Chapter 2 Vocab

Question 1

money management

Answer 1

day to day financial activities necessary to manage current personal economic resources while working toward long term financial security

Question 2

safety deposit box

Answer 2

a private storage area at a financial insitution with maximum security for valuables

Question 3

personal balance sheet or aka net worth statement

Answer 3

a financial statement that reports what an individua or a family owns and owes; also called a net worth statement

Question 4

assets

Answer 4

cash and other property with a monetary value

Question 5

liquid assets

Answer 5

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

Question 6

liabilities

Answer 6

amounts owned to others

Question 7

current liabilities

Answer 7

debts that must be paid within a short time, usually less than a year

Question 8

long term liabilities

Answer 8

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

Question 9

net worth

Answer 9

the difference between total assets and total liabilities

Question 10

insolvency

Answer 10

the inability to pay debts when they are due because liabilities far exceed the value of assets

Question 11

cash flow

Answer 11

the actual inflow and outflow of cash during a given time period

Question 12

income

Answer 12

inflow of cash to an indiviudal or a household

Question 13

take home pay

Answer 13

earnings after deductions for taxes and other items; also called disposable income

Question 14

discretionary income

Answer 14

money left over after paying or housing, food, and other necessities

Question 15

budget

Answer 15

a specific plan for spending income

Question 16

budget variance

Answer 16

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

Question 17

budget deficit

Answer 17

the amount by which actual spending exceeds planned spending

Question 18

budget surplus

Answer 18

the amount by which actual spending is less than planned spending

Question 19

formula for personal balance sheet or networth statement

Answer 19

items of value - net worth = amounts owed

Question 20

steps to balance sheet

Answer 20

listing items of value
determine liabilities
compute networth

Question 21

formula for cash flow statement

Answer 21

total cash received + cash outflows = cash surplus or deficit

Question 22

steps for cash flow statement

Answer 22

record income
record outflows
determine net cash flow

Question 23

debt ratio

Answer 23

liabilities / net worth

• shows relationship between debt and net worth

Question 24

current ratio

Answer 24

liquid assets/ current liabilities

• high current ratio is desirable to have cash to pay bills

Question 25

liquidity ratio

Answer 25

liquid assets/ monthly expenses - indicates the number of months in which living expenses can be paid if an emergency arises

Question 26

debt payments ratio

Answer 26

monthly payments/ take home pay - indicates how much or a person's earnings goes for debt payments

Question 27

savings ratio

Answer 27

amount saved each month/ gross income - at least 10%

Question 28

budget steps

Answer 28

``` setting goals estimate income budget emergency funds and savings budget fixed expenses budget variable expenses record spending amounts review ```

Question 29

dual income households saving technique: pooled income

Answer 29

incomes combined and bills paid from pool

Question 30

dual income households saving technique: sharing the bills

Answer 30

each responsibile for pre determined bills

Question 31

dual income households saving technique: 50/50

Answer 31

each contribute equally to pool

Question 32

dual income households saving technique: proportionate contribution

Answer 32

each contribute percentage of his/her income