Financial Planning Quiz

cash surplus

an excess amount of income over expenses that results in *increased* net worth

Professional financial planner

an individual or firm that helps clients establish financial goals and develop and implement financial plans to achieve those goals

net worth

an individual's or family's actual wealth; determined by subtracting total liabilities from total asset

internet bank

an online commercial bank

Stop payment

an order made by and account holder instructing the depository institution to refuse payment on an already issued check

long term liability

any debt due 1 year or more from the date of the balance sheet

current (short term) liability

any debt due within 1 year of the date of the balance sheet

Financial plans

are the road maps that show you the way

investments

assets such as stocks, bonds, mutual funds, and real estate that are acquired in order to earn a return rather than provide a service

liquid assets

assets that are held in the form of cash or that can readily be converted to cash with little or no loss in value

Personal financial statements

balance sheets and income and expense statements that serve as essential planning tools for developing and monitoring personal financial plans

Intermediate goals

bridge the gap between short and long term goals, and both intermediate and short term goals should be consistent with those long term goals

savings ratio

cash surplus divided by net income (after tax); indicates relative amount of cash surplus achieved during a given period

Savings and loan association

channels the savings of depositors primarily into mortgage loans for purchasing and improving homes. Also offers many of the same checking, savings, and lending products as commercial banks. Often pays slightly higher interest on savings than do commercial banks.

fixed expenses

contractual, predetermined expense involving equal payments each period

liabilities

debts such as credit card charges, loans, and mortgages

income

earnings received as wages, salaries, bonuses, commissions, interest, and dividends, or proceeds from the sale of assets

variable expenses

expenses involving payment amounts that change from one time period to the next

Biggest budgeting mistakes

failing to plan for inevitable expenses no emergency fund living above your means

Chartered Financial Consultant (ChFC)

financial planning designation for insurance agents

Chartered Financial Analysts (CFA)

focuses primarily on securities analysis not financial planning

fair market value

the actual value of an assets, or the price for which it can reasonably be expected to sell in the open market

Utility

the amount of satisfaction received from purchasing certain types or quantities of goods and services

Net worth

the difference between your assets and liabilities

insolvency

the financial state in which net worth is less than zero

Money

the medium of exchange used as measure of value in financial transactions

Average propