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personal finance

financial issues that affect an individual

personal financial planning

the process of planning every aspect of your personal finances

liquid assets

things you might have that can be rapidly converted to cash without a risk of significant loss

opportunity cost

the opportunity to spend or save your money

assets

anything we own

liabilities

anything we owe, our debt

income

the money coming through wages earned, allowance, or other sources

equity

ownership

liquidity

refers to how much readily available cash you have on hand for immediate wants and needs

money management

involves making decisions about how much cash or liquid assets to keep in reserve and how much to invest in less liquid assets

credit management

involves making decisions about getting credit and using credit

finance

the remaining amount

cash inflow

money received from a different source

cash outflow

money that you may spend

short-term goals

goals you plan to accomplish within the next year

middle-term goals

goals you aim to meet within the next 1-5 years

long-term goals

goals that will take more than 5 years to accomplish

expense

anything on which we sped money

fixed expense

remain the same from period to period

variable expense

expenses that change from one period to the next

risk

likelihood of loss

forecast error

the difference between what you forecast to happen and what actually happens

market value

something is what it would be worth if you sold it today

investment

something you acquire with the ultimate goal of making money

bonds

certificates that function like IOUs--promises to repay a certain amount of money at some future time

stocks

certificated that represent fractional ownership of a firm

mutual funds

created so investors can pool their money in order to invest in a larger variety of financial assets (stocks and bonds)

real estate

includes homes, rental property, farms, and other land

current liabilities

debts that must be paid off within 1 year

long-term liabilities

debts that will take longer than 1 year to pay off

net worth

the difference between your assets and your liabilities

budget

a forecast of future cash inflows and outflows

forecast error

the difference between what you forecast to happen and what actually happens

personal balance sheet

tells us our financial position at one point in time

household assets

include assets typically owned by a house hold; ex: cars and furniture

market value

what something would be worth if you sold it today

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