chapter 2 Flashcards
Microeconomics
study of smaller units of economy
- decision making behavior of firms and households
- how they interact in the marketplace
Presidents and the Economy
1977-1981
Jimmy Carter (democrat) - high inflation rate --> high interest rate home mortgage rates were ~18%
Presidents and the economy
1981-1988
Ronald Reagan (republican)
- supply side economics: strategy for govt to give extra money to suppliers to hire more employees to “spread the wealth”
- tax incentives
presidents and the economy
1989-1993
George Bush (republican) continued many of Reagan's policies
presidents and the economy
1993-2002
Bill Clinton (democrat)
“New Economy”- technology, internet, entrepreneurship
growth and expansion due to technological advances
innovation, prosperity, and expansion
EXTREMELY LOW unemployment
presidents and the economy
2001-2009
George Bush (republican)
- corporate and personal responsibility
- believed in enhancing individual’s knowledge in personal finances
presidents and the economy
2009-2018
Barack Obama (democrat)
- recession
- economic stimulus package (bailing out major companies)
- tax credits direct to employees through employers
- get rid of penny and nickel (metal is worth more than the currency)
Why keep financial records?
- give you a sense of where you have been and where you are going
- provide basis on which to develop money management strategies
- plan for retirement
- reflect consumption
types of record organization
safe deposit box: $15/mo. paper docs, expensive jewelry, photos of personal possessions
biometrics: future use for safe deposit boxes
home storage: fire resistant, strategic placement
- tax records, insurance statements, wills, etc.
how long should tax records be kept?
3 years
keep longer if audited
important numbers list
list of companies, phone numbers, websites, account number, in case credit card/debit card/ bank accounts are lost or stolen.
keep copy at home, give copy to spouse or parent
what are some important documents to have on hand for financial record keeping?
important numbers list: CC, bank account numbers and info.
list of key advisors: lawyers, insurance, stockbrokers, accountants, etc.
monthly budget: record of inflow and outflow of money over a month
tax records for last 3 years
any large sales in the last 3 years
financial statement
- budgets
- balance sheet/net worth statement
financial statement: assessment of current status of finances.
- budgets: trace the flow of income and expenses over period of time
- balance sheet: list the value of assets vs. liabilities
what does it mean to be “in the black?”
what does it mean to be “in the red?”
more savings than expenditures
expenditures are greater than income
- aim to reduce expenditures
- focus on eliminating debt
a budget consists of 3 parts:
- income
- expenses
- net income (income-expenses: net gain or loss)
list of possible income sources
wages, salaries, commission = main source of income alimony/child support return on investments allowances or gifts social security benefits public assistance gains or losses from sale of assets others: loans, scholarship, rent income, royalties, tax refund
two types of expenditures
fixed expenses: same amount each period
- rent, car payment, child care
variable expenses: more flexible and more easily controlled by individual
- entertainment, food, travel
what are flexible expenses?
those that can be fixed or variable: child care, insurance (fixed but changed based on behavior)
budget making steps:
- setting goals: desired end state
- planning: decide alternatives, strategies and actions
- implementing: put plan to action
- evaluating: examine cost, value, and worth of budget plan
what is NET WORTH?
assets - liabilities = net worth
define
assets
liabilities
assets: what you OWN
- monetary: liquid, accounts, CD’s
- tangible: physical items worth money
liabilities: what you OWE
- current: due to be paid within the year (rent, utilities, tickets, insurance)
- long-term: those that go beyond a year (mortgage, student loans)
when may having liabilities be useful?
- when you are in a higher tax bracket and want to claim liabilities (losses) to reduce taxes you owe
what is considered good net worth?
when net worth is 3x income you are considered well off
4 general categories of net worth and what you should do?
if negative: concentrate on reducing debt
if net worth less than half annual income: keep spending in check, increase savings and investments
if between 1/2 and 2-3x annual income: continue to keep in check
IDEAL: net worth 3x annual income
