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Chapter 2 Flashcards

1
Q

What are the steps used in the budgeting and planning process?

A
  1. Evaluate your financial health
  2. Define your financial goals
  3. Develop a plan of action
  4. Implement your plan
  5. Review your progress, reevaluate, and review your plan of action
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2
Q

A balance sheet is used to measure what?

A

Your wealth

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3
Q

A balance sheet details what?

A
  1. Assests you own
  2. Debt or liabilities you owe
  3. Your net worth or equity
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4
Q

What are assets?

A

They are your possessions even if you owe money on them (should list assets using their current fair market value)

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5
Q

What are the different types of assets?

A
  1. Monetary assets
  2. Investments
  3. Retirement plans
  4. Tangible assets
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6
Q

Monetary assets

A

Cash or other liquid assets

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7
Q

Investments

A

Including common stock, mutual fund, & bonds

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8
Q

Retirement plans

A

IRAs, 401(k) or 403(b) plans, company pension plans

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9
Q

Tangible assets

A

Physical assets (house, vehicle, furniture, jewelry, collectibles, etc)

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10
Q

A liability is ______ that must be repaid in the future

A

Debt

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11
Q

With liabilities, should only list unpaid balances for what?

A
  1. Current liabilities (utility bills, insurance premiums)
  2. Long term liabilities (home, car, or student loan)
  3. Other loans (bank loans, insurance, policy loans, etc)
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12
Q

Net worth is a measure of your ________

A

Wealth

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13
Q

Net worth calculated how?

A

Total assets- total liabilities

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14
Q

If liabilities are greater than assets then have a ________ net worth & insolvent

A

Negative

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15
Q

If liabilities are less than assets, then net worth is _________

A

Positive

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16
Q

Good level of net worth depends on your goals and your place in the financial ________ cycle

A

Life

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17
Q

Can use an income statement to trace your ____

A

Money

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18
Q

Financial motion picture

A

Tells your where your money has come from & where it has gone over some period of time

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19
Q

Income is where your money comes _______

20
Q

Income or cash inflows

A

Wages, salary, bonuses, tips, royalties, & commissions

21
Q

Subtract federal, state, & social security taxes from earnings to calculate your ________

A

take-home pay

22
Q

Expenditures

A

Where your money goes

23
Q

Financial ratios

A

Allow you to analyze raw data in the balance sheet or income statement & then compare it to targets

24
Q

Ratios help you understand how your __________ financial resources

25
How do you know if you have enough liquidity
Current ratio = Monetary assets/current liabilities (should be greater than 1 & should aim above 2)
26
Month's living expenses covered ratio
Monetary assets/(annual living expenditures/12) (should aim for 3 to 6 months of liquid assets) (use to calculate liquidity to meet emergencies)
27
What are the two ratios to determine debt obligations
1. Debt ratio 2. Long term debt coverage ratio
28
Debt ratio
Total debt or liabilities/ total assets (red flag if less than 2.5)
29
Long term debt coverage ratio
Total income available for living expense/total long term debt payments (red flag if less than 2.5)
30
What are the equation to use to determine if you are saving effective?
Saving ratio
31
Saving ratio
Income available for saving & investment/income available for living expenditures
32
Why should you keep records?
Without them its difficult to prepare taxes, you know how much & where you spent, & its easy for someone to step in during an emergency & understand your financial situation
33
What are the steps in record keeping?
1. Track your financial dealings 2. File & store your financial records so they are readily accessible to
34
Budgeting can be done how?
- Evaluate your financial health by using the balance sheet & income statement - Develop a plan of action & cash budget using the income statement -Monitor your progress using the balance sheet & income statement
35
What are the benefits of developing a cash budget?
-Plan for controlling cash inflows & outflows - Allocate dollar amounts for different spending categories
36
How do you prepare a cash budget?
- Estimate anticipated after-tax income or take home pay from most recent annual personal income statement - Estimate fixed & variable living expenses - Estimate income available for saving & investing (subtract anticipated living expenditures from anticipated take home pay)
37
What do financial planner do?
- More unique financial situations need professional help - They give advice
38
How do you choose a professional planner
- Check accreditation (like PFS, CFP, ChFC) - Check experience - Referrals
39
What are the different ways financial planners are paid?
- Fee-only planners - Fee & commission planners - Fee offset planners -Commission based planners
40
Use a balance sheet to determine the level of wealth that you or your family has ____________ on a given date
Accumulated
41
Use an ___________ to understand where your money comes from & goes to be able to save enough to meet goals
Inceome statement
42
Use ___________ as targets or standards in managing financial resources
financial ratios
43
A sound __________ makes tax preparation & tracking of spending easier
record keeping system
44
Use a ________ to plan & evaluate spending & saving
Budet
45
_________ planner can help by validating your plan or developing a plan
Professional financial

Personal finance (4 decks)

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