Personal Finance Chapter 1 & 3Study 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.