Chapters 1-3

Question 1

Personal financial planning

Answer 1

The process of managing your money to achieve personal economic satisfaction

Question 2

Financial plan

Answer 2

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities

Question 3

Adult life cycle

Answer 3

The stages in the family situation and financial needs of an adult

Question 4

Economics

Answer 4

The study of how wealth is created and distributed

Question 5

Inflation

Answer 5

A rise in the general level of prices
Most harmful to people with fixed incomes

Question 6

Types of Financial Goals

Answer 6

Short term goals
Intermediate goals
Long term goals

Question 7

Short term goal

Answer 7

Achieved within the next year or so, like saving for a vacation or paying off small debts

Question 8

Intermediate Goals

Answer 8

Within a time frame of two to five years

Question 9

Long term goals

Answer 9

More than five years, such as retirement, college funds, or the purchase of a home

Question 10

SMART financial approach

Answer 10

S- specific
M- measurable
A- action oriented
R- realistic
T- time based

Question 11

Opportunity cost

Answer 11

What you give up when you make a choice, also called a trade off (like giving up down time to work extra hours and vice versa)

Question 12

Interest calculations

Answer 12

Amount in savings × annual interest rate × time period = interest
Example: $500 deposited at 6% for 6 months
500 × .06 × 1/2= 15 so $15 is the interest

Question 13

Future value

Answer 13

The amount to which current savings will grow based on a certain interest rate and a certain time period

Question 14

Annuity

Answer 14

A series of equal deposits or payments

Question 15

Present Value

Answer 15

The current value for a future amount based on a particular interest rate for a certain period of time

Question 16

Bankruptcy

Answer 16

A set of federal laws allowing you to either restructure your debts or remove certain debts

Question 17

Time value of money

Answer 17

Increase in an amount of money as a result of interest earned

Question 18

Values

Answer 18

Ideas and principles that a person considers to be correct, desirable and important

Question 19

Money Management

Answer 19

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

Question 20

Balance sheet

Answer 20

Report on what you own and what you owe

Question 21

Assests

Answer 21

Cash and tangible property with a monetary value

Question 22

Liquid assests

Answer 22

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

Question 23

Liabilities

Answer 23

Amounts owed to others but do not include items not yet due, such as next months rent

Question 24

Current liabilites

Answer 24

Debts you must pay within a short time, usually less than a year

Question 25

Long term liabilities

Answer 25

Debts you do not have to pay in full until more than a year from now

Question 26

Net worth

Answer 26

The difference between total assets and total liabilities

Question 27

Insolvency

Answer 27

The inability to pay debts when they are due

Question 28

Cash flow

Answer 28

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

Question 29

Discretionary income

Answer 29

Money left over after housing, food, and other necessities

Question 30

Deficit

Answer 30

When actual spending exceeds planned spending

Question 31

Surplus

Answer 31

When actual spending is less than planned spending

Question 32

Excise tax

Answer 32

A tax imposed by federal and state governments on specific goods and services

Question 33

Estate tax

Answer 33

Imposed on the value of a person's property at the time of death

Question 34

Inheritance tax

Answer 34

Tax levied on the value of property bequeathed by a deceased person

Question 35

Taxable income

Answer 35

The net amount of income, after allowable deductions, on which income tax is computed

Question 36

Earned income

Answer 36

Wages, salary, commission, fees, tips, and bonuses

Question 37

Investment income

Answer 37

Money received in the form of dividends, interest, or rent from investments

Question 38

Passive income

Answer 38

Results from business activities in which you do not actively participate, such as limited partnership or rental property that you do not actively manage

Question 39

Exclusion

Answer 39

An amount not included in gross income

Question 40

Adjusted Gross Income (AGI)

Answer 40

Gross income after certain reductions have been made

Question 41

Tax shelters

Answer 41

Investments that provide immediate tax benefits and a reasonable expectation for a future financial return

Question 42

Marginal tax rates

Answer 42

10-37% rate based on and applied to your income

Question 43

Average tax rate

Answer 43

Total tax due divided by taxable income

Question 44

Tax credit

Answer 44

An amount subtracted directly from the taxes owed

Question 45

Tax audit

Answer 45

A detailed examination of your tax return by the IRS

Question 46

Tax avoidance

Answer 46

The use of legitimate methods to reduce ones taxes

Question 47

Tax evasion

Answer 47

The use of illegal activities to reduce ones taxes

Question 48

Capital gains

Answer 48

Profits from the sale of a capital asset such as stocks, bonds, or real estate