chapter 4 study guide personal finance

What are the 4 steps in the budget process?

1. Estimate income 2. Plan savings 3. Estimate expenses 4. Balance the budget

A financial plan should include a. personal goals b. financial goals c. a timeline for reaching goals d. all of the above

All of the above

Money and items of value that you own

Assets

Standards against which progress is measured

Benchmarks

A spending and saving plan based on expected income and expenses

Budget

Which of the following would represent a medium-term goal for a high school student? a. go to a dance in a month b. buy a car in two years c. retire at age 55 d. repay a college loan

Buy a car in two years

Which of the following steps should come first when making buying decisions? a. compare the options available b. identify the options for filling the need or solving the problem c. define the need or problem to be resolved by buying the item or service d. reevaluate your choices

Define the need or problem to be resolved by buying the item or service

In a financial plan, your financial goals a. describe how you will pay for your personal goals b. do not relate to your personal goals c. do not need to have a timeline d. should all be accomplished in the same amount of time

Describe how you will pay for your personal goals

The amount of money a person has to spend after needs are met is called a. net income b. profit c. discretionary income d. none of the above

Discretionary income

Which of the following is a variable expense? a. rent for an apartment that has a yearly lease b. payment for car insurance c. car payment d. entertainment

Entertainment

Items for which you must spend money are called a. assets b. liabilities c. net worth d. expenses

Expenses

A personal net worth statement lists your income and expenses for a period of time

False

All assets, or items of value, increase in value over time

False

Basic needs include items that make life more enjoyable, such as a television

False

Consumers should always make quick decisions about financial matters; otherwise, opportunities can be lost

False

Electronic records consist of manual and hard-copy records on which you jot down your thoughts

False

Financial planning is an informal process that focuses on what happened in the past

False

Long-term goals are typically those that will be achieved in the next two to five years

False

Personal goals are not a part of the financial goals that make up your financial planning

False

The first step in preparing a budget is to plan the amount you will save each month

False

Costs that do not change each month

Fixed expenses

Which of following sequences is correct for the five-step financial planning process? a. gather information, analyze information; set goals; develop a timeline and benchmarks; implement and evaluate the plan b. set goals; gather information; analyze information; develop a timeline and benchmarks; implement and evaluate the plan c. set goals; analyze information; develop a timeline and benchmarks; gather information; implement and evaluate the plan d. develop a timeline and benchmarks; set goals; gather information; analyze information; implement and evaluate the plan

Gather information, analyze information; set goals; develop a timeline and benchmarks; implement and evaluate the plan

Which of the following would typically be considered a need (rather than a want)? a. a new car b. housing c. vacation trip d. several pairs of shoes

Housing

Debts that you owe

Liabilities

Which of the following would be considered a cash inflow? a. net pay b. rent c. savings d. expenses

Net pay

The difference between your assets and liabilities

Net worth

The value of what you give up (when you make a choice) is the a. tradeoff b. asset c. net worth d. opportunity cost

Opportunity cost

The value of your next best option—what you are giving up

Opportunity cost

A scam in which an e-mail is sent from someone posing as your bank or other businesses asking for personal information

Phishing

When you create a personal budget, the second step in the process is to a. balance the budget b. plan the amount you will save c. estimate your income d. estimate your expenses

Plan the amount you will save

Which of the following is a fixed expense? a. food b. rent for an apartment that has a yearly lease c. utilities d. clothing

Rent for an apartment that has a yearly lease

Which of the following is an asset? a. credit card balance b. net worth c. savings account d. car loan

Savings account

A visual display of how long it will take to achieve each phase of a plan

Timeline

A budget is based on estimated cash inflows and outflows

True

Analyzing variances will help you understand and better estimate income and expenses

True

Budgets should be designed to help meet financial goals, such as paying off your long-term debts

True

Examples of fixed expenses include rent, insurance, and car payments

True

Financial choices you make today will affect your finances and your wealth tomorrow and throughout your future

True

Financial planners typically work for commission income, which means they are paid based on the financial products you purchase

True

Sometimes a financial plan involves a choice of not spending or buying now in order to save money to fulfill a long-term goal, also known as delayed gratification

True

Taking a look at your financial records is a good place to get started as you gather information for a financial plan

True

The term wants refers to items people desire for reasons beyond survival and basic comfort

True

Costs that can go up and down each month

Variable expenses

Differences between planned income or spending and actual income or spending are called a. profits b. variances c. income d. expenses

Variances