Balance Sheet
This type of asset includes cash, checking, and savings accounts.
Liquid Assets
Distinguish between fixed and variable expenses.
Fixed expenses are costs that remain constant regardless of the level of production or sales within a relevant range.
Variable expenses are costs that change directly with production volume or sales activity.
What is the difference between a budget and a spending plan?
A budget is a detailed “map” of where your money will go, with prescribed amounts for each category.
A spending plan is a broader “road trip” where you know your destination (goals/values).
What is the purpose of the liquidity ratio?
What range of numbers should you be in between, to be considered safe?
Measure the ability to pay current debts if you lose your job
3-6 months
Describe the balance sheet and its components.
The balance sheet is a financial statement that provides a snapshot of a company’s financial position at a specific point in time.
The balance sheet shows what a company owns (assets) and owes (liabilities).
Is it possible to have a cash deficit on an income and expense statement? If so, how?
What could cause a deficit?
Net loss on the income statement happens when total expenses > total revenues.
Unexpected Cash Payments
You live in an area where rent is rising. Your current rent is $750/month, and you expect a 8% rent increase next year. Your take‑home income is $3,000/month. Fixed expenses: rent $750, insurance $150, cell phone $70. Variable expenses: $500. You currently save $300/month.
What budget changes would you recommend now to prepare for this increase?
Explore cheaper housing or negotiate
Proactively budget for future increases
Reduce variable/discretionary spending
What is the purpose of the solvency ratio?
Measures overall financial stability — how much of your assets you own outright versus what’s owed.
Total assets minus total liabilities gives you this financial figure.
Net worth
Can someone appear “rich” if they have a high income but also very high expenses? Explain.
A high income may allow someone to spend a lot on cars, clothes, dining out, or vacations.
If their expenses match or exceed their income, they may not actually save or invest much.
Your subscription expenses are growing each month without you realizing it. How does this impact your budget and what steps would you take?
Increase in total expenses/Reduced surplus or savings
Track all subscriptions/Evaluate necessity
What is the purpose of the Debt Service Ratio?
What is considered a healthy percentage?
Measures how much of your income goes toward paying debts — important for assessing credit risk.
under 36%
Total Assets=92,550
Total Liabilities=236,283
Calculate the net worth
Explain what this indicates about the individual’s financial health.
Net Worth=92,550−236,283=−143,733
Some people ignore tracking small expenses like coffee or snacks. Could this really affect your financial health? Why or why not?
Individually, a coffee or snack may cost $3–$5. That seems insignificant.
But if you buy one every day, $5 × 30 days = $150 per month, or $1,800 per year.
Imagine you have $500 income, $300 fixed expenses, $100 variable expenses, and $50 discretionary spending. How much is left to save, and what decisions could you make with the surplus?
Save for short-term goals
Add to an emergency fund
Invest
Is it better to save a little consistently or save a large amount occasionally? Explain your reasoning.
Save a little over time/ Reduce risk of missed savings, even if you eanr less interest
Suppose the value of the condo decreases by 10% and the stock drops by 20%. How does this affect total assets, net worth, and financial risk?
Liquidity might also be affected if the losses cannot be easily converted into cash.
How would you compare two friends: one saves 10% of income, the other saves 50% but earns much less? Who is in a better position?
Friend A may have more disposable income left after saving, allowing for investments, lifestyle spending, or emergencies.
Friend B is saving a large portion of income, which might limit short-term spending but could build savings faster.
Why is budgeting future increases important for financial stability?
By planning ahead, you avoid being caught off guard and reduce the risk of needing to borrow money or dip into emergency reserves.
It helps you maintain control: instead of reacting, you anticipate the change and make purposeful choices.
You deposit $150 at the end of each year into a savings account that earns 5% annual interest. How much will you have after 6 years?
150*6.802=1,020.30