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Financial Literacy > Chapter 3 > Flashcards

Chapter 3 Flashcards

Money Management Strategy: Financial Statements and Budgeting

1
Q

Day-to-day financial activities necessary to manage current personal economic resources while working toward long-term financial security

A

money management

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2
Q

Money management trade-offs include …

A
  • Current spending vs. long-term saving and investing
  • Using credit vs. future income availability
  • Immediate purchases vs. lost interest on savings
  • Comparison shopping vs. time
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3
Q

Components of money management include …

A
  • Financial documents
  • Financial statements
  • Budgeting
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4
Q

A personal financial records system includes …

A
  • Handling daily business activities
  • Measuring financial progress
  • Completing tax forms
  • Making investment decisions
  • Determining resources for spending
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5
Q

CLARK Method

A
  • Calculate income
  • List expenses
  • Analyze spending; set goals
  • Record
  • Knock out debt; build savings
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6
Q

A private storage area at a financial institution with maximum security for valuables

A

safe deposit box

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7
Q

Goals of personal financial statements include …

A
  • Report your current financial position based on the value of items you own and amounts you owe.
  • Measure your progress toward financial goals.
  • Maintain information about your financial activities.
  • Provide data for preparing tax forms or applying for credit.
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8
Q

A financial statement that reports what an individual or a family owns and owes; also called a net worth statement

A

balance sheet

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9
Q

Three steps to creating a personal balance sheet

A
  1. List items of value
  2. Determine amounts owed
  3. Compute net worth
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10
Q

Cash and other property with a monetary value

A

assets

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11
Q

Cash and items of value that can easily be converted to cash. (Checking and savings accounts, cash value of life insurance)

A

liquid assets

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12
Q

Amounts owed to others

A

liabilities

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13
Q

Debts that must be paid within a short time, usually less than a year

A

Current liabilities

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14
Q

Debts that are not required to be paid in full until more than a year from now

A

Long-term liabilities

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15
Q

The difference between total assets and total liabilities

A

net worth

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16
Q

The inability to pay debts when they are due because liabilities far exceed the value of assets

A

insolvency

17
Q

Net worth can be increased by …

A
  • Increasing savings
  • Reducing spending
  • Increasing value of investment
  • Reducing liabilities
18
Q

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

A

cash flow

19
Q

A financial statement that summarizes cash receipts and payments for a time period.(personal income and expenditure statement)

A

cash flow statement

20
Q

Inflows of cash to an individual or a household

A

income

21
Q

Earnings after deductions for taxes and other items; also called net pay. (opposed to gross pay or gross income - real monthly salary before deductions)

A

take-home pay

22
Q

Money left over after paying for housing, food, and other necessities. (disposable income)

A

discretionary income

23
Q

Payments that do not vary from month to month (Rent, mortgage payments, loan payments, wifi service fees, etc.)

A

Fixed expenses

24
Q

Payments that change from month to month (food, clothing, utilities, recreation, medical expenses, gifts, donations, etc.)

A

Variable expenses

25
Q

Ways to reduce financial stress include …

A
  • Have low debt-to-income ratio
  • Delay, reduce, or eliminate unnecessary expenses
  • Build up emergency savings
  • Seek additional income
26
Q

A specific plan for spending income

A

budget

27
Q

Four Phases of Budgeting

A
  • Assess
  • Plan
  • Implement
  • Evaluate
28
Q

The difference between the amount budgeted and the actual amount received or spent.

A

budget variance

29
Q

The amount by which actual spending exceeds planned spending.

A

deficit

30
Q

The amount by which actual spending is less than planned spending.

A

surplus

31
Q

Characteristics of Successful Budgeting

A
  • Well planned
  • Realistic
  • Flexible
  • Clearly communicated
32
Q

Types of Budgeting Systems

A
  • Mental
  • Physical
  • Written
  • Digital
33
Q

Reasons for saving include …

A
  • Create emergency fund
  • Replacement items
  • Expensive items
  • Long-term expenses
  • Earn income from interest
34
Q

Ways to expand savings

A
  • Use a payroll deduction
  • Regularly save 5-10%
  • Take advantage of employer matching retirement funds
35
Q
A

Financial Literacy (4 decks)

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