Chapter 3 - Planning with Personal Financial statements

Question 1

personal cash flow statement

Answer 1

A financial statement that measures a person’s income and expenses

Question 2

disposable (after tax) income

Answer 2

your income minus applicable income taxes and other payroll deductions such as CPP and EI contributions but BEFORE savings

Question 3

net cash flows

Answer 3

disposable (after tax) income minus expenses

Question 4

factors that affect income

Answer 4

*your career path
*your job skills
*Type of job
*# of income earners in your household

Question 5

Factors that affect expenses

Answer 5

*person’s family status
*age
*personal consumption behaviour

Question 6

budget

Answer 6

a cash flow statement that is based on forecasted cash flows (income and expenses) for a future time period

Question 7

what are some alternative budgeting methods

Answer 7

envelope method
pay yourself method

Question 8

what are the budgeting steps

Answer 8

1) forecast the income and expenses
2) set aside positive net cash flows in an emergency fund
3) asses the budget accuracy
4) forecast your income and expenses for months in the future
5) use any additional income to savings
6) create an annual budget
7) improve your budget by adjusting any forecasted income and expense
8) consider ways in which you might increase your cash flow
9) consider using a cash only budgeting method
10) consider taking net cash flows out of your bank

Question 9

personal balance sheet

Answer 9

a summary of your assets (what you own) your liabilities (what you owe) and your net worth (assets minus liabilities)

Question 10

liquid assets

Answer 10

financial assets that can be easily converted into cash without a loss in value

Question 11

household assets

Answer 11

items normally owned by a household, such as a car and furniture

Question 12

stocks

Answer 12

certificates representing partial ownership of a firm

Question 13

bonds

Answer 13

long-term debt securities, issued by government agencies or corporations, that are collateralized by assets.

Question 14

mutual funds

Answer 14

investment companies that sell shares to individuals and invest the proceeds in an overall portfolio of investment instruments such as bonds or stocks

Question 15

real estate

Answer 15

principal residence, rental property and land

Question 16

rental property

Answer 16

housing or commercial property that is rented out to others

Question 17

current liabilities

Answer 17

personal debts that will be paid in the near future (within a year)

Question 18

Define and describe the three asset categories on the personal balance sheet, and provide an example of each.

Answer 18

*Liquid Assets - financial assets that can easily be sold without a loss in value.
*Household Assets - home, car, furniture
*Investments/Financial Assets - Stocks, bonds, mutual funds, real estate.