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Definition
| The relative ease and speed with which you can convert noncash assets into cash; it involves having access to money when you need it. |
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Term
| The 5 steps in the personal financial planning process |
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Definition
| 1) Evaluate your finances. 2) Define your goals. 3) Develop a plan of action. This plan should include flexibility, liquidity, protection, and minimization of taxes. 4)Implement your plan and stick with it. 5) Review, reevaluate, and revise your plan. |
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Term
| Short term (Goal time horizon) |
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Definition
| Can be accomplished within a year. |
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Term
| Intermediate term (goal time horizon) |
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Definition
| Can take between 1 and 10 years to achieve. |
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Term
| Long term (goal time horizon) |
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Definition
| Takes more than 10 years to achieve. |
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Term
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Definition
| Planning for your eventual death and the passage of your wealth to your heirs. |
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Definition
| An economic condition in which rising prices reduce the purchasing power of money. |
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Definition
| The risk-return trade-off. The minimum return on an investment must be greater than the expected level of inflation. |
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Definition
| The date on which a borrower is to repay a debt. |
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Definition
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Term
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Definition
| interest paid on interest. |
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Definition
| Diversification reduces risk. |
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Term
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Definition
| acquisition of a variety of different investments instead of just one to reduce risk. |
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Term
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Definition
| All risk isn't equal. The degree to which the total risk is reduced is a function of how 2 investments returns move together. |
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Term
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Definition
| The "curse" of competitive investment markets. Generally investments earn a fair return, I.e. bargains are often too good to be true. |
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Term
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Definition
| a situation in which investment prices instantly reflect all publicly available info and so the price of any investment accurately reflects the best estimate of its value. |
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Term
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Definition
| Taxes affect personal finance decisions. It should be your goal to maximize after tax income. |
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Term
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Definition
| liquidity is a must. You need to plan for the unexpected. |
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Term
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Definition
| you need to have a plan. Nothing happens without a plan. Start modestly and then as you grow, expand the plan. |
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Term
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Definition
| your best protection is knowledge. Knowledge 1) protects you from dubious individuals, 2) gives you an appreciation for finance, 3) let's you take advantage of the economy and interest rates, and 4) helps you deal with your finances. |
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Term
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Definition
| Protect yourself against major catastrophes. Have insurance. |
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Term
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Definition
| The time dimension of investing. If you intend to hold an investment for a long period, you can afford to take on a riskier investment. Otherwise, play it safe. |
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Term
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Definition
| The agency problem. You should pick your financial "agents" carefully, and always keep your eyes open. |
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Term
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Definition
| A condition in which those who act as your agents may actually be acting in their own interests rather than yours. |
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Term
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Definition
| Pay yourself first. You should pay yourself first by putting away your savings, and then spend what is left. Not spent first, and then save what is left. |
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Term
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Definition
| Money is not everything. Financial planning allows you to achieve goals, but it should not obsess you. |
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Term
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Definition
| Just do it. Once you get started, it will only get easier, so just start! |
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