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What is a good financial goal?

A good financial goal is specific, realistic, measurable, and tied to a timeline. Examples include saving for a house, building an emergency fund, reducing debt, and planning for retirement.

What are examples of major personal financial goal areas?

Major goal areas include buying a house, managing credit, getting insurance, building savings, using employee benefits, reducing taxes, retirement planning, and estate planning.

What is an asset?

An asset is something you own that has value, such as cash, checking accounts, stocks, a car, furniture, or a house.

What is a liability?

A liability is something you owe, such as credit card debt, student loans, car loans, rent due, or a mortgage.

What is net worth?

Net worth is assets minus liabilities. It shows your financial position at a point in time.

Why do many young adults have low or negative net worth?

Young adults often have student debt and limited assets, so their liabilities may exceed their assets.

How does wealth tend to change over the financial life cycle?

It is often negative when young, rises during working years, grows more slowly during family formation due to high expenses, and is spent down during retirement.

What helps people accumulate wealth over time?

Starting early, saving regularly, investing, controlling debt, and allowing compound interest to work over many years help build wealth.

Why is time important in personal finance?

Time allows compound interest to grow money. Starting earlier can lead to much more wealth later.

What is one key strategy for achieving financial goals?

Use financial statements and budgets to monitor progress and make adjustments as needed.

What role do employee benefits play in financial planning?

You should evaluate the total compensation package, including retirement matching, pensions, medical insurance, and employer-provided life insurance—not just salary.

What is a recommended type of financial planner?

A fee-only financial planner is recommended because they are paid for advice and do not have the same incentive to push products as commission-based planners.

What is a balance sheet?

A balance sheet, also called a net worth statement, shows your financial position at a single point in time by listing assets, liabilities, and net worth.

What does a balance sheet tell you?

It tells you where you stand financially right now and whether you are solvent or insolvent.

What does "solvent" mean?

Solvent means net worth is positive—your assets exceed your liabilities.

What does "insolvent" mean?

Insolvent means net worth is negative—your debts exceed your assets.

What are liquid assets?

Liquid assets are assets that can be quickly converted to cash with little loss in value, such as cash, checking, savings, and money market funds.

What are examples of non-liquid or investment assets?

Stocks, bonds, business ownership, retirement funds, collectibles, and some life insurance cash values are examples.

How should assets be recorded on a balance sheet?

Assets should be recorded at current market value, meaning what you could sell them for today, not what you originally paid.

What are current liabilities?

Current liabilities are debts due within one year, such as credit cards, utilities owed, rent, insurance premiums, and medical bills.

What are long-term liabilities?

Long-term liabilities are obligations due in one year or more, such as mortgages, student loans, and long-term car loans.

What is an income and expense statement?

It is a statement that tracks income and spending over a period of time, such as a month or year.

What does an income and expense statement tell you?

It shows how you performed financially over time—whether you had a surplus or deficit.

What accounting method is used in the income and expense statement discussed in class?

Cash basis accounting, meaning transactions are recorded when cash actually enters or leaves your account.

On a cash-basis income statement, when does a credit card purchase become an expense?

It becomes an expense when you pay the credit card bill, not when you make the purchase.

What are common income categories on an income and expense statement?

Wages, bonuses, commissions, interest, dividends, gains from selling assets, pension income, and gifts.

What are common expense categories on an income and expense statement?

Housing, utilities, food, transportation, medical care, clothing, insurance, taxes, furniture/appliances, entertainment, and gifts.

What is a cash surplus?

A cash surplus is total income minus total expenses. A surplus can be invested to increase net worth.

What is a deficit?

A deficit occurs when expenses exceed income.

Why is preparing a budget important?

A budget helps plan and control spending, monitor saving, and keep you moving toward financial goals.

What is the relationship between goals, financial statements, and budgets?

Goals are the destination; financial statements show where you are; budgets help guide your day-to-day decisions.

What is one major reason to keep good financial records?

Good records help you prepare statements, track spending, support tax filing, and evaluate progress toward goals.

What is a major warning sign in budgeting?

Chronic deficits—spending more than you earn—can lead to debt and financial instability.

What should you do if you have a budget deficit?

Cut expenses, increase income, and avoid using high-interest debt to cover routine shortfalls.

What is the largest average spending category for most households?

Housing, at about 33% of income.

What are other major spending categories?

Transportation, food, insurance/health care, and education.

What is the time value of money?

Money today is worth more than the same amount in the future because today's money can earn interest.

What is present value (PV)?

Present value is the amount you need to invest today to reach a future amount.

What is future value (FV)?

Future value is the amount money will grow to in the future after earning interest.

What is an annuity?

An annuity is a series of equal payments made at regular intervals.

What are the five main TVM calculator variables?

N, I/Y, PV, PMT, and FV.

What does N represent on the financial calculator?

Number of periods.

What does I/Y represent?

Interest rate per period.

What does PV represent?

Present value, or the current amount invested or borrowed.

What does PMT represent?

Periodic payment.

What does FV represent?

Future value, or the amount at the end of the time period.

What should you do before starting a new TVM problem on the BA II Plus?

Clear the TVM memory by pressing 2nd and FV (CLR TVM).

How do you adjust TVM inputs for monthly compounding?

Multiply years by 12 for N and divide the annual interest rate by 12 for I/Y.

In calculator sign convention, what does a negative number usually mean?

