Chapter 2 Flashcards
Balance Sheet
A statement of your financial position (wealth) at a point in time.
Assets
things you own
liquid assets
cash, short-term, or medium-term assets that can be converted to cash with little or no loss in value
investments
long-term, acquired to earn an annual return
Real Property
immovable property including land or a house
Personal property
movable property such as autos and home furnishings
Liabilities
things you OWE
Net Worth
= Total assets - Liabilities
Financial Worth
Actual wealth or equity that individuals have in owned assets at a point in time
Total Income - Total Expenses =
(Cash In) (Cash Out) .
Cash SURPLUS (+) OR Cash DEFICIT (-)
(saving) (dissaving)
fixed
Contractual, equal payments fixed
rent or mortgage, insurance, cable TV payments
variable
Amounts change from one period to the next
credit card payments
Dealing with Deficits
Shift expenses from months with deficits to months with surpluses
Use savings, investments, or borrowing to cover temporary deficits
If you end the year in a deficit
Liquidate savings/investments
Borrow to cover the deficit
Cut low priority expenses; alter spending habits
Increase income
Future Value of money
Value invested money will grow to become earning a specific rate of interest over a given time period
compounding
