1. Gathering information is the first step in managing personal finances because it allows individuals to have a clear understanding of their financial situation. Having accurate information about personal finances is important because it helps in making informed decisions regarding budgeting, saving, investing, and managing debt. When applying for a loan, having accurate financial information is crucial as lenders will use this information to determine the individual's creditworthiness and ability to repay the loan.
2. When going off to college, a student might choose to open a basic checking account as it provides easy access to funds and usually has low or no fees. Several decades later, after working and saving money, individuals might need to open additional accounts such as a savings account, retirement account, or investment account to meet long-term financial goals. Some disadvantages of certain accounts may include high fees or limitations on the number of transactions.
3. To reconcile the account, you need to subtract the $150 check to your cousin and add the $893.86 paycheck. You also need to subtract the $400 rent check and the $73.26 spent on groceries. The total balance after reconciling the account will be $832.33 ($562.73 - $150 + $893.86 - $400 - $73.26).
4. Earned income, like wages, is the income received from working for someone else or running a business. Unearned income, like interest or rental income, is income received from investments or property ownership. Taxes on earned income are typically withheld from paychecks by employers, while unearned income may be subject to different tax rates and reporting requirements.
5. Tax liability is the amount of tax that an individual owes to the government based on their income and tax deductions. It is important for individuals to correctly calculate their tax liability to avoid underpaying or overpaying taxes. To calculate tax liability, individuals must determine their taxable income, apply the appropriate tax rates, and subtract any tax deductions or credits. Failure to accurately calculate tax liability can result in penalties or interest charges from the IRS.