Tuesday, August 6, 2013

Book "Home Finances for Couples". Extract from Chapter 4. "Family Financial Glossary"

I plan to publish my book "HOME FINANCES for COUPLES. 
Resolve Money Problems in Marriage and Learn Easy Steps to manage Family Budget"
on August 20th, 2013.

At this blog you can taste pieces that are ready. 

Here is the extract from Chapter 4. "Family Financial Glossary". 



Before we proceed to the technical side of maintaining a family budget, let’s agree on some financial terms. Here they are:

Account: Either a physical account (e.g. your bank account) or your account in your family finance software that has a certain money balance at certain date.

Accrual basis: You record incomes and expenses in a period, when they occur.
Example 1: Your company promised you a bonus of $10,000 for the first half of 2013. It will be paid till the end of the year. So, you record it as income in July, as you have already earned it.
Example 2: You paid upfront two months of rent on July 18. The total is $2,000 for August and September. The record is $1,000 in August expenses and $1,000 for September expenses.

Assets: All tangible things you have—money in your bank account, house, car, investments, deposits, patents, copyrights, loans to friends, shares, etc. If an individual item has value and can be sold for more than $2,000, I’ll treat it as an asset in my own home finances.

Cash basis: You record incomes and expenses when cash inflows and outflows occur.
In the examples above, you record bonuses when they’re paid, and the expense is $2,000 in July.

Expense: We all know what this is.

Incomes: Obviously, this is your incoming cash. In the corporate world, those are called revenues (sales), but for home finances, we use the term “incomes.”

Investments: These are part of your assets. Let’s agree that, under this term, we understand that all money, in some liquid form, are capable of bringing returns, e.g. savings bank accounts, bonds, stocks, etc.

Liabilities: Your debts, mortgage and different types of loans.

Net assets (Net worth): All assets minus all liabilities

Net profit (Net savings): Incomes minus Expenses, over the period (month, quarter, year …)
 
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