Term
| Personal Financial Planning |
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Definition
| The process of managing money to achieve personal economic satisfaction |
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Term
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Definition
-inflation risk(rising prices cause lost buying power)
-interest-rate risk(effect cost of borrowing and rate of return)
-income risk(lose a job)
-personal risk(health, safty, costs)
-liquidity rate(higher return rate may mean less liquidity) |
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influence personal financial planning. Include ...
-Consumer prices(value of the dollar changes in inflation)
-rule of 72(dividby the inflation rate to see how many years it will take for prices to double)
-Consumer spending(demand for goods/service by individuals/household.
-inter rates: the cost of money/credit when you borrow
-money supply
-unemployment
-housing stats: number of new home ebeing built
-GDP:total value of goods and service produces in a country
-trade balance: diff between a countries exports nad imports
-market indexes: relative calue of sttocks according to the indexes. |
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| What you give up when you make a choice; cannot always be measured in dollars, sometimes your cost is your time |
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| increrases in an amount of money as a result of interest earned |
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| amount in saving X annual interst rate Xtime period equals the interest |
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| amount to which current savings will increase based ona certain interest rate and a certain time period. Also called compouding |
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| earning interest on previously earned interest |
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| current value for a future amount based on a certain interest rate and time period; calculations are also called discounting |
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| certified financial planners |
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| marital status, household size, emplyment, Major event include graduation, marriage, children, retirement, etc... |
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| major activites: storing and maintaining personal financial records and documents, creating personal financial statements (balance sheet) and budgeting |
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| personal and employment records, money management records, housing records, insurance records, tax records, investment records auto and credit records |
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| for records that would be hard to replace (birth cert., stock and bods cert., citizenship and militar papers, adoption and custody apers) |
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| current and past budgets, summary of checks written and other banking transactions, account summaries and performance results ffor investments |
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| net worth statement: include assets (what you own) and liabilities(what u own-jessie that alot for you) assets minus liabilites=networth |
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| shows inflow nad outflow of a give time period |
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| new income from exmplyment, savings and investment income, other sources |
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| fixed and variable, net cash flow can be a surplus or deficit |
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| liquid assets/monthly expenses; show# of monts that living expenses cant be paid. Higher ratio is good. |
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| monthly credit payments/ take-home pay. good to keep ratio below 20% |
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| monthly savings/ gross income |
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| in contrast to the cash-flow sheet which shows a record of how you spent money in a past time period, a budget is a plan for spending in the future |
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| household and living expenses on your budget plan |
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Definition
-taxes on purchases: sales and excise tax
-taxes on property: real estate and property tax
-Taxes on wealth: feder estate tax
-taxes on earnings: income, social security tax |
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Term
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Definition
| adjusted gross income is gross income after certaindeductions have been made - these deductions are called adjustments to income and include contributions to an IRA< alimony payments, student loan interest and tuition fees, etc.... |
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| Computing your tax liability |
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Definition
1. determine adjusted gross income
-identify taxable income-net income, after deductions, on which incomes tax is computed. types of income subject to taxation include
-earned income-wages, salaries, bonuss, tips, commission
-investment income-money from dividents, interst, or rent
-Passive income-ffrom business activities in which you dont directly participate
-total income is afffected by exlusions
-total income is affect by tax defered income
2. compute taxable inncome: a tax xeduction is an amount subtracted from AGI. They can be itemized or you can subtract the standarad deduction from AGI.
3. Calc taxed owed. The % rates are the marginal tax rates on the last dollars of taxable income |
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| amouunts not included in gross income |
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| this is income that will be taxed at a later date, such as earnings from a tradition individual retirement account (IRA) |
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| a deduction for yourself, your spouse and qualified dependents. |
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| is based on the total tax due divided by taxable income. Ths rate is less then the marginal tax rate. |
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