Questions and Answers
What is money management?
Planning how to get the most from your money.
What is a safe-deposit box?
A small, secure storage compartment in a bank rented for $100 a year or less.
What is a personal financial statement?
A document that provides information about an individual's current financial position.
What is a personal balance sheet?
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What is net worth?
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What are assets?
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What is wealth?
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What are liquid assets?
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What is real estate?
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What is market value?
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What are liabilities?
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What is insolvency?
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What is cash flow?
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What is income?
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What is take-home pay?
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What is discretionary income?
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What is a surplus?
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What is a deficit?
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What is a budget?
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What is the consumer price index (CPI)?
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What is budget variance?
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Study Notes
Money Management Concepts
- Money management involves planning to maximize financial resources.
- Safe-deposit boxes offer secure rental storage at banks, typically costing around $100 annually.
Financial Statements
- A personal financial statement summarizes an individual's income and expenses, reflecting their financial position.
- Personal balance sheets, or net worth statements, detail assets, liabilities, and net worth.
Key Financial Terms
- Net worth is calculated as the difference between total assets owned and total debts owed.
- Assets are valuable items owned, including cash, real property, and investments.
- Wealth signifies a significant amount of valuable resources or possessions.
Types of Assets
- Liquid assets are cash and items easily converted to cash, which provide immediate liquidity.
- Real estate includes land and structures owned by individuals or families, representing significant investment.
Financial Metrics
- Market value is the expected selling price of a property.
- Liabilities refer to debts and financial obligations owed by an individual.
Financial Health Indicators
- Insolvency occurs when liabilities surpass assets, indicating a financial crisis.
- Cash flow represents the actual money coming in and going out of personal accounts.
Income and Expenditure
- Income encompasses all incoming money, while take-home pay refers to the amount remaining after taxes and deductions.
- Discretionary income is the leftover money after essential expenses, like food and housing, are covered.
Surplus and Deficit
- A surplus is the extra money available after fulfilling financial obligations, which can be saved or spent based on priorities.
- A deficit arises when expenditures exceed income, leading to financial strain.
Budgeting
- A budget is a structured plan for managing income and expenses to fulfill financial goals.
- Budget variance indicates the difference between projected spending and actual expenses, essential for tracking financial performance.
Economic Indicator
- The Consumer Price Index (CPI) measures price changes for average consumer goods and services, reflecting inflation and purchasing power trends.
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Description
Test your knowledge with these flashcards on essential personal finance concepts from Chapter 3. Each card covers important terms like money management and safe-deposit boxes, helping you understand the foundations of managing your finances effectively.