Personal Finance Chapter 1 3 Study Guide A

Personal Finance Chapter 1 & 3 Study Guide

�A disadvantage of using a safe deposit box for keeping financial documents is that it can cost $100 a year to rent. � An example of a current liability is taxes.

� An example of a liquid asset is a savings account. � Annuity- a series of equal regular deposits.

� Cash flow statement- gives you important feedback on your income and spending patterns. � Deficit- a situation that occurs if a person spends more than he or she receives.

� Demand- amount of goods and services people are willing to buy. � Discretionary funds are spent on things that you want.

� Discretionary income- extra money that can be spent or saved. � Economics- study of the decisions that go into making, distributing, and using goods and services.

� Economics- the way in which people make, distribute, and use their goods and services. � Examples of a variable expense is electric bills, gas bills, and water bills.

� Examples of Short-term goals- saving for a vacation next summer or paying off small debts. � Federal Reserve System- the central banking organization in the United States.

� Future value computations or compounding – interest earned on previously earned interest. � Future value- the amount that your original deposit will be worth in the future based on a specific interest rate over a specific amount of time.

� Future value- the name for computations that allow you to determine how much money to deposit now to earn a desired amount in the future � Inflation- general rise in the level of prices for goods and services over time.

� Liabilities- the debts you own. � Liquid assets- cash and items that can be quickly converted to cash.

� Liquidity- ability to easily convert financial resources into cash without loss of value. � Long-term goals are financial plans that are more than five years off.

� Market value- the price at which a property could be sold. � Money management- the method of planning how to get the most from your money.

� Net worth- the difference between the amount you own and the debts you owe. � Opportunity cost- the trade-off made by making one choice instead of another.

� Personal financial planning is spending, saving, and investing to have the kind of life you want and financial security. � Personal financial statement- a document that provides information about your current financial position and presents a summary of your income and spending.

� Present value- amount of money you need to deposit now to attain a desired amount in the future. � Principal- amount of money deposited on which interest is paid.

� Putting paycheck deductions in employees’ retirement funds is a savings option many employers offer. � Safe-deposit box- a small, secure storage compartment that can be rented in a bank.

� Supply- the amount of goods and services available for sale. � Surplus- the money left over after essentials are paid for.

� The first step in planning a budget is setting financial goals. � Time value of money- increase in an amount of money as a result of interest or dividends earned.

� Values- beliefs and principles that a person considers important, correct, and desirable. � Your net worth goes up when you pay off your previous debts.