Unit 3 Personal Finance Test

What are the five smart goals?

Specific, measurable, attainable, realistic, timebound

Specific

State what is going to be done with the money

Measurable

The exact dollar amount being saved

Realistic

think through the trade-offs and opportunity costs to analyze the consequences of your goal to make sure it isn’t unattainable

Timebound

Specifically state when the goal will be reached

Net worth

measure of your financial wealth

How is net worth calculated?

net worth=assets-liabilities

What is debt to net worth ratio?

Your liabilities/net worth; banks want people who have a low debt to net worth ratio

Assets

things you own that have value (bank accounts, homes, cars, etc)

Liabilities

money you owe to others (your debts like home loans, car loans, credit cards)

What are some ways to increase your net worth?

Building up your assets but increasing investment balances and bank account balances and reducing your liabilities by paying down debt

What is an income and expense statement?

lists and summarizes income and expense transactions that have taken place over a specific period of time

Earned income

any money earned from work

Unlearned income

income received from sources other than employment

Received income from Government programs

offer a usually temporary form of income

What are the two parts of a budget?

planned expenses and actual expenses

Budgeting Variance

the difference between your planned and actual expenses

What are the steps for Developing a Budget? (Phase 1)

tracking current income and expenses, personalize your budget by establishing categories, allocate money to each category

What are the steps for maintaining the Budget? (Phase 2)

Implement and control, evaluate and make adjustments

Fixed expenses

expenses you’re required to pay that aren’t easy to reduce or eliminate (rent, cell phone)

Variable expenses

expenses that are more controllable by you and easier to reduce (food, clothing, entertainment)

What percentage of your spending should be housing?

30%

What percentage of your spending should be transportation?

20%

What percentage of your spending should be food?

15%

What percentage of your spending should be saving and investing?

10%

What percentage of your spending should be insurance?

7%

percentage of your spending should go to the Other category?

18%