question

Money Management

answer

Day to day financial activities necessary to manage current personal economic resources while working toward long term financial security. Daily spending and savings decisions are central to financial planning - Must be coordinated with needs, goals, and personal situations.

question

Asset

answer

Cash and other tangible property with monetary value.

question

What are the 3 Components of Money Management activities?

answer

1. Storing and maintaining personal financial records and documents. 2. Creating personal financial statements 3 Creating and implementing a plan for spending and saving (budgeting).

question

What a System for Personal Financial Records do:

answer

Provides a basis for: 1 Handling daily business affairs, such as bill paying. 2 Planning and measuring financial progress. 3 Completing required tax reports. 4 making effective investment decisions. 5 Determining available resources for current and future buying.

question

Records in Your Home File

answer

1 Personal and Employment records 2 Money management records 3 Tax records 4 Financial services records 5 Credit records 6 Consumer purchase and auto records 7 Housing records 8 Insurance records 9 Investment records 10 Estate planning and retirement records

question

Safe Deposit Box

answer

A private storage area at a financial institution with maximum security for valuables.

question

What types of financial records and documents should be kept in a Safe-Deposit Box?

answer

A safe-deposit box should be used to store financial records that are difficulty to replace and that are not needed on a day-to-day basis. Examples of items stored in a safe-deposit box include Birth, marriage and death certificates, citizenship papers, stock certificates, contracts, insurance policies, a record of personal belongings, mortgage papers, rare coins, collectibles, and other rare and valuable items.

question

What types of financial records and documents should be kept in a Computer?

answer

- Current and past budgets - Summary of checks written and other banking transaction - Past Income Tax returns - Account summaries, performance results of investments - Digital versions of wills, estate plans and other documents.

question

Balance Sheet

answer

A financial statement that reports what an individual or family owns and owes: also called net worth statement or statement of financial position.

question

Items of Value minus ( - ) Amount Owed (what you own) (what you owe)

answer

= Net Worth (your wealth)

question

Components of a Balance Sheet

answer

Step 1 - List Items of Value - Liquid Asset - Real Estate - Personal Possessions - Investment Assets Step 2 - Determine Amounts Owed - Current Liabilities (<1 year) - Long-term Liabilities Step 3 - Compute your Net Worth Assets - Liabilities = Net Worth Assets = Liabilities - Net Worth

question

Assets

answer

Cash and other property with a monetary value

question

Liquid Assets

answer

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

question

Liabilites

answer

Amounts owed to others

question

Current Liabilities

answer

Debts that must be paid within a short time, usually within a year.

question

Long-Term Liabilities

answer

Debts that are not required to be paid in full until more than a year from now.

question

Net Worth

answer

The difference between total assets and total liabilities. Measurement of current financial position Net Worth ? Cash Availalble

question

Ways to Increase Net Worth

answer

- Increase Savings - Reduce spending - Increase the value of investments and other possessions. - Reduce Amounts owed

question

Assets minus Liabilities Equals?

answer

= Net Worth

question

Insolvency

answer

The Inability to pay debts when due because liabilities far exceed the value of assets

question

Cash Flow

answer

The Actual inflow and outflow of cash during a given time period.

question

Income

answer

Money received, especially on a regular basis, for work or through investments.

question

Cash Flow Statement

answer

Also called Personal Income and Expenditure Statement. A financial statement that summarizes cash receipts and payments for a given period.

question

Take-home Pay

answer

Earnings after deductions for taxes and other items; also called Disposable Income.

question

Money management activities refers to long-term investment decisions.

answer

False

question

Budget

answer

A specific plan for spending income; also called a Spending Plan.

