Financial Statements
This describes your financial position—the assets you hold, less debts you owe, equal your net worth at a given point in time.
What is a Balance Sheet
Earnings received as wages, salaries, self-employment income, etc.
What is Income
Also known as a spending plan, it is necessary for successful financial planning
What is a Budget
A simple formula to estimate how long it will take for an investment to double in value at a given annual interest rate.
What is the Rule of 72
The rate at which prices increase over a given period of time
What is Inflation rate
Measures financial performance over time. It tracks income earned, as well as expenses, made during a given period (usually a month or a year).
What is an Income (or Income and expense statement or expense statement) statement
Money spent on living costs and to pay taxes, pay for assets, or repay debt.
What is Expense
Splitting your income by 50 percent needs, 30 percent wants, and 20 percent savings
What is the 50/30/20 Rule
This measures how much cushion you have before insolvency.
What is a Solvency Ratio
The rate of return earned after adjusting for inflation
What is Real rate of return
These are forward looking. Budgets allow you to monitor and control spending because they are based on expected income and expenses.
What is a Budget
The difference between income and expenses
What is a Cash surplus (or deficit)
Reports the forecasted or estimated cash receipts or cash expenses for the year
What is a Cash Budget
These represent Total Liquid Assets divided by Total Current debt (liabilities).
What is a Liquidity Ratio
The amount of money an investment generates before accounting for other expenses like taxes and inflation
What is Nominal rate of return
___ is the inability to pay debts when they are due because liabilities exceed the value of assets.
What is Insolvency
Expenses that change
What are Variable expenses
What you get by comparing the actual cash receipts and expenses to the budget
What is Variance
Relates cash surplus form Income Statement to net income from the Income Statement.
What is a Savings Ratio
Inflation reduces the __________ _____ of cash flows over time
What is Purchasing power
These are debts that must be paid within a short time, usually less than a year.
What are Short-Term liabilities or Current liabilities
Two specific examples of fixed expenses
2 of these answers: What are…
mortgage and installment loan payments
insurance premiums
professional or union dues
club dues
monthly savings or investment programs
Live within your income, spend your money wisely, reach your financial goals, prepare for financial emergencies, and develop wise financial management habits
What are the Benefits of Budgeting
This represents the total monthly loan payments divided by monthly gross income.
What is Debt Service ratio
The formula used to quantify the effect of inflation on nominal interest rates
What is The Fisher equation