3.2 Module 3-1 - Notes and Quiz PDF

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Notes and Quiz...

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Module 3 Objectives

Students will be able to: 3.1 describe the relationship between values and goals, 3.2 describe an emergency fund and its importance, 3.3 explain how to write effective goals, 3.4 list and describe the components of a Balance Sheet and a Cash Flow Statement, 3.5 calculate and describe the importance of the Basic Liquidity Ratio, the Asset-to-Debt Ratio, and the Debt-to-Income Ratio and what they each measure, 3.6 define disposable and discretionary income, 3.7 explain the purpose of a revolving savings account, 3.8 describe different budgeting methods, 3.9 explain the Financial Checkup and state how often a checkup should be completed, 3.10 list four types of savings a person should work toward. What should your goals be based on? Your values What are three areas that you need financial plans for? Spending, risk management, capital accumulation What does a goal need to have to be effective? Specific; clear result defined, real dollar amounts, measurable, time frame Describe the purpose of the following: Net Worth Statement (aka balance sheet) Snapshot of assets, liabilities, and net worth (assets – liabilities) on a particular date Income and Expense statement (aka cash-flow statement) Summary of all income and expense transaction s over a specific time period List the 3 types of assets and what each are used for. Monetary Assets

Maintenance of living expenses, emergencies, savings, bills

Tangible Assets

Provide maintenance of one’s everyday lifestyle

Investment Assets

Maintenance of one’s future level of living

How should tangible assets be valued? Value depreciates over time.

What is the formula for calculating net worth? Assets – Liabilities = Net Worth

OR

Owned – Owed = Net Worth

Which type of expense do you have more control over?

For each of the following ratios, state the purpose and the formula. Liquidity Ratio (Emergencies) Liquid Assets / Monthly Expenses = Ratio Asset-to-Debt Ratio (Debt Obligations) Total Assets / Total Liabilities = Ratio Debt-to-Income Ratio (Total Debt Burden) Annual Debt Payments / Gross Annual Income = Ratio What is the difference between disposable and discretionary income? Disposable: take-home pay; pay received after employer withholdings (taxes, insurance) Discretionary: controllable; money left over after necessities (housing, food) List two purposes of a revolving savings account. Accumulate funds for large nonmonthly irregular expenses (insurance premiums, holiday gifts) Meet occasional deficits due to income fluctuations List various budgeting control methods. Track what you spend, budget for shopping trips, record the purpose of expenditures, track any credit transactions, monitor unexpended balances to control overspending the number, justify exceptions to avoid lying to yourself, use a subordinate budget, envelope system, financial app How often should a financial checkup be completed? Annually List four types of savings a person should work toward. Emergency savings

Revolving saving for irregular expenses

Future purchases

Retirement

Process Question: What method do you use, if any, to manage your money?

Quiz 3 1. A balance sheet include ___, ____, and ____ a. Assets; liabilities; net worth 2. Which of the following types of assets is primarily used to emergencies, maintenance of living expenses, savings, and payment of bills? a. Monetary 3. An income and expense statement is also known as a(n) ___ statement. a. Cash-flow 4. In which of the following areas does a person usually have the most control? a. Variable expenses 5. Which of the following shows the number of months a person could continue to meet expenses using only his or her monetary assets if all income ceased? a. Basic liquidity ratio 6. Which of the following is one of the purposes of a revolving savings account? a. To cover large nonmonthly expenses 7. How often should a financial checkup be completed? a. annually 8. Which of the following was not mentioned in The Financial Checkup booklet as one of the four important savings? a. For a down payment on a home 9. Which of the following is the amount of income remaining after taxes and withholdings? a. Disposable income 10. Goals should be based on a. A person’s values 11. Assets on the balance sheet are valued at their a. Fair market value 12. Which of the following ratios should be 36% or less and decline as one grows older? a. Debt-to-income ratio 13. Which of the following budgeting methods has the strongest control and works especially well with small, variable expenses? a. The envelope method...