question

Helps you: - Live within your Income - Spend Money Wisely - Reach Financial Goals - Prepare for Financial Emergencies - Develop wise Financial Management habits

answer

Budget

question

Plan for Effective Budgeting

answer

Step 1: Set Financial Goals Step 2: Estimate Income Step 3: Budget and Emergency Fund and Savings Step 4: Budget Fixed Expenses Step 5: Budget Variable Expenses Step 6: Record Spending Amounts Step 7: Review Spending and Saving Patterns - Review Financial Progress - Revise Goals and Budget Allocations

question

SWOT Analysis

answer

Strengths Weaknesses Opportunities Threats

question

What are the Characteristics of Successful Budgeting?

answer

- Well Planned - Realistic - Flexible - Clearly Communicated

question

Selecting a Budgeting System

answer

Mental Budget - Appropriate if Financial resources and responsibilities are limited. Physical Budget - Envelopes, folders, or containers. Written Budget - On paper. Computerized Budget - Spreadsheet or specialized software.

question

Money Management and Achieving Financial Goals

answer

1. Your Balance Sheet: Snapshot of where you are now 2. Your Cash Flow Statement: What you received and spend over a specific period. 3. Your Budget: Planning spending and saving achieve financial goals.

question

Selecting a Saving Technique

answer

1. Write a check each payday or electronic transfer and deposit in a savings account. 2. Use payroll deduction to deposit a certain amount in savings (direct deposit). 3. Save coins or spend less on certain items.

question

Calculating Savings Amount

answer

1. Convert savings goals into specific amounts 2. Use savings and investment plans to grow your money. 3. Use time value of money to calculate progress toward financial goals.

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Discretionary Income

answer

Money left over after paying for housing, food, and other necessities.

question

Budget Variance

answer

The difference between the amount budgeted and the actual amount received or spent.

question

Deficit

answer

The amount by which actual spending exceeds planned spending.

question

Surplus

answer

The amount by which actual spending is less than planned spending.

question

Copies of tax returns should be kept for at least...

answer

7 years.

question

Rule of thumb when saving money for an emergency fund is to set aside:

answer

3-6 months of living expenses.

question

Is Jewelry a Liquid Asset?

answer

Jewelry is not a Liquid Asset.

question

Are retirement accounts liquid assets?

answer

No.

question

Is home equity a liquid asset?

answer

No.

question

How long to keep birth certificates?

answer

Permanently.

question

How long to keep social security data?

answer

Permanently.

question

How long to keep records on property and investments?

answer

As long as you own these items.

question

How long to keep copies of tax data?

answer

7 Years.

question

How long to keep documents related to the purchase and sale of real estate?

answer

Indefinitely

question

Net Worth

answer

Total Assets - Total Liabilities

question

Debt Ratio

answer

Shows relationship between debt and net worth; a low Debt Ratio is Best. Liabilities ? Net Worth.

question

Current Ratio

answer

A high current ratio is desirable to have cash available to pay bills. Liquid assets ? Current Liabilities.

question

Liquidity Ratio

answer

Indicates the number of months in which living expenses can be paid if an emergency is arises; a high Liquidity Ratio is desirable. Liquid Asset ?Monthly Expenses.

question

Debt-payment Ratio

answer

How much of a person's earnings goes for debt payments (Excluding Home Mortgage); most financial advisers recommended a Debt-payment Ratio of less than 20%. Monthly Credit Payments ?Take-home Pay

question

Savings Ratio

answer

Financial experts recommend monthly savings of 5%-10%. Amount Saved each Month ?Gross Income

question

Cash Surplus (or Deficit) Ratio

answer

Total Inflows - Total Outflows

question

Single Person

answer

Short-Term Goals (Less than 2 years) - Complete College - Pay off auto loan Intermediate Goals (2-5 years) - Take a vacation to Europe - Pay off education loan - Attend graduate school Long-Term Goals (over 5 years) - Buy a vacation home in the mountains - Provide for retirement income

question

Married Couple (no children)

answer

Short-Term Goals (Less than 2 years) - Take an annual vacation - Buy a new car Intermediate Goals (2-5 years) - Remodel home - Build a stock portfolio Long-Term Goals (over 5 years) - Buy a retirement home - Provide for retirement income

question

Parent (young children)

answer

Short-Term Goals (Less than 2 years) - Increase life insurance - Increase savings Intermediate Goals (2-5 years) - Increase investments - Buy a new car Long-Term Goals (over 5 years) - Accumulate a college fund for children - Move to a larger home

question

When one money management decision is selected, something else must be given up.

