Personal Finance Test

Standard of living

is the material basis of well-being, which is reflected in a person's consumption level

Compensation

total cash and non-cash payments that you give to an employee in exchange for the work they do for your business

Non-exempt

not exempt from being paid overtime (can be paid overtime)

Minimum wage

varies by state, $7.25 in Iowa

Salary

paid a fixed amount per pay period

Commissions

oriented to production or sales

Bonuses

goal-driven

Direct deposit

pay is electronically deposited directly into your checking or savings account

Paper check

form of payment given to the employee who is responsible to cash or deposit

Payroll card

prepaid card onto which an employer loads an employee's wages or salary each payday; similar to a prepaid debit card

Payslip

shows your total earnings, deductions, and net pay for the pay period

Mandatory deductions

taxes

Federal insurance contributions act (FICA)

is a federal law that requires two taxes to be withheld from pay - Social Security and Medicare

Income tax

government tax taken out of your pay every period (wages, commissions, tips)

Federal income tax

progressive tax that takes a larger percentage of income from high-income groups than from low-income groups based on the ability to pay

Sales Tax

consumption tax

Excise tax

imposed on a specific good or activity (fuel, tobacco)

Property tax

paid on property owned (land, buildings) and tangible personal property (cars, furniture)

Inheritance tax

paid by the individual who inherits the assets

Payroll taxes

social security and medicare taxes paid by your employer and part of your pay

Exemptions

can claim dependents to reduce the amount of income that is subject to tax

Deductions

can claim student loan interest, property taxes, etc to reduce the amount of income that is subject to tax

Taxable income

adjusted gross income - exemptions - deductions

Tax credits

reduce the amount of tax that you owe

net worth

assets (own) - liabilities (owe)

Assets

item or something of value that you own

Real assets

house, car, property

Liquid assets

can be easily turned into cash such as bank accounts and CDs

Investment assets

include any investments and retirement accounts

Personal assets

jewelry, paintings, etc.

Illiquid assets

not liquid or any asset that falls in the real, investment, or personal categories

Liabilities

debt or money owed that you are obligated to pay (car loan, mortgage)

Fair market value

the amount it is worth TODAY if you sold it

Solvent

you are able to pay all debts

Insolvent

NOT able to pay all debts

Income and Expense Statement

shows a breakdown of your income and expenses over a period of time. It is also used to calculate net income.

Gross income

income without deductions

Earned Income

wages, salary, tips, bonuses

Unearned income

interests, dividends, child support, unemployment

Expenses

cost required or the money spent on something

Budget

balancing your expenses with your income

Financial statements

looks at today (a Net Worth Statement) and one that looks at the past (Income and Expense Statement)