Personal Finance Chapter 2

Steps of Budgeting

1. Set financial goals 2. Estimate expected income 3. Allocate an emergency fund and savings 4. Budget expenses 5. Record spending amounts 6. Review spending and saving patterns

Liabilities

Amount owed to others

Liquid Assets

Cash and Items of value that can easily be converted to cash

Money Management

Day-to-day financial activities necessary to manage current personal economic resources while working towards 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

Variable Expenses

Flexible payments that change from month to month

Solvency

Is the ability to pay your bills as they come due because your assets exceed you liabilities

variance

When you calculate a budget ___, you determine the difference btwn the actual amount spent or received and the amount budgeted

Components of Money Management

1. Storing financial records 2. Creating personal financial statements 3. Creating a plan for spending and saving

Cash Flow Statement

A personal income and expenditure statement is a summary of cash receipts and payments for a given period

Which of the following are basic reasons to prepare a balance sheet?

Apply for a loan, find net worth, and analyze your financial strengths and weaknesses

surplus

Cash inflows less cash outflows during a given period of time result in a cash ___ when inflows are greater than outflows.

SMART

Specific Measurable Action Realistic Time-based

Home File

Used to keep records for current needs and documents with limited value

Discretionary Income

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

Take-Home Pay & Net Pay

Person's earning after deductions for taxes and other items

Cash Flow

The actual inflow and outflow of cash during a given time period

7 Years

Copies of tax returns should be retained for at least ___

Personal Financial Statements

Tells you... -Report point of financial journey -measure progress towards finance goals -maintain info about activities -provide data for tax forms

Net Worth

The difference btwn total assets and total liabilities

Budget Variance

The difference bwtn the amount budgeted and the actual amount received or spent

Insolvency

The inability to pay debts when they are due; occurs when a person's liabilities far exceed available assets

ratios

To measure changes taking place in your financial situation, you need to calculate financial...