answer

True

question

Opportunity costs are only associated with money management decisions involving long-term financial security.

answer

False

question

Financial records that may need to be referred to on a regular basis should be kept in a safe-deposit box.

answer

False

question

A budget is a record of how a person or family has spent their money.

answer

False

question

Personal records include birth certificate, marriage license, and social security card.

answer

True

question

Most income tax documents and records should be kept in a safe-deposit box.

answer

False

question

A personal balance sheet reports your income and expenses.

answer

False

question

A person's net worth is the difference between the value of the items owned and the amounts owed to others.

answer

True

question

Furniture, jewelry, and an automobile are examples of liquid assets.

answer

False

question

Current liabilities are amounts that must be paid within a short period of time, usually less than a year.

answer

True

question

Insolvency is a result of having more liabilities than assets.

answer

True

question

A personal cash flow statement presents income and outflows of cash for a given time period, such as a month.

answer

True

question

Take-home pay is a person's earnings after deductions for taxes and other items.

answer

True

question

Medical expenses, clothing, and telephone are examples of fixed expenses.

answer

False

question

If expenses for a month are greater than income, an increase in net worth will result.

answer

False

question

A person's lifestyle is a reflection of his or her values, goals, career, and family situation.

answer

True

question

A personal cash flow statement can serve as the basis for the budget categories used by an individual or family.

answer

True

question

Definite financial obligations are referred to as variable expenses.

answer

False

question

If budgeted spending is less than actual spending, this is referred to as a deficit.

answer

True

question

Most Americans have an adequate savings for emergencies.

answer

False

question

"Pay yourself first" is an attitude that can assure building savings for the future.

answer

True

question

Money management refers to: A) preparing personal financial statements. B) day-to-day financial activities. C) trade-offs that occur with financial decisions. D) storing financial records for easy access. E) spending money on current living expenses.

answer

B) day-to-day financial activities.

question

Opportunity cost refers to: A) current spending habits. B) changing economic conditions that affect a person's cost of living. C) storage facilities to make financial documents easily available. D) trade-offs associated with financial decisions. E) avoiding the use of consumer credit.

answer

D) trade-offs associated with financial decisions.

question

Which of the following financial documents would most likely be stored in a safe-deposit box? A) W-2 forms B) personal financial statements C) warranties D) savings certificates E) checking account statements

answer

D) savings certificates

question

An example of a personal and employment document is a : A) budget. B) passbook. C) Social Security card. D) property tax bill. E) lease.

answer

C) Social Security card.

question

A broker statement is an example of a(n) ____________ record. A) investment B) insurance C) estate planning D) tax E) consumer purchase

answer

A) investment

question

Warranties are commonly associated with ____________ purchases. A) investment B) insurance C) credit D) financial service E) consumer

answer

E) consumer

question

Which of the following are considered to be personal financial statements? A) Budget and credit card statements B) Balance sheet and cash flow statement C) Checkbook and budget D) Tax returns E) Bank statement and savings passbook

answer

B) Balance sheet and cash flow statement

question

A home file should be used for : A) storing all financial documents and records. B) financial records for current needs. C) documents that require maximum security. D) obsolete financial documents. E) records that are difficult to replace.

answer

B) financial records for current needs.

question

A personal balance sheet presents A) amounts budgeted for spending. B) income and expenses for a period of time. C) earnings on savings and investments. D) items owned and amounts owed. E) family financial goals.

answer

D) items owned and amounts owed.

