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25 Cards in this Set
- Front
- Back
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assets
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what you own in cash or value of item owned
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liquid asset
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cash or readily converted with little loss of value
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real property
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immovable property
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personal property
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movable property, (autos)
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investments
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assets that return rather than provide a service (socks)
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liabilities
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debt owed (current: within 1 yr) (longterm) due 1 yr or more from the date of the balance sheet)
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consumer installment loans
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loan (vehicle,vacation, or equipment) with fixed payment period
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Net worth
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= total assets - total liabilities
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insolvency
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condition in which you owe more money that your assets are worth (net-worth is negative or zero)
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Chapter 7 bankruptcy
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straight bankruptcy- persons asstes given to trustee to be sold and distributed to creditors
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Chapter 13 bankruptcy
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wage earner plan-develop plan to pay off debt over 3-5 yrs.
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Expeditures
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cash out/expenes-flexible/fixed,certain/uncertain
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fixed, certain expenditures
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necessity, amount known-rent
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fixed, uncertain
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nessesity, not known ;utilites, phone bill
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flexible, uncertain expend:
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not necessarily, not known - vacation
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flexible certain
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not necesssity, known - hair cut, health club
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solvency ratio
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net worth / total assets (higher is better)
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liquidity ratio
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liquid assets / total current debt (higher is better) ... total current debt: all unpaid bills, revolving; one yrs worth of mortgages, loans (not parent loans)
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Debt service ratio
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loan payments / gross income (lower is better) Loan payments= mort, car,furniture, credit cards etc. loans form parents
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Savings ratio
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cash surplus(+savings) / annual net income (income-taxes)
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ratios in good finacial standing
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Solvency: >.5
Liquidity: >.5 Debt service: <.35 Savings: > .05 |
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Steps to balancing your final budget
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estimate income, estimate expenditures, see if budget balances, finaliz, implement
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Define different types of credit
which is more risky |
1.First mortgage
2.second mortgage (equity installment loan) 3.Equity credit line (more risky, cause your barrowing against your house) |
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Objective costs and benefits to using credit
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Costs: more expensive(low inflation) due to intrest
-miscellaneous charges (memberships) Benefits- cheaper to buy now(high inflation rates) -tax advantages -better exchange rates abroad |
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Subjective costs and benefits of using credit
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Costs- risk of overspending, impulse buying
Benefits- obtaining goods now and paying over time - convenience -safely carry large amounts of cash |
