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NDSU HDFS 357 - Exam 1 Study Guide

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HDFS 357 1st EditionExam # 1 Study Guide Lectures: 1 – 7Chapter 1: Personal Finance Basics and the Time Value of Money- Financial Planning Processo Step 1: Determine your current financial situationo Step 2: Develop your financial goals SMART Goals- Specific: know what your goals are to create a plan- Measureable: with a specific amount- Action-oriented: identify the personal financial activities- Realistic: utilizing your income and life situation- Time-based: identify the time frame to achieve the goalo Step 6: Review and revise your plan- Opportunity Cost: what you give up when you make a choice - Influences on Personal Financial Planningo Economic Factors Supply & Demand: as demand increases, so does the price Ex: rent in Williston, ND tops averages in New York City and Los Angeles- Time Value of Moneyo Future Value: the amount to which current savings will increase based on a certain interest rate and a certain time periodo Present Value: The current value of future amount based on a certain interest rate and a certain time periodChapter 3: Money Management Strategy: Financial Statements and Budgeting- Balance Sheet (General overview of finances)o Assets- what you owno Liabilities- what you oweo Net Worth- assets- liabilities=net worth - Cash Flow Statement (the actual inflow and outflow for a given time period)o Fixed Expenses: Set expenses (e.g., rent, car payment, phone bill)o Variable Expenses: Unpredictable expenses (e.g., electricity, groceries)- Budget Deficit: when the difference between income and outflows are negativeChapter 5: Financial Services: Savings Plans and Payment Accounts- Truth in Savings Act- requires the disclosure of fees on deposit accounts, interest rates, and other terms and conditions- Evaluating Savings Plans: Ask- What is the interest rate? When and how often can money be withdrawn? What are the fees?- Certified Check- personal check with guaranteed payment; bank certifies that funds are available- Cashiers Check- check of a financial institution; you pay bank, they write the check- Federal Reserve (The Fed)- determines the supply of money available and interest rateso Interest rate (decrease it – more spending, increase it – less spending)Chapter 4: Planning Your Tax Strategy- Types of Taxes1. Taxes on purchases2. Taxes on property3. Taxes on wealth4. Taxes on earningso Estate Taxo Income Tax Taxable Income: earned income, investment income, and other income (alimony, awards, lottery winnings and prizes Standard Deduction: set amount on which no taxes are paid Exclusions: sets aside certain incomes as nontaxable Tax Credit: a sum subtracted from the total amount a taxpayer owes to the state Withholding: a government requirement for the payer of an item of income to withhold or deduct tax from the payment, and pay that tax to the government Tax Liability: the total amount of tax that an entity is legally obligatedto pay to an authority as the result of the occurrence of a taxable event Audits- 3 typeso 1. Correspondence- for minor questionso 2. Office audit- takes place in IRS officeo 3. Field- most complex, IRS agent visits you at home, business or your accountant’s office- Tax Evasiono Illegally not paying all the taxes you owe, such as not reporting all


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