question

The current financial position of an individual or family is best presented with the use of a(n) A) budget. B) cash flow statement. C) balance sheet. D) bank statement. E) time value of money report.

answer

C) balance sheet.

question

A family with $45,000 in assets and $22,000 of liabilities would have a net worth of A) $45,000. B) $23,000. C) $22,000. D) $67,000. E) $41,000.

answer

B) $23,000.

question

Items with a monetary worth are referred to as A) liabilities. B) variable expenses. C) net worth. D) income. E) assets.

answer

E) assets.

question

Items of value less amounts owed to others equals A) net assets. B) net worth. C) total liabilities. D) total income. E) budgeted expenses.

answer

B) net worth.

question

An individual retirement account is an example of a(n) ____________ asset. A) liquid B) common C) investment D) household E) budgeted

answer

C) investment

question

Liquid assets refer to: A) amounts that must be paid soon. B) items that are easily converted to cash. C) total income available to a family for spending. D) the value of investments. E) amounts on which taxes must be paid.

answer

B) items that are easily converted to cash.

question

Liabilities are amounts representing: A) debts. B) items of value. C) living expenses. D) taxable income. E) current assets.

answer

A) debts.

question

Current liabilities differ from long-term liabilities based on : A) the amount owed. B) the financial situation of the creditor. C) the interest rate charged. D) when the debt is due. E) current economic conditions.

answer

D) when the debt is due.

question

Ben Chase needs to pay off some of his debts over the next few months. Which item on his balance sheet would help him decide what amounts are due in the near future? A) The budget variance B) Investment assets C) Long-term liabilities D) Current assets E) Current liabilities

answer

E) Current liabilities

question

Which of the following would be considered a long-term liability? A) A charge account payment B) A mortgage C) An installment loan D) An amount due for taxes E) The amount due on a credit card

answer

B) A mortgage

question

A person's net worth is computed by A) adding assets and liabilities. B) deducting current living expenses from total assets. C) subtracting total liabilities from total assets. D) subtracting assets from current liabilities. E) adding liabilities and budgeted expenses.

answer

C) subtracting total liabilities from total assets.

question

Which of the following situations is a person who could be insolvent? A) Assets $56,000; annual expenses $60,000 B) Assets $78,000; net worth $22,000 C) Liabilities $45,000; net worth $6,000 D) Assets $40,000; liabilities $45,000 E) Annual cash inflows $45,000; liabilities $50,000

answer

D) Assets $40,000; liabilities $45,000

question

A person's net worth would increase as a result of A) reduced amounts owed to others. B) reduced earnings. C) increased spending for current living expenses. D) decreased value of personal possessions. E) decreased value of investments.

answer

A) reduced amounts owed to others.

question

A cash flow statement reports a person's or a family's A) net worth. B) current income and payments. C) plan for spending. D) value of investments. E) balance of savings.

answer

B) current income and payments.

question

Which of the following presents a summary of income and outflows for a period of time? A) A balance sheet B) A bank statement C) An investment summary D) A cash flow statement E) An asset report

answer

D) A cash flow statement

question

Total earnings of a person less deductions for taxes and other items is called A) budgeted income. B) gross pay. C) net worth. D) total revenue. E) take-home pay.

answer

E) take-home pay.

question

A common deduction from a person's paycheck is for A) interest. B) taxes. C) rent. D) unemployment. E) current liabilities.

answer

B) taxes.

question

Payments that do not vary from month to month are ____________ expenses. A) fixed B) current C) variable D) luxury E) budgeted

answer

A) fixed

question

Gerard Pique wants to reduce his fixed expenses. What action would be appropriate? A) Get a part-time job B) Eat more meals at home than in restaurants C) Find a place to live with a lower rent D) Save more money for the future E) Buy on credit for items than might cost more later

answer

C) Find a place to live with a lower rent

question

Which of the following payments would be considered a variable expense? A) Rent B) An installment loan payment C) A mortgage payment D) A monthly parking fee E) A telephone bill

answer

E) A telephone bill

question

A decrease in net worth would be the result of A) income greater than expenses for a month. B) expenses greater than income for a month. C) assets greater than expenses. D) increased earnings on the job. E) income and expenses equal for a month.

