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76 Cards in this Set
- Front
- Back
Liquidity |
Converting non cash assets into cash, having access to your money when you need it |
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Flexibility |
Planning for the unplanned |
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Protection |
Financial protection from catastrophic events. Insurance is protection
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Personal financial planning process, 5 steps |
1. Evaluate financial health 2. Define financial goals 3. develop plan of action 4. Implement your plan 5. Review your progress
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3 parts of financial goals |
1. Short term 2. Intermediate term 3. Long term |
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Financial life cycle |
Stage 1. Wealth accumulation Stage 2. Golden years Stage 3. Retirement |
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Blue book |
Listing of used car prices |
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Current debt |
Total of your unpaid bills (utility, electric, cable) |
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Long term debt |
Debt on large assets (like a house) |
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Income statement |
Where your money came from, and where it went |
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Fixed expenditure |
Back (Definition) Expenditure which you have no control (constant rate) |
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Variable expenditure |
Expenditure which you have control |
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Expenditure |
The action of spending funds |
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Budget |
A plan for controlling inflows and outflows |
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Current ratio |
A ratio to determine if you have enough liquidity to deal with emergencies |
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Saving ratio |
Ratio to determine how much you are saving |
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Estate planning |
Planning for death and the passage of your wealth |
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Compound interest |
Interest on interest |
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Principal |
What you started with |
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Reinvesting |
Taking money you earned on an investment, and putting it back into the investment |
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Compounded annually |
Interest is received at the end of each year |
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Discount rate |
Interest rate used to bring future dollars back to present |
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Annuity |
A series of equal dollar payments coming at the end of each time period for a specific number of time periods |
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Compound annuity |
Investment that involves putting a certain amount of money at the end of each year for a number of years and letting it grow |
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Future value interest factor of an annuity |
Multiplier used to determine future value of an annuity |
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Amortized loans |
Paying off a loan in equal installments over time |
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Perpetuity |
Annuity that lasts forever (investment pays sane dollar amount and never stops paying) |
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Inflation |
Economic condition which rising prices reduce purchasing power of money |
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Progressive tax |
Tax rates increase for higher incomes |
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Tax brackets |
Income ranges that have same tax rate |
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Personal exemption |
IRS allowed reduction in income before filing out taxes (wife, kids) |
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Deductions |
Expenses that reduce taxable income |
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Taxable income |
Income subject to tax |
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AGI (adjusted gross income) |
Taxable income from all sources minus specific adjustments |
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Marginal tax rate |
What percent of your money is taxed |
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Tax deferred |
Income in which the payment of taxes is postponed |
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Capital assets |
An asset you own except sticks bonds and real estate |
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Capital gain/capital loss |
The amount that you can sell something vs what you paid for it |
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10 principles of finance |
1. The best protection is knowledge 2. Nothing happens without a plan 3. The time value of money 4. Taxes affect personal finance decisions 5. Stuff happens, importance of liquidity 6. Waste not want not 7. Protect against major catastrophes 8. Risk and return go hand and hand 9. Mind games, financial personality 10. Just do it
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Capital gains tax |
Taxes on any capital gains |
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Bracket creep |
The movement into a higher tax bracket when wages are increased because inflation |
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Social security |
A federal program that provides disability and retirement benefits based on years worked, amount paid, and age |
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FICA |
Federal insurance contribution act, taxes to your social security and Medicare |
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Medicare |
Federal governments insurance to provide medical benefits to those over 65 |
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State and local income tax |
Mostly state, local is rare |
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Dependent |
Someone you support financially |
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Total or gross income |
The sum of all your taxable income |
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Active income |
Income that comes from wages or a business (job) |
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Passive income |
Income that comes from activities in which the tax payer does not actively participate |
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Compound interest |
Interest on interest |
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IRA |
A tax deferred retirement savings plan (401k) |
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Home equity loan |
A loan that uses your home as collateral |
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Exemption |
A deduction you can take on your return for each person supported by the income listed on your tax return |
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Tax credit |
Reduce taxes in direct dollar for dollar manner |
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Liquid assets |
Cash or investments that can easily be converted to cash |
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Schedules |
Attachments to form 1040 which you provide additional information |
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Audit |
A tax return examination by the IRS |
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Trust |
A fiduciary agreement in which one individual holds property for the benefit of another person |
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Income shifting |
Transferring income from family members in high tax brackets to family members in low tax bracket |
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Deposit type financial institutions |
Banks |
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Diversification |
Multiple investments rather than just one to reduce risk |
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Non deposit type financial institutions |
Something like a stock brokerage firm that doesn't not provide checking and savings account |
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Demand deposit account |
A type of checking account that pays no interest in your valence |
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Certificate of Deposit (CDs) |
Savings alternative that provide a fixed interest rate |
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US treasury bills |
Short term notes of debt issued by the federal government |
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APY (Annual percentage yield) |
Allows you to easily compare interest rates |
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FDIC (federal deposit insurance company) |
Federal agency that insures deposits at commercial banks |
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National credit union association |
Federal agency that insures accounts at credit unions |
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Safety deposit box |
A storage at banks that holds important documents that are safe |
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Stop payment |
An order you can give your bank to stop payment on a check you have written |
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Overdraft protection |
Automatic loan made to your checking account when your account doesn't have enough cash to cover checks that you wrote |
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Personal balance sheet |
A statement of your financial position on a date. Includes assets ect |
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End |
End |
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Net worth (equity) |
A measure of the level of your wealth |
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Fair market value |
What something can be sold for |
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Tangible asset |
Physical asset like a car or house |