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Flashcards in Financial Assessment and Tools Deck (30):

How do you calculate Net Worth?



How do you calculate Liquidity Ratio?

Monetary Assets / Monthly expenses
Recommended should be 3-6 months


True or False. Ratios can be used to assess clients' financial situations and use the information to help write goals.



What is a cash flow statement?

Income - Expenses


How do you calculate Debt to Income Ratio?

(Annual debt repayments/yearly gross income) x 100
36% or less is recommended


What should goals be based on?

Goals follow from your values


Define financial strategies

Pre-established plans of action to be implemented


What is the purpose and the components of a net worth statement?

Financial snapshot of your current situation. Includes information on what you own, owe and what the net result would be if you paid off all of your debts.


Give examples of Monetary Assets

savings or near cash items that can be readily converted to cash (CDs, tax refunds due, checking/savings accounts)


What are some Tangible Assets?

Personal property used in every day life. Furniture, vehicles, house. They are items that generally depreciate over time.


What are examples of Investment Assets?

Stocks, bonds, IRAs, life insurance, real property, retirement accounts.


When is a person insolvent?

When they have more debts than assets.


What is another way to say Cash Flow Statement?

Income and Expense Sheet


What is the purpose and the components of a Cash Flow Statement?

Where your money is coming from and where it went on a statement during a fixed period of time. It includes income, expenses and any surplus. Shows whether you are living within your means.


What are fixed expenses? And give some examples

Usually paid in the same amount during each time period. Typically inflexible and contractual. (Rent, mortgage, car note, loans, insurance, taxes).


What are variable expenses? Give examples

Expenditures over which you have considerable control. Food, entertainment, clothing, utilities, education, furnishing, vacations, credit card payments, savings, personal care.


What can be learned from a Liquidity Ratio?

The number of months in which living expenses can be paid should an emergency arise.


What can be learned from a debt-to-income ratio?

Do I have enough assets to meet my debt obligations? Do I have enough liquidity to pay for emergencies?


List some ways to reduce spending

Reduce variable expenses, have savings automatically deposited directly from your paycheck. Sell an asset.


What should be done before budgeting?

Understand your expenses and income. Understand where you want to be in the future and take action to set financial goals.


Define Disposable Income

Also known as take-home pay which is available for budgeting.


Define Discretionary Income

Controllable expenses used to pay for variable expenses. . In other words, the money that is left over after paying for necessities such as housing, utilities, food, etc.


What are some of the purposes of a Revolving Savings Account?

A variable expense budgeting tool that serves two purposes. 1. Accumulate funds for large non-monthly, irregular expenses such as insurance premiums, medical costs, gifts, vacations. 2. To meet occasional deficits due to income fluctuations.


If I wanted to know where my money came from and where it went over the course of the past month or year, what statement would I compile?

Cash Flow Statement


Divide monthly living expenses into monetary (liquid) assets to arrive at the....

Liquidity Ratio


Divide annual debt repayments by gross yearly income to arrive at the.....

Debt-to-income ratio


A motor home would be an example of what kind of asset?

Tangible Asset


A monthly health insurance premium would be an example of

Fixed Expenses


Most financial planning experts recommend that people have a liquidity ratio of at least how many months?

3- 6 months


A budget should be based on previous spending, current economic trends, goals or net worth?