answer

B) expenses greater than income for a month.

question

During the past month, Jennifer Ernet had income of $3,000 and a decrease in net worth of $200. This means Jennifer's payments for the month were A) $3,200. B) $3,000. C) $2,800. D) $200.

answer

A) $3,200.

question

Improvements in a person's financial position are the result of A) increased liabilities. B) reductions in earnings. C) increased savings and investments. D) increased purchases on credit. E) lower amounts deposited in savings.

answer

C) increased savings and investments.

question

To determine a person's solvency, which financial document should be consulted? A) Cash flow statement B) Budget C) Debt consolidation statement D) Balance sheet E) Credit report

answer

D) Balance sheet

question

An example of a long-term goal for a young couple may be : A) a new car. B) reduction of amounts owed on credit cards. C) increased savings. D) income for retirement. E) funds for a vacation.

answer

D) income for retirement.

question

A major expenditure for most families is A) insurance. B) contributions. C) clothing. D) utilities. E) transportation.

answer

E) transportation.

question

The payment items that should be budgeted first are A) variable expenses. B) investment funds. C) fixed expenses. D) unplanned living expenses.

answer

C) fixed expenses.

question

Changes in the cost of living are A) different in various geographic areas. B) the same for different locations. C) constant from month to month. D) the same for all goods and services. E) not a factor when preparing a budget.

answer

A) different in various geographic areas.

question

The difference between the amount budgeted and the actual amount is called a A) financial plan. B) current liability. C) change in net worth. D) budget variance. E) variable living expense.

answer

D) budget variance.

question

If a family planned to spend $370 for food during March but only spent $348, this difference would be referred to as a A) surplus. B) deficit. C) fixed living expense. D) budget reduction. E) contribution to net worth.

answer

A) surplus.

question

A budget deficit would result when a person's or family's A) actual expenses are less than planned expenses. B) actual expenses are greater than planned expenses. C) actual expenses equal planned expenses. D) assets exceed liabilities. E) net worth decreases.

answer

B) actual expenses are greater than planned expenses.

question

The Crown family has a difficult time staying on a budget. In an effort to actually see what funds are available for various expenses, a ____________ budget would be most appropriate. A) written B) computerized C) physical D) deficit E) mental

answer

C) physical

question

When it comes to savings, most Americans A) have an adequate emergency fund. B) use several different savings techniques. C) find saving difficult. D) keep substantial amounts in a regular savings account. E) reduce the amount they save during their working life.

answer

C) find saving difficult.

question

What are the main components of a personal balance sheet and a cash flow statement? What is the main purpose of each of these personal financial statements?

answer

A balance sheet reports the current financial position of an individual or family; it includes assets, liabilities, and net worth. A cash flow statement is designed to report the actual inflow and outflow of cash during a given time period for a person; it includes current income and cash payments.

question

Darlene Elkin has the following financial amounts: checking accounts $850, savings account $3,500, credit card balance $300, jewelry $1,600, real estate valued at $78,000, a mortgage on the restate of $23,000. What is the total of Darlene's assets? What actions could she take to increase her net worth?

answer

Darlene's total assets amount to $83,950. For Darlene to increase her net worth, she should increase her income, decrease her living expenses, increase the amount in savings, or reduce amount owed.

question

Diane Rossiter lives with her two sons, ages 6 and 9. They have had difficulty managing their finances. What purposes could a budget serve for the Rossiters? What actions would you suggest for the budgeting process to be successful?

answer

A budget can help a person or family live within their income, spend money wisely, reach financial goals, prepare for financial emergencies, and develop wise financial management habits. A successful budget should be well-planned, realistic, flexible, and clearly communicated.

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