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Personal Finance > Chapters 1-3 > Flashcards

Chapters 1-3 Flashcards

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1
Q

Personal financial planning

A

The process of managing your money to achieve personal economic satisfaction

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2
Q

Financial plan

A

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities

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3
Q

Adult life cycle

A

The stages in the family situation and financial needs of an adult

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4
Q

Economics

A

The study of how wealth is created and distributed

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5
Q

Inflation

A

A rise in the general level of prices
Most harmful to people with fixed incomes

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6
Q

Types of Financial Goals

A

Short term goals
Intermediate goals
Long term goals

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7
Q

Short term goal

A

Achieved within the next year or so, like saving for a vacation or paying off small debts

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8
Q

Intermediate Goals

A

Within a time frame of two to five years

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9
Q

Long term goals

A

More than five years, such as retirement, college funds, or the purchase of a home

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10
Q

SMART financial approach

A

S- specific
M- measurable
A- action oriented
R- realistic
T- time based

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11
Q

Opportunity cost

A

What you give up when you make a choice, also called a trade off (like giving up down time to work extra hours and vice versa)

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12
Q

Interest calculations

A

Amount in savings × annual interest rate × time period = interest
Example: $500 deposited at 6% for 6 months
500 × .06 × 1/2= 15 so $15 is the interest

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13
Q

Future value

A

The amount to which current savings will grow based on a certain interest rate and a certain time period

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14
Q

Annuity

A

A series of equal deposits or payments

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15
Q

Present Value

A

The current value for a future amount based on a particular interest rate for a certain period of time

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16
Q

Bankruptcy

A

A set of federal laws allowing you to either restructure your debts or remove certain debts

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17
Q

Time value of money

A

Increase in an amount of money as a result of interest earned

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18
Q

Values

A

Ideas and principles that a person considers to be correct, desirable and important

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19
Q

Money Management

A

The day to day financial activity necessary to manage current personal economic resources while working toward long term financial security

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20
Q

Balance sheet

A

Report on what you own and what you owe

21
Q

Assests

A

Cash and tangible property with a monetary value

22
Q

Liquid assests

A

Cash and items of value that can easily be converted to cash

23
Q

Liabilities

A

Amounts owed to others but do not include items not yet due, such as next months rent

24
Q

Current liabilites

A

Debts you must pay within a short time, usually less than a year

25
Q

Long term liabilities

A

Debts you do not have to pay in full until more than a year from now

26
Q

Net worth

A

The difference between total assets and total liabilities

27
Q

Insolvency

A

The inability to pay debts when they are due

28
Q

Cash flow

A

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

29
Q

Discretionary income

A

Money left over after housing, food, and other necessities

30
Q

Deficit

A

When actual spending exceeds planned spending

31
Q

Surplus

A

When actual spending is less than planned spending

32
Q

Excise tax

A

A tax imposed by federal and state governments on specific goods and services

33
Q

Estate tax

A

Imposed on the value of a person’s property at the time of death

34
Q

Inheritance tax

A

Tax levied on the value of property bequeathed by a deceased person

35
Q

Taxable income

A

The net amount of income, after allowable deductions, on which income tax is computed

36
Q

Earned income

A

Wages, salary, commission, fees, tips, and bonuses

37
Q

Investment income

A

Money received in the form of dividends, interest, or rent from investments

38
Q

Passive income

A

Results from business activities in which you do not actively participate, such as limited partnership or rental property that you do not actively manage

39
Q

Exclusion

A

An amount not included in gross income

40
Q

Adjusted Gross Income (AGI)

A

Gross income after certain reductions have been made

41
Q

Tax shelters

A

Investments that provide immediate tax benefits and a reasonable expectation for a future financial return

42
Q

Marginal tax rates

A

10-37% rate based on and applied to your income

43
Q

Average tax rate

A

Total tax due divided by taxable income

44
Q

Tax credit

A

An amount subtracted directly from the taxes owed

45
Q

Tax audit

A

A detailed examination of your tax return by the IRS

46
Q

Tax avoidance

A

The use of legitimate methods to reduce ones taxes

47
Q

Tax evasion

A

The use of illegal activities to reduce ones taxes

48
Q

Capital gains

A

Profits from the sale of a capital asset such as stocks, bonds, or real estate

Personal Finance (3 decks)

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