| A | B |
|---|
| personal financial plan | specifying financial goals and describing in detail the spending, financing and investing plans needed to reach those goals |
| assets | anything owned, such as cars, motorcyles, and homes |
| liabilities | what we owe, or our debt |
| net worth | the differenc between assets and liability |
| equity | the amount of a specific asset that we own after subtracting any liabilities |
| income | money coming in through wages earned, allowance or other sources |
| liquidity | how much readily available cash you have on hand for meeting immediate wants and needs |
| interest | "rent" on money you borrow (the cost of borrowing money) |
| managing risk | involves limiting the possibility of financial loss through various methods including the purchase of adequate insurance |
| money management | deals with deciding how much cash to keep in liquid accounts and how much to invest |
| credit management | deals with obtaining and using credit |
| 7 key components of a financial plan | 1. budgeting income, expenses and taxes; 2. managing liquidity, including management of money and credit; 3. financing large purchases; 4. managing your risk, through the use of insurance; 5. investing your money; 6. planning for retirement and transferring wealth; 7. communicating and keeping records |
| what is the purpose of insurance? | helps you manage your exposure to risk |
| what is the primary objective of investing? | to increase the value of your assets |
| what factors determine how much you can borrow? | your creditworthiness, the interest rate, and time period for paying back loans |
| budget planning | budgeting involves forecasting future expenses and income |
| net worth | knowing this helps you know where you are beginning in your quest to reach your goals |
