Finance

• The Personal Financial Planning Proccess?

  1. Evaluate your financial health
  2. Define your financial goals
  3. DevelopProcess a plan of action
  4. Implement your plan
  5. Review your progress, reevaluate, and revise your plan
• Liquidity - The relative ease and speed with which you can convert noncash assets into cash. In effect, it involves having access to your money when you need it
• Stage 1 - The early years -> A time of wealth accumulation (up til age 54)
• Stage 2 - Approaching retirement - the golden years (Age 55-64)
• Stage 3 - The retirement years (age 65 and over)
• Estate planning - For your eventual death and the passage of your wealth to your heirs
• Inflation - An economic condition in which rising prices reduce the purchasing power of money
• Personal Balance Sheet - A statement of your financial position on a given date including assets you own, debt, or liabilities you have incurred, which is referred to as net worth
• Assets - What you own
• Liabilities - What you owe, your debt or borrowing
• Tangible Asset - A physical asset as opposed to an investment
• Blue Book - A listing of used-car prices, giving the average price a particular car sells for and its expected trade-in value
• Short Term Debt - Debt that you must pay off within a year
• Long-Term Debt - Tends to include larger debt; typically too large to be paid off within a year
• Net Worth - A measure of your wealth
• Insolvent - Owing more money than one's assets are worth
• Income Statement - A statement that tells you where your money comes and goes
• Current Ratio = Monetary Assets/Current Liabilities
• Month's Living Expenses Covered Ratio = Monetary Assets/Annual Living Expenditures/12
• Debt Ratio = Total Debt or Liabilities/Total Assets
• Savings Ratio = Income available for savings and investment/income available for living expenditures
• Time Value of Money - A dollar received today is worth more than a dollar received the future
• Compound Interest - The effect of earning interest on interest, resulting from the reinvestment of interest paid on an investment's principal
• Principal - The face value of a deposit or debt instrument
• Annual Interest Rate - The rate charged or paid for the use of money on an annual basis
• Rule of 72 - A helpful investment rule that states you can determine how many years it will take for a sum to double: Annual growth rate/72
• Discount Rate - The interest rate used to bring future dollars back to the present
• Amortized Loan - A loan paid off in equal installments
• How many years do women outlive men?

  7 years
• Annuity - A series of equal dollar payments coming at the end of each time period for a specified number of time periods
• Tax Brackets - Income ranges in which the same marginal tax rates apply
• Tax-Deferred - Income on which the payment of taxes is postponed until future date
• Bracket Creep - Movement into a higher tax bracket when wages are increased due to inflation
• Dependent - A person you financially support
• Exemption - A deduction that you can take on your return for each person supported by the income listed on your tax return
• Deductions - Expenses that reduce taxable income
• Standard Deduction - A set deduction allowed by the IRS, regardless of what a taxpayer's expenses actually were
• Itemized Deductions - Deductions you personally make
• Capital Asset - An asset you own
• Social Security - A federal program that provides disability and retirement benefits based on years worked, amount paid into the plan, and retirement age