Personal Finance Exam 1 (Chapter 1-5)

Front 1

Liquidity

Back 1

Converting non cash assets into cash, having access to your money when you need it

Front 2

Flexibility

Back 2

Planning for the unplanned

Front 3

Protection

Back 3

Financial protection from catastrophic events. Insurance is protection

Front 4

Personal financial planning process, 5 steps

Back 4

1. Evaluate financial health

2. Define financial goals

3. develop plan of action

4. Implement your plan

5. Review your progress

Front 5

3 parts of financial goals

Back 5

1. Short term

2. Intermediate term

3. Long term

Front 6

Financial life cycle

Back 6

Stage 1. Wealth accumulation

Stage 2. Golden years

Stage 3. Retirement

Front 7

Blue book

Back 7

Listing of used car prices

Front 8

Current debt

Back 8

Total of your unpaid bills (utility, electric, cable)

Front 9

Long term debt

Back 9

Debt on large assets (like a house)

Front 10

Income statement

Back 10

Where your money came from, and where it went

Front 11

Fixed expenditure

Back 11

Back (Definition)

Expenditure which you have no control (constant rate)

Front 12

Variable expenditure

Back 12

Expenditure which you have control

Front 13

Expenditure

Back 13

The action of spending funds

Front 14

Budget

Back 14

A plan for controlling inflows and outflows

Front 15

Current ratio

Back 15

A ratio to determine if you have enough liquidity to deal with emergencies

Front 16

Saving ratio

Back 16

Ratio to determine how much you are saving

Front 17

Estate planning

Back 17

Planning for death and the passage of your wealth

Front 18

Compound interest

Back 18

Interest on interest

Front 19

Principal

Back 19

What you started with

Front 20

Reinvesting

Back 20

Taking money you earned on an investment, and putting it back into the investment

Front 21

Compounded annually

Back 21

Interest is received at the end of each year

Front 22

Discount rate

Back 22

Interest rate used to bring future dollars back to present

Front 23

Annuity

Back 23

A series of equal dollar payments coming at the end of each time period for a specific number of time periods

Front 24

Compound annuity

Back 24

Investment that involves putting a certain amount of money at the end of each year for a number of years and letting it grow

Front 25

Future value interest factor of an annuity

Back 25

Multiplier used to determine future value of an annuity

Front 26

Amortized loans

Back 26

Paying off a loan in equal installments over time

Front 27

Perpetuity

Back 27

Annuity that lasts forever (investment pays sane dollar amount and never stops paying)

Front 28

Inflation

Back 28

Economic condition which rising prices reduce purchasing power of money

Front 29

Progressive tax

Back 29

Tax rates increase for higher incomes

Front 30

Tax brackets

Back 30

Income ranges that have same tax rate

Front 31

Personal exemption

Back 31

IRS allowed reduction in income before filing out taxes (wife, kids)

Front 32

Deductions

Back 32

Expenses that reduce taxable income

Front 33

Taxable income

Back 33

Income subject to tax

Front 34

AGI (adjusted gross income)

Back 34

Taxable income from all sources minus specific adjustments

Front 35

Marginal tax rate

Back 35

What percent of your money is taxed

Front 36

Tax deferred

Back 36

Income in which the payment of taxes is postponed

Front 37

Capital assets

Back 37

An asset you own except sticks bonds and real estate

Front 38

Capital gain/capital loss

Back 38

The amount that you can sell something vs what you paid for it

Front 39

10 principles of finance

Back 39

1. The best protection is knowledge

2. Nothing happens without a plan

3. The time value of money

4. Taxes affect personal finance decisions

5. Stuff happens, importance of liquidity

6. Waste not want not

7. Protect against major catastrophes

8. Risk and return go hand and hand

9. Mind games, financial personality

10. Just do it

Front 40

Capital gains tax

Back 40

Taxes on any capital gains

Front 41

Bracket creep

Back 41

The movement into a higher tax bracket when wages are increased because inflation

Front 42

Social security

Back 42

A federal program that provides disability and retirement benefits based on years worked, amount paid, and age

Front 43

FICA

Back 43

Federal insurance contribution act, taxes to your social security and Medicare

Front 44

Medicare

Back 44

Federal governments insurance to provide medical benefits to those over 65

Front 45

State and local income tax

Back 45

Mostly state, local is rare

Front 46

Dependent

Back 46

Someone you support financially

Front 47

Total or gross income

Back 47

The sum of all your taxable income

Front 48

Active income

Back 48

Income that comes from wages or a business (job)

Front 49

Passive income

Back 49

Income that comes from activities in which the tax payer does not actively participate

Front 50

Compound interest

Back 50

Interest on interest

Front 51

IRA

Back 51

A tax deferred retirement savings plan (401k)

Front 52

Home equity loan

Back 52

A loan that uses your home as collateral

Front 53

Exemption

Back 53

A deduction you can take on your return for each person supported by the income listed on your tax return

Front 54

Tax credit

Back 54

Reduce taxes in direct dollar for dollar manner

Front 55

Liquid assets

Back 55

Cash or investments that can easily be converted to cash

Front 56

Schedules

Back 56

Attachments to form 1040 which you provide additional information

Front 57

Audit

Back 57

A tax return examination by the IRS

Front 58

Trust

Back 58

A fiduciary agreement in which one individual holds property for the benefit of another person

Front 59

Income shifting

Back 59

Transferring income from family members in high tax brackets to family members in low tax bracket

Front 60

Deposit type financial institutions

Back 60

Banks

Front 61

Diversification

Back 61

Multiple investments rather than just one to reduce risk

Front 62

Non deposit type financial institutions

Back 62

Something like a stock brokerage firm that doesn't not provide checking and savings account

Front 63

Demand deposit account

Back 63

A type of checking account that pays no interest in your valence

Front 64

Certificate of Deposit (CDs)

Back 64

Savings alternative that provide a fixed interest rate

Front 65

US treasury bills

Back 65

Short term notes of debt issued by the federal government

Front 66

APY (Annual percentage yield)

Back 66

Allows you to easily compare interest rates

Front 67

FDIC (federal deposit insurance company)

Back 67

Federal agency that insures deposits at commercial banks

Front 68

National credit union association

Back 68

Federal agency that insures accounts at credit unions

Front 69

Safety deposit box

Back 69

A storage at banks that holds important documents that are safe

Front 70

Stop payment

Back 70

An order you can give your bank to stop payment on a check you have written

Front 71

Overdraft protection

Back 71

Automatic loan made to your checking account when your account doesn't have enough cash to cover checks that you wrote

Front 72

Personal balance sheet

Back 72

A statement of your financial position on a date. Includes assets ect

Front 73

End

Back 73

End

Front 74

Net worth (equity)

Back 74

A measure of the level of your wealth

Front 75

Fair market value

Back 75

What something can be sold for

Front 76

Tangible asset

Back 76

Physical asset like a car or house