Chpt 2 Flashcards
Personal financial management
process of controlling personal income and expenses
Income
Income is money coming in.
expense
expense is money going out, or spent
budget
budget is a detailed financial plan used to allocate money for a specific time period. A budget reflects goals and identifies where your money will be spent in order to reach these goals.
Gross income
Gross income is the amount of money in a paycheck before paying taxes or other deductions.
Net income
Net income is the amount of money you have after all taxes and deductions are taken out of your gross pay.
Fixed expenses
Fixed expenses are expenses that do not change from month to month, such as a monthly mortgage or rent payment.
Flexible expenses (also referred to as variable expenses)
Flexible expenses (also referred to as variable expenses) are expenses that change from month to month, such as food or utilities. To identify monthly flexible expense amounts, take the past 12 months of that expense and use the average for your monthly budget.
money wasters,
money wasters, which are small expenditures that you may not realize are consuming a larger
Debt
Debt is money owed
loan
large debt that is repaid in smaller amounts over a period of time and has interest added to the payment.
Interest
Interest is the cost of borrowing money and is the money you pay a lender for a loan. Debt includes all types of loans (car, home, school) and credit cards.
Net worth
Net worth is the amount of money that is yours after paying off debt.
Personal assets
Personal assets are what you own.
liability
liability is an obligation to pay what you owe. If you have a car loan, it is a liability.
Character
reflects past behavior toward paying your bills on time, thus communicating to the lender if you will likely repay the loan.
Capacity
is your ability to repay the loan; your salary will play an important role in this matter.
Collateral
are the assets you own that are used as security to pay the debt,
conditions
are the factors that could potentially harm your ability to repay (e.g., a farmer operating in drought conditions)
credit report
is a detailed credit history on an individual.
Fair Isaac Corporation (FICO) score
The most common credit rating is known as a . FICO credit scores have a 300–850 score range. The higher the score, the lower the risk you are to the lender.
There are three credit reporting agencies.
They are Equifax, Experian, and TransUnion. Your FICO score is a combination of these agency ratings.
automatic deduction plan
automatically deducts funds from your paycheck and places them into an account. Make a commitment to take a specific percentage, about 5 percent, from your paycheck and place it in a savings account on a monthly basis.
Saving money
means that you are setting away funds for short-term goals and/or emergencies.
Investing
may provide a greater opportunity to increase the value of your money and generally is a long-term endeavor. Typical investments include stocks, mutual funds, and real estate.
Identity theft
is when another individual uses your personal information to obtain credit in your name.
