Econ

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personal fiancial planning main goal

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put money to work and livin within ur mean

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higher intersest rates can be caused by

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lower money supple

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liquidity

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ability to convert financial resources into usable cash with ease

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savings component of financial planning

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poor decisions can lead to bankruptcy

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first step of financial planning

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analyze your current personal and financial situation

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implement the financial plan

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using the services of financial institutions

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analyze your current personal and financial situation

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when changes in income, values, family situations

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taxable income

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income tax is used to compute this

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earned income

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money received by an individual for personal effort

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investment income

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money received in the form of dividends or interest

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passive income

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earnings from a limited partnership

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alimony payments

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deducted from gross income to obtain adjusted gross income

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standard deduction

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set amount on which no taxes are paid

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itemized deductions

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expenses that a taxpayer is allowed to deduct from gross income

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real estate property taxes

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expense thawould be included in the itemized deductions

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dependent

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qualify a person for an exemption when computing taxable income

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child and dependent care expenses

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example of tax credit

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form 1040 is most helpful for a person who

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itemizes deductions

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tax avoidance

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use of legitimate methods to reduce ones taxes

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variable expense

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ost that changes significantly from period to period, such as week to week, month to month, quarter to quarter or year to year
(telephone bill)

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budget variance

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diff bw the amount budgeted and actual amount

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budget deficit

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actual expenses are greater than planned expenses

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physical budget

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an effort to actually see what funds are available for various expenses

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decrease in net worth

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expenses greater than income for a month

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long-term goal

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income for retirement

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take-home pay

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total earnings of a person less deductions for taxes and other items

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balance sheet

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used to determine a persons solvency

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disposable income

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earnings after deductions for taxes and other items

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3 major money management activity

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storing and maintaining personal financial records and documents
-creating and implementing a plan for spending and saving
-creating personal financial statements

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fixed expenses

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fixed expense is a cost that does not change from period to period or that changes only very slightly
-mortgage or rent payments, car payments, real estate taxes and insurance premiums.

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a trust has the purpose of

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managing the assets of a person

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asset management account

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all-purpose account that provides several services

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Short-term savings instruments

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use this when interest rates and rising

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demand deposits

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aka checking accounts

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time deposits

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consist of savings accounts

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profits from a mutual savings bank go to

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depositors

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advantage of credit unions

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lower cost personal loans

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mortgage company

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financial institution organized for the main puppose to provide loans to purchase homes

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convenience factor for selecting a financial institution

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business hours and locations

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share account

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sacvings account at a credit union

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a certificate of deposit usually has

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limited liquidity

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savings plans covered by federal deposit insurance

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a passbook account
-money market account
-certificate of deposit

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yield

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rate of return on a savings account

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installment credit
(closed-end credit)

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-has a fixed number of payments
ex. mortgage loan

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revolving credit

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does not have a fixed number of payments

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line of credit

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maximum amount of credit you are allowed by creditor

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installment sales credit

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loan that allows you to receive merchandise such as a refrigerator or furniture

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revolving check credit

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prearranged loan for a specified amount that you can use by writing a special chekc

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source of the least expensive loan

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parents or family member

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often you can obtain medium-priced loans from

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commercial banks and credit unions

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most expensive loans come from

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finance companies

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debt-to-equity

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calculated by dividing total liabilities by net worth

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character

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borrowers attitude towards his credit obligations

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capacity

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borrowers financial ability to meet credit obligations

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capital

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refers to the borrowers assets or net worth

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collateral

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valuable asset pledged to assure loan payments and subject to seizure upon default

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fiat money

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has no intrinsic value