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Personal Finance1 Flashcards

1
Q

Define 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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2
Q

Define Adult Life cycle

A

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

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3
Q

Define Economics

A

The study of how wealth is created and distributed

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4
Q

Define Inflation

A

A rise in general level of prices

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5
Q

Define Deflation

A

A decline in prices

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6
Q

What is the rule of 72?

A

72 divided by %interest per year = #of years to double

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7
Q

Define Values

A

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

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8
Q

Define hidden inflation

A

The cost of necessities inflates faster than nonessential items

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9
Q

Define personal financial planning

A

The process of managing your money to achieve personal economic satisfaction

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10
Q

Define interest rate

A

Cost of money

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11
Q

Define risk premium

A

The general risk of am investment, based on time and inflation, and uncertainty of getting money back

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12
Q

Define Consumer price index

A

Avg price change in set basket of items

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13
Q

Define bankruptcy

A

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

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14
Q

What are the differ lengths of time for the goals?

A

LT 5 or more years
Intermediate 2-5 years
ST in a year or so

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15
Q

Define opportunity cost

A

What a person gives up by making a choice

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16
Q

How do you set a smart financial goal?

A 
Specific
Measurable
Action Oriented 
Realistic 
Time based
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17
Q

Define time value of money

A

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

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18
Q

Define future value

A

The amt to which current savings will increase based on a certain interest rate and a certain time period, also known as compounding

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19
Q

Define present value

A

The present value of the money desired in the future based on interest rate and time

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20
Q

What is compounding

A

Amt to which current savings will increase based on interest rates and time period

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21
Q

What is discounting?

A

The present value of the money desired in the future based on interest rate and time

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22
Q

What are the 6 steps of financial planning process?

A 
Determine financial situation 
Develop financial goals
Identify alternative courses of action
Evaluate alternatives
Create and implement financial action plan
Revise review plan
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23
Q

What is our federal reserve system?

A

The central bank of US

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24
Q

How do we measure interest? How does it impact people on fixed income?

A

Measure it in percentage affects fixed income people the worst

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25
Define annuity
Set sum of money being deposited consistently
26
Define money management
Day to day financial activities necessary to manage current personal economic resources while working toward long term financial security
27
Define balance sheet
A financial statement that reports what an individual or a family owns and owes, also called a net worth statement or statement of financial position
28
Define assets
Cash or other property with monetary value
29
Define liquid assets
Cash and items that can easily be converted to cash
30
Define liabilities
Amounts owed to others
31
Define current liabilities
Debts that must be paid within a short time, usually less than a year
32
Define long term liabilities
Debts that are not required to be paid in full until more than a year from now
33
Define net worth
The difference between total assets, and total liabilities Assets-Liabilities=Net Worth
34
Define insolvency
Inability to pay debts when they are due because liabilities for exceed the value of assets
35
Define cash flow
The actual inflow and outflow of cash during a given time period
36
Define cash flow statement
A financial statement that summarizes cash receipts and payments for a given period, also called a personal income and expenditure statement
37
Define income
Inflows of cash to an individual or a household
38
Define take home pay
Earnings after deductions for taxes and other items, also called disposable income
39
Define discretionary income
Money left over after paying for housing food and other necessities
40
Define fixed expenses
Payments that don't change from month to month
41
Define variable expenses
Flexible payments that change from month to month
42
Define budget
A specific plan for spending ones income, also called a spending plan
43
Define budget variance
The difference between the amt budgeted and the actual amt received or spent
44
Define deficit
The amount by which actual spending exceeds planned spending
45
Define surplus
The amount by which actual spending is less than planned spending
46
What are the 7 steps used to build a budget
``` Set financial goals Estimate income Budget an emergency fund and savings Budget fixed expenses Budget variable expenses Record spending ammounts Review spending and saving ```
47
What are techniques to save money
Save 5-10% Payroll deduction Random ways to save
48
Define investment assets
Funds set aside for long term financial needs
49
Define excise tax
A tax imposed on specific goods and services such as gas, cigarettes, alcohol tires and air travel
50
Define estate tax
A tax imposed on the value of a persons property at time of death
51
Define inheritance tax
A tax on the value of property bequeathed by a deceased person
52
Define taxable income
Net amount of income after allowable deductions, on which income tax is computed
53
Define earned income
Money received for personal effort, such as wages salary commissions fees tips and bonuses
54
Define investment income
Money received in the form of dividends, interest, rent from investment, also called portfolio income
55
Define passive income
Income resulting from business activities in which you do not actively participate
56
Define exclusion
An amount not included in gross income
57
Define tax exempt income
Income that is not subject to tax
58
Define tax deffered income
Income that will be taxed at a later date
59
Define AGI
Gross income reduced by certain adjustments, such as contributions to an individual retirement account and alimony payments
60
Define tax deduction
An amount subtracted from adjustment gross income to arrive at taxable income
61
Define standard deduction
A set amount on which no taxes are payed
62
Define itemized deductions
Expenses that can be deducted from AGI
63
What's an exemption
A deduction from AGI for yourself spouse qualified dependents
64
Define marginal tax rate
The rate used to calculate tax on the last and next dollar of taxable income
65
Define average tax rate
Total tax divided by taxable income
66
Define tax credit
An amount subtracted directly from the amount of taxes owed
67
Define tax avoidance
The use of legitimate methods to reduce ones taxes
68
Define tax evasion
The use of illegal actions to reduce ones taxes
69
Define capital gains
Profits from the sale of a capital asset such as stocks, bonds, or real estate
70
Define tax audit
A detailed examination of your tax return by the irs

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