Personal Finance Chapter 3 Flashcards

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?

A financial statement that lists items of value owned, debts owed, and net worth. Signup and view all the answers

What is net worth?

The difference between the amount that you own and the debts that you owe. Signup and view all the answers

What are assets?

Any items of value that an individual or company owns. Signup and view all the answers

What is wealth?

An abundance of valuable material possessions or resources. Signup and view all the answers

What are liquid assets?

Cash and items that can be quickly converted to cash. Signup and view all the answers

What is real estate?

Land and any structures that are on it that a person or family owns. Signup and view all the answers

What is market value?

The price at which property would sell. Signup and view all the answers

What are liabilities?

The debts that you owe. Signup and view all the answers

What is insolvency?

A financial state that occurs if liabilities are greater than assets. Signup and view all the answers

What is cash flow?

The money that actually goes into and out of your wallet and bank accounts. Signup and view all the answers

What is income?

The money you receive. Signup and view all the answers

What is take-home pay?

The amount of income left after taxes and other deductions. Signup and view all the answers

What is discretionary income?

The money left over after paying for essentials like food and shelter. Signup and view all the answers

What is a surplus?

Extra money that can be spent or saved. Signup and view all the answers

What is a deficit?

The financial situation that occurs when more money is spent than is earned. Signup and view all the answers

What is a budget?

A plan for using money to meet wants and needs. Signup and view all the answers

What is the consumer price index (CPI)?

A measure of the changes in prices for commonly purchased goods and services. Signup and view all the answers

What is budget variance?

The difference between the budgeted amount and the actual amount spent. Signup and view all the answers

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.