Personal Finance 20 points possible

Your Score =

Ch. 3.1 Organizing Your Personal Financial Records

Ch. 3.2 Personal Financial Statements
Ch. 3.3 Budgeting to Achieve Your Financial Goals

KNOW THESE KEY TERMS:

1)balance sheet 2) liquid assets 3) market value , 4) insolvency 5) cash flow,
6)discretionary income, 7)surplus, 8) deficit, 9) consumer price index, 10) budget variance

1. Explain opportunity cost. (1 pt)

Opportunity cost is the trade-off of a decision.

2. Personal financial statements can give you a good idea of where you are headed financially and
where you are now in relation to your financial goals. Define Balance Sheet. (1 pt)

Balance sheets are personal financial statements to provide information about your
financial position.

3. List the four different types of assets that you might own. (1 pt)

Liquid- items that can quickly be converted to cash.

Real Estate- land that a person owns and anything that is on it.
Personal Possessions- cars and any other valuable belongings that aren’t real estate.
Investment Assets- retirement accounts and securities such as stocks and bonds.

4. List the three most valuable items that you own and their approximate value. (1 pt)

Car- $15k
PC- $2k
College Fund- $20k

5. Explain the two different types of liabilities that you may have. (1 pt)

Current- short-term debts that must be paid within a year.

Non-current- long-term debts that must be paid in over a year.

6. Write the formula for Net Worth: (1 pt)

Assets – Liabilities = Net Worth

7. Write the formula for Net Cash Flow: (1 pt)

Income – Expenses = Net Cash Flow

8. Jane has a checking account with $1100, bonds worth $500, a house valued at $150,000, a car
worth $8,000 and miscellaneous possessions worth $7,000. She owes $750 on credit cards, has a
$100,000 mortgage, has a $4500 car loan and owes $300 in utilities. Her net pay is $400 a week.
Her house payment is $800 and she has other monthly expenses totaling $600. (2 pts)
What is her net worth?

(1100 + 500 + 150000 + 8000 + 7000) – (750 + 100000 + 4500 + 300) = 61050

What is her net cash flow?

800 – 600 = 200

9. What is the difference between cash flow and net worth? (1 pt)

Net worth is your over all value. Net cash flow is your overall income.

10. Complete the following table: (4 pts)

Formula Meaning & Recommendation

Debt Ratio Liabilities / Net Worth Compares your liabilities to your net
worth. A low debt ratio is desirable.

Liquidity Ratio Liquid Assets / Monthly Indicated number of months you would
Expenses be able to pay your living expenses in
case of a financial emergency such as
the loss of your job. The higher, the
better.
Debt-payments Ratio Monthly Credit / Take-Home Indicates how much of a person’s
Pay earning go to pay debts (excluding
home mortgage). Recommended ratio
below 20%.
Saving Ratio Monthly Savings / Gross Recommend ratio of at least 10%.
Monthly Income

11. List the 7 steps in preparing a practical budget. (3 pts)

Set up financial goals, Estimate income, Budget for unexpected expenses, Budget for fixed
expenses, Budget for variable expenses, Recording what you spend, Review spending and
saving patterns.

12. List three of your fixed expenses (or your family’s). (1 pt)

Auto bills, Mortgage, Phone Bill.

13. List three of your variable expenses (or your family’s). (1 pt)

Utilities, Gas, Medical.

14. What are the three important characteristics of a successful budget? (1 pt)

Planned, Practical, Flexible.