Personal Finance Essentials: Planning, Money Management, Taxes, Banking, and Credit

Vocabulary flashcards covering core personal finance terms, financial planning principles, money management, tax concepts, banking options, and consumer credit based on Chapters 1 through 5.

Personal Financial Planning

The process of managing your money to achieve personal economic satisfaction.

Financial Literacy

The use of knowledge and skills for earning, saving, spending, and investing money to achieve personal, family, and community goals.

Financial Plan

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities.

Adult Life Cycle

The stages in the family situation and financial needs of an adult.

Economics

The study of how wealth is created and distributed.

Financial System

The economic framework where funds move between providers (savers, investors) and users (borrowers, spenders) via financial intermediaries and financial markets, overseen by financial regulators.

Inflation

A rise in the general level of prices, during which the buying power of the dollar decreases.

Consumer Price Index (CPI)

A measurement computed and published by the Bureau of Labor Statistics that tracks the average change in prices urban consumers pay for a fixed basket of goods and services.

Rule of 72

A calculation used to estimate how fast prices or savings will double by dividing $72$ by the annual inflation or interest rate.

Opportunity Cost

What you give up when making a choice, often referred to as a trade-off.

Time Value of Money

The increase in an amount of money as a result of interest earned over time.

Future Value

The amount to which current savings will increase based on a certain interest rate and time period (also referred to as compounding).

Present Value

The current value for a desired future amount based on a certain interest rate for a given time period (also referred to as discounting).

Annuity

A series of equal deposits or payments made at regular time intervals.

Money Management

The day-to-day financial activities necessary to manage current personal economic resources while working toward long-term financial security.

Safe Deposit Box

A private storage area at a financial institution offering maximum security for valuable personal belongings and financial documents.

Personal Balance Sheet

A financial statement (also known as a net worth statement or statement of financial position) that reports what an individual or family owns and owes on a specific date.

Liquid Assets

Cash and items of value that can easily be converted to cash without significant loss of value.

Current Liabilities

Debts that must be paid within a short period of time, usually less than a year.

Long-Term Liabilities

Debts that do not have to be paid in full until more than a year from the present date.

Net Worth

The difference between total assets and total liabilities, calculated as $\text{Assets} - \text{Liabilities} = \text{Net Worth}$.

Insolvency

The inability to pay debts when they are due because total liabilities exceed the value of total assets.

Cash Flow Statement

A financial statement (also called a personal income and expenditure statement) that summarizes actual cash receipts and payments for a given period.

Discretionary Income

Money left over after paying for housing, food, and other essential necessities.

Budget Variance

The difference between the amount budgeted and the actual amount received or spent.

Excise Tax

A tax imposed by federal and state governments on specific goods and services, such as gasoline, cigarettes, alcoholic beverages, tires, air travel, hotels, and phone service.

Estate Tax

A federal tax imposed on the value of a person's property at the time of death.

Inheritance Tax

A state tax levied on the value of property bequeathed by a deceased person.

Adjusted Gross Income (AGI)

Gross income after specific reductions, called adjustments to income, have been subtracted.

Standard Deduction

A set amount on which no taxes are paid, which in $2023$ was $13,850$ for single taxpayers.

Itemized Deductions

Expenses a taxpayer is allowed to deduct from adjusted gross income, such as medical expenses, mortgage interest, and charitable contributions.

Marginal Tax Rate

The highest tax bracket and associated rate that applies to an individual's taxable income.

Tax Credit

An amount subtracted directly from the total amount of taxes owed, providing a dollar-for-dollar reduction.

Tax Avoidance

The use of legitimate methods to reduce an individual's tax obligation.

Tax Evasion

The use of illegal actions to reduce one's taxes.

Asset Management Account

A complete financial services program offered by financial institutions for a single consolidated fee (also called cash management account).

Commercial Bank

A full-service financial institution organized as a corporation with investors (stockholders).

Credit Union

A user-owned, nonprofit, cooperative financial institution organized for the benefit of its members.

Certificate of Deposit (CD)

A savings plan requiring a specified amount to be left on deposit for a stated time period to earn a designated interest rate.

Annual Percentage Yield (APY)

The percentage rate expressing the total amount of interest that would be received on a $100$ deposit based on the annual rate and frequency of compounding for a $365$-day period, calculated as $\text{APY} = 100 \times \frac{\text{Interest}}{\text{Principal}}$.

Savings Alternatives

Options available to deposit funds with varying liquidity and yields, including regular savings accounts, money market accounts/funds, certificates of deposit, and U.S. savings bonds.

Debit Card

A plastic payment card that electronically subtracts funds directly from a checking or savings account to pay for goods or services.

Consumer Credit

The use of credit for personal needs (excluding a home mortgage).

Closed-End Credit

Credit in which one-time loans are repaid in a specified time period and in equal payment amounts.

Open-End Credit

A line of credit extended on a continuous basis where the borrower is billed periodically for at least partial payment.

Grace Period

A time period during which no finance charges will be added to a credit card account balance.

Finance Charge

The total dollar amount paid to use credit, including interest costs and service charges.

Five Cs of Credit

The criteria used by lenders to evaluate creditworthiness: Character, Capacity, Capital, Collateral, and Conditions.

FICO Credit Score

A credit rating score ranging from $300$ to $850$ derived from payment history ($35\text{\%}$), amounts owed ($30\text{\%}$), length of credit history ($15\text{\%}$), types of credit used ($10\text{\%}$), and new credit ($10\text{\%}$).

Annual Percentage Rate (APR)

The percentage cost (or relative cost) of credit on a yearly basis.

Bankruptcy

A legal process under the U.S. Bankruptcy Act of 1978 in which some or all of the assets of a debtor are distributed among creditors because the debtor is unable to pay debts.