Chpt 2

Question 1

Personal financial management

Answer 1

process of controlling personal income and expenses

Question 2

Income

Answer 2

Income is money coming in.

Question 3

expense

Answer 3

expense is money going out, or spent

Question 4

budget

Answer 4

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.

Question 5

Gross income

Answer 5

Gross income is the amount of money in a paycheck before paying taxes or other deductions.

Question 6

Net income

Answer 6

Net income is the amount of money you have after all taxes and deductions are taken out of your gross pay.

Question 7

Fixed expenses

Answer 7

Fixed expenses are expenses that do not change from month to month, such as a monthly mortgage or rent payment.

Question 8

Flexible expenses (also referred to as variable expenses)

Answer 8

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.

Question 9

money wasters,

Answer 9

money wasters, which are small expenditures that you may not realize are consuming a larger

Question 10

Debt

Answer 10

Debt is money owed

Question 11

loan

Answer 11

large debt that is repaid in smaller amounts over a period of time and has interest added to the payment.

Question 12

Interest

Answer 12

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.

Question 13

Net worth

Answer 13

Net worth is the amount of money that is yours after paying off debt.

Question 14

Personal assets

Answer 14

Personal assets are what you own.

Question 15

liability

Answer 15

liability is an obligation to pay what you owe. If you have a car loan, it is a liability.

Question 16

Character

Answer 16

reflects past behavior toward paying your bills on time, thus communicating to the lender if you will likely repay the loan.

Question 17

Capacity

Answer 17

is your ability to repay the loan; your salary will play an important role in this matter.

Question 18

Collateral

Answer 18

are the assets you own that are used as security to pay the debt,

Question 19

conditions

Answer 19

are the factors that could potentially harm your ability to repay (e.g., a farmer operating in drought conditions)

Question 20

credit report

Answer 20

is a detailed credit history on an individual.

Question 21

Fair Isaac Corporation (FICO) score

Answer 21

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.

Question 22

There are three credit reporting agencies.

Answer 22

They are Equifax, Experian, and TransUnion. Your FICO score is a combination of these agency ratings.

Question 23

automatic deduction plan

Answer 23

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.

Question 24

Saving money

Answer 24

means that you are setting away funds for short-term goals and/or emergencies.

Question 25

Investing

Answer 25

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.

Question 26

Identity theft

Answer 26

is when another individual uses your personal information to obtain credit in your name.