Money leaving your pocket, such as a deposit or loan payment.

In calculator sign convention, what does a positive number usually mean?

Money coming to you, such as loan proceeds or withdrawals.

Why is compound interest powerful?

Interest earns interest over time, so even small differences in rates create large differences in long-term outcomes.

What does the Rule of 72 estimate?

How long it takes an investment to double. Divide 72 by the interest rate.

What is inflation?

Inflation is the decrease in the value of money, which reduces purchasing power over time.

Why is inflation important in personal finance?

If your investment return does not exceed inflation, your money may grow in dollars but lose purchasing power.

What is the nominal interest rate?

The quoted or stated interest rate before adjusting for inflation.

What is the real rate of return?

The return after adjusting for inflation, approximately nominal return minus inflation rate.

What happens if inflation is higher than your interest rate?

Your real purchasing power declines even if your account balance rises.

What is a progressive tax?

A progressive tax is a tax system where higher income is taxed at higher rates on additional income.

What is a regressive tax?

A regressive tax takes a larger proportion of income from lower-income people, such as sales tax.

What is a tax bracket?

A tax bracket is a range of income taxed at a particular rate; income is taxed in chunks, not all at one rate.

What is the marginal tax rate?

The marginal tax rate is the tax rate applied to your next dollar of income.

What is the average tax rate?

The average tax rate is total tax paid divided by taxable income.

Why is it wrong to say "moving into a higher tax bracket taxes all your income at that rate"?

Only the income within that higher bracket is taxed at the higher rate, not your entire income.

What is FICA?

FICA is the payroll tax for Social Security and Medicare, about 7.65% from the employee, with an employer match.

What is gross income?

Gross income is total income from all sources before adjustments or deductions.

What is taxable income?

Taxable income is adjusted gross income minus deductions.

What is net income?

Net income is take-home pay after taxes and other withholdings are subtracted.

What is the tax base?

The tax base is the amount of income actually subject to tax after deductions and exemptions.

What is the standard deduction?

It is a flat amount you can subtract from income before calculating tax.

What are itemized deductions?

Specific deductible expenses listed individually, such as certain medical expenses, SALT taxes, mortgage interest, and charitable contributions.

When do you choose itemized deductions instead of the standard deduction?

You choose whichever gives the larger deduction.

What is SALT?

SALT stands for state and local taxes, and the deductible amount is capped at $10,000.

Is mortgage interest deductible?

Yes, mortgage interest is deductible on up to $750,000 of principal for up to two homes, according to the notes.

Are charitable contributions deductible?

Yes, if given to a qualified 501(c)(3) organization, subject to limits.

What is a tax deduction?

A tax deduction reduces taxable income.

What is a tax credit?

A tax credit directly reduces the amount of tax you owe, dollar for dollar.

Which is more valuable: a deduction or a credit?

A tax credit is generally more valuable because it directly reduces the tax bill.

What is an example of a common tax credit?

Child Tax Credit, dependent credit, education credits, childcare credit, energy credits, and Earned Income Credit.

What is a refundable tax credit?

A refundable credit can reduce your tax below zero and may result in a refund from the government.

What is a non-refundable tax credit?

A non-refundable credit can reduce your tax to zero, but no extra amount is paid to you.

What is withholding?

Withholding is money taken from your paycheck during the year to prepay taxes.

Why does getting a refund not mean you paid no taxes?

A refund means you overpaid during the year and are getting the excess back.

What is the goal with tax withholding?

To get as close to zero owed or refunded as possible.

What tax filing statuses were covered?

Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Surviving Spouse.

What is Head of Household status?

It is for unmarried individuals who provide a home for a qualified dependent and usually gives better rates than Single.

What are capital gains?

Capital gains are profits from selling an asset for more than you paid for it.

What is a short-term capital gain?

Gain on an asset held less than 12 months; taxed as ordinary income.

What is a long-term capital gain?

Gain on an asset held more than 12 months; taxed at preferential rates such as 0%, 15%, or 20% depending on income.

How are dividends often taxed?

Qualified dividends are usually taxed at long-term capital gains rates.

What are examples of tax-deferred income types?

Traditional IRA contributions and 401(k) contributions are tax-deferred because taxes are paid later at withdrawal.

What kinds of income are excluded from taxable income according to the notes?

Life insurance payouts, scholarships, and gifts.

What is cash management?

Cash management means making sure you have enough liquid funds for bills and emergencies while also planning for long-term savings.

What is liquidity?

Liquidity is the ability to convert an asset into spendable cash quickly with little loss in value.

Why are low interest rates a problem for savers?

Low rates reduce returns on safe accounts and often fail to keep up with inflation, causing savers to lose purchasing power.

What tends to happen when interest rates are low?

Borrowing becomes cheaper, but savers and retirees earn less, and many investors move into riskier assets like stocks.

What are the two broad types of financial institutions?

Depository institutions and non-depository institutions.

What are depository institutions?

Institutions that accept deposits and use them to make loans or investments, such as commercial banks, S&Ls, and credit unions.

What are non-depository institutions?

Institutions that facilitate financial transactions but do not primarily accept deposits, such as brokerages, mutual fund companies, and insurance companies.

What is a commercial bank?

A profit-driven depository institution that offers checking, savings, loans, and other financial services.

What is a credit union?

A non-profit, member-owned financial institution that often offers higher savings rates and lower loan rates.