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38 Cards in this Set
- Front
- Back
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financial planning |
arranging to spend, save, and invest money to live comfortably, have financial security, and achieve goals |
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goals |
things you want to accomplish |
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1. more money and financial security 2. know how to use money and to achieve financial goals 3. less chance of going into debt you cannot handle 4. help and support your family financially |
benefits of financial planning (4)
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evaluate your current financial position |
the first step in financial planning |
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cash flow statement |
monthly income minus expenses |
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1. earning power 2. economic factors |
factors affecting cash flow |
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networth statement ( personal balance sheet) |
assets minus liabilities |
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assets |
items of value that you own |
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liabilities |
amount that you owe |
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equity |
the difference between the value of an asset and the amount you owe on an asset |
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debt ratio |
liabilities divided by net-worth |
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liquidity ratio |
liquid assets divided by monthly expenses |
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debt-payment ratio |
monthly credit payments divided by take-home pay. how much of income goes to pay debts |
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saving ratio |
amount saved monthly divided by gross monthly income- at least 10% |
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values, needs, wants |
goals depend on.. |
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values |
beliefs and principles you consider important, correct, and desirable. |
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needs |
something you must have to survive |
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wants |
something you desire or would like to have or to do. It adds comfort to your life. |
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short term goals intermediate goals long term goals |
types of financial goals (3) |
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short term goals |
take one year or less to achieve |
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intermediate goals |
takes one to five years to achieve |
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long term goals |
takes more than 5 years to achieve |
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1. obtain financial resources 2. plan how you will spend your money 3. spend less than you learn on things you need 4. save on a regular basis 5. borrow only when necessary 6. invest or increase your current income or achieve long-term growth 7. manage risk- insurance protects you, those who depend on you, and your assets 8. plan for retirement-consider the age you want to stop working and the lifestyle you want at retirement |
strategies for reaching financial goals(8)
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1. change your current situation 2. expand the current situation 3. start something new 4. continue the same course of action |
identify your options (4) |
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1. financial specialists 2. technology 3. media 4. financial institutions 5. education
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evaluate your alternatives (5) |
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opportunity cost (trade off) |
what is given up when making one choice instead of another |
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budget |
plan for saving and spending |
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1. set your financial goals 2. estimate your income 3. budget for unexpected income 4. budget for fixed expenses 5. budget for variable expenses 6. record what you spend- compare with what you have budgeted 7. review spending and saving patterns |
steps for financial plan of action (7) |
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stay the same from month to month |
fixed expenses |
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change from month to month |
variable expenses |
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budget variance |
the difference between what you spend and what you have budgeted |
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1. is carefully planned 2. is practical 3. is flexible 4. must be written and easily accessible |
a good budget...(4) |
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1. envelope system-use cash 2. tally system-save receipts 3. checking account register 4. spreadsheet 5. personal finance software |
budget methods (5) |
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inflation risk |
the chance that the cost of an item may go up |
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interest rate risk |
rates going up or down affects the cost of borrowing or the earnings on savings and investments |
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income risk |
the chance you may lose your income due to health, family, or job related issues |
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personal risk |
individual decisions or risks you take on a regular basis |
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liquidity risk |
the ability to easily convert assets to cash without loss in value. |
