This document defines and provides examples of key money management terms:
- Budgeting involves creating a plan to pay all expenses including savings from one's income. The example shows saving 25% of each paycheck for college.
- Risk refers to the chance of loss, with higher risk investments potentially leading to bigger gains or losses. Wearing a helmet lowers the risk of injury from biking.
- Insurance protects against specified losses, like health insurance covering illnesses or car insurance required in Missouri. Thankfully, car insurance covered an accident in a school parking lot.
2. BUDGET
Having a plan for the money a
family earns so that all the
expenses are paid, including
savings and debt repayment.
My mom and I created a budget, that has me saving 25% of
my paycheck every two weeks. This way I will have money
saved for college.
3. RISK
Exposure to the
chance of injury or
loss; a hazard or
dangerous chance.
Risk as it comes to
money, especially
investments – the
higher the risk, the
higher chance for
bigger GAINS or
LOSSES.
By wearing a helmet when riding
your bike, you lower risk of having a
head injury if you have an accident.
4. INSURANCE
Insurance protects a person against loss or harm
arising in specified instances, such as fire,
accident, death, disablement, or the like, in
consideration of a payment proportionate to the
risk involved.
Home Insurance- If there is a fire or a tornado
you shouldn’t be left homeless with no belongings
– your insurance would help cover your loss. Read
your coverage carefully.
Health Insurance- helps a person pay for major
illnesses or injury
Car Insurance – which is required in Missouri for
any driver, helps protect your car.
Life Insurance- Can help a person to pay for their
funeral expenses and could also take care loved
ones left behind.
Thank goodness, I had car insurance
because I hit another car in the
parking lot at school.
6. VARIABLE/FLEXIBLE EXPENSES:
Matt was examining his household budget and could not figure
out why his variable expenses had increased so much. Then he
realized that his son was going through the groceries like crazy
and he was buying a lot more food each month.
7. PROBABILITY:
The probability of losing weight
drastically increases if I start
exercising and cut back on
eating junk food.
8. ECONOMY:
The U.S economy is showing improvement because
there are fewer unemployed people.
The dollar menu at McDonalds makes good economic
sense because I spend less money to eat.
Flying economy class instead of first class means I
spend less money to travel.
9. ASSETS
Items you own – or that you owe LESS than they are
worth would be an asset. For example: My car is worth
$10,000 and I only owe $3500 so this makes it an asset.
Because if I had to sell it I would be able to have money
A few of my assets include my home, car, and
computer.
10. SOLVENT
Because I am
financially solvent,
my credit score is
very high and I can
easily get approved
for a loan to buy a
new car.