FIN C.2

budget

a specific plan for spending income; also called a spending plan.

savings ratio

amount saved each month divided by gross income

liabilities

amounts owed to others.

mortgage

an amount borrowed to buy a house or other real estate that will be repaid over a period of 15, 20, or 30 years.

liquid assets

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

assets

cash and other property with a monetary value.

money management

day-to-day financial activities necessary to manage current personal economic resources while working toward long-term financial security.

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.

investment asset

funds set aside for long-term financial needs.

surplus

the amount by which actual spending is less than planned spending.

budget variance

the difference between the amount budgeted and the actual amount received or spent.

market value

your possessions listed at their current value.

take-home pay

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

income

inflows of cash to an individual or a household.

debt ratio

liabilities divided by net worth

current ratio

liquid assets divided by current liabilities

liquidity ratio

liquid assets divided by monthly expenses

discretionary income

money left over after paying for housing, food, and other necessities.

debt payment ratio

monthly credit payments divided by take-home pay

cash flow

the actual inflow and outflow of cash during a given time period.

deficit

the amount by which actual spending exceeds planned spending.

net worth

the difference between total assets and total liabilities.

insolvency

the inability to pay debts when they are due because liabilities far exceed the value of assets.

personal financial statements

the personal balance sheet and the cash flow statement

balance sheet

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.

cash flow statement

a financial statement that summarizes cash receipts and payments for a given period; also called a personal income and expenditure statement.

safe deposit box

a private storage area at a financial institution with maximum security for valuables.