notice without incurring a loss
deflation
a decline in prices
inflation
a general increase in prices and fall in the purchasing value of money
budgeting (money management)
a plan for spending and saving, helps you live within your income
annuity
a series of equal regular deposits or payments at a constant interest rate
standard deduction
a set amount on which no taxes are paid
compounding
accumulating interest on an investment over time to earn more interest, allows FV to grow faster
other types of income
alimony, awards, lottery winnings
future value
amount that current money will grow to based on a certain interest rate and time period
tax deductions
amounts subtracted from adjusted gross income before figuring a person's taxable income
exclusion
an amount not included in gross income
asset
anything owned with future probable economic value (cash, inventory, real estate, automobiles)
how long should investment documents be kept?
as long as you own them
what do consumer prices measure?
buying power of a dollar, inflation
rule of 72
calculates the number of years it takes for a certain amount to double; 72/ir
liquid assets
can easily be converted to cash
4868 Form
can file for a 6 month extension to file, but if you owe money, it must be paid by April 15th the next year
statement of cash flows
cash inflows (source) vs outflows (use)
AGI (adjusted gross income)
gross income after any reductions or additions
COLA
cost of living adjustment
money management
daily financial activities necessary to manage personal economic resources while working towards long term financial security
liabilities
debt/obligation based on past transactions (what you owe to others)
W4 form
determines the percentage of an employee's pay that will be withheld for federal taxes, tells if married, single and how many depends you have
trade balance
difference between exports and imports
4 types of income
earned, investment, passive, other
take home pay/net pay/disposable income
earnings after deductions for taxes
insolvency
inability to pay debts
tax on earnings
income tax and social security
tax exempt income
income that is not taxed
tax deferred income
income that is taxed at a later date
1040 Form
individuals file their annual income and tax returns, filed with IRS, no later than April 15
durable product goals
infrequently purchased, expensive, tangible/touchable items (cars, appliances)
CPI (Consumer Price Index)
measure of average change in prices consumers pay for basket of goods and services
tax shelters
investments that provide immediate tax benefits and a reasonable expectation of a future financial return (real estate)
sunset laws
laws that expire after a given time (Tax Cuts and Jobs Act)
Personal finance planning
managing your money to achieve personal economic satisfaction
debt security
money borrowed by companies or governments (bonds)
time value of money
money in the present is worth more than the same sum of money to be received in the future
discretionary income
money leftover after paying for necessities
current liability
must pay in less than a year (medical bills, taxes)
taxable income
net income, after allowable deductions, on which income tax is computed
excise tax
only imposed on specific goods/services (tax on purchases)
long term/noncurrent liability
over a year to pay (loan, mortagage)
corporation term for net worth
owner's equity
equity security
ownership in a corporation (stock)
alimony
payments made to an ex-spouse after divorce
fixed expenses
payments that don't vary from month to month (mortgage, insurance, car payment)
variable expenses
payments that vary from month to month (food, clothing, utilities)
Consumable-product goals
periodic basis, items that are used up quickly (food, clothing, entertainment)
intangible purchase goals
personal relationships, health, education, and leisure
financial statements (money management)
preparing a balance sheet and cash flow statement on a regular basis
4 types of taxes
purchases, property, wealth, earnings
simple interest rate formula
simple interest = p x r x t
adult life cycle
stages in the family that influence financial decisions (kids, retirement, graduation)
financial documents (money management)
storing and maintaining personal financial records
what do interest rates measure?
the cost of money, the cost of credit when you borrow, the return on your money when you save or invest
State inheritance tax
tax imposed on the property left by a dead person's will
1099 Form
tells "non-employee" compensation like part-time jobs, does not deduct taxes, given by Jan 31 following year
income risk
the loss of a job may result from changes in consumer spending or expanded use of technology, so always save
housing starts
the number of new homes being built
interest rate risk
the possible reduction in returns associated with changes in interest rates
marginal tax rate
the rate used to calculate tax on the last and next dollar of taxable income
economics
the study of how wealth is created and distributed
Net Present Value (NPV)
the sum of the expected future cash flows from an investment, minus the cost of that investment
GDP (Gross Domestic Product)
the total market value of all final goods and services produced annually in a country
security
tradable financial asset that holds some type of monetary value