Chapter 2

Question 1

What is a personnal cash flow statement

Answer 1

a financial statemeny that measures a person`s income and expense (first step in buf=dgeting process)

Question 2

what is the net cash flow

Answer 2

Disposable (after-taxe) income minus expenses

Question 3

what are Factors that affect cash flow

Answer 3

Income
- stage in youre career
- Type of jobs
- number of incomes earners in your household (nombre de paye)
Expenses
- Size of the family
- Age
- Personnal consumption behavior
are you a spend all or a big saver

Question 4

What is a budget

Answer 4

Budget: a cash flow statement that is based on forecasted cash flows (income and expenses) for a future time period
Expected Net Cash Flows = Expected Income − Expected Expenses

useful for anticipation either cash surplusesor cash defienciences

Question 5

how can be used cash surpluses

Answer 5

may be used to build an emergency fund, invest in additional assets or make extra payments to reduce personal debt

Question 6

how do you calculate for a year

Answer 6

monthly amount : *12
*52 for weekly
*26 for biweekly

Question 7

what are alternative budgeting strategies

Answer 7

Envelope Method
– Forces you to stick to a cash-only budget for the expense categories that are hardest to control (e.g. recreation, dining out, small day-to-day expenses)
– Create a separate envelope for each category
– Place the budgeted cash amount in each envelope
– You can spend only the money in the envelope for the assigned category
– Balances can be carried forward

Question 8

Give another alternatice budgeting method

Answer 8

Pay Yourself First Method
– Arrange for an automatic transfer of money from your checking account to your savings account/
– Transfer would coincide with when you receive your pay check
– In contrast to the envelope method, this method removes net cash flows at the beginning of the budget period

Question 9

What is a personnal balance sheet

Answer 9

Personal balance sheet: a summary of your assets (what you own), your liabilities (what you owe), and your net worth (assets minus liabilities)

• A personal balance sheet is a snapshot of your financial position at a specific point in time

Question 10

What are assets

Answer 10

• financial assets that can be easily converted into cash without a loss in value (e.g., cash, checking account)
• Household assets: items normally owned by a household (e.g., car, furniture)
• You need to establish market values for these assets— the amount you would receive if you sold the asset today

Question 11

What are liabilities

Answer 11

• Current liabilities: personal debts that will be paid in the near future (within a year) (e.g., credit card debt)
• Long-term liabilities: debts that will be paid over a period longer than one year (e.g., student loan, car loan, mortgage/housing loans)

Question 12

what is the net worth

Answer 12

• Value of total assets − Value of total liabilities (what you own minus what you owe)
• A measure of wealth * Closely related to your life stage (e.g., early career vs. prime earning)

Question 13

How does the et worth vary

Answer 13

Your net worth will not grow unless the increase in the value of your assets exceeds the increase in the value of your liabilities