Personal Finance Quiz 1

stewardship

responsibly managing something that has been entrusted to you; manager NOT owner

liquidity

ease in which an asset can be turned into useable cash

opportunity cost

value of the next best opportunity that you didn’t choose

liability

a financial obligation or debt that an individual or organization owes to another party

wealth

net value of everything you own

discretionary spending

spending that happens after fixed expenses, used at your discretion

expenses

everything that has to be paid for

assets

tangible and financial things you own (car, stock, house)

assets under management

how much is managed (assets) - what is owed (liabilities)

balance sheet

shows income and expenses for each month (investments, insurance)

time value of money

value of money is influenced by the time it’s received

present value

future sum of money is worth less today; current value of something

future value

money invested or saved today will grow to larger amount in the future

interest rate (discount rate)

rate of return expected on an investment or cost of borrowing money

compounding interest

interest on top of interest: TIME

rule of 72

estimation of how long it will take your money to double based on fixed annual rate of return (71/interest rate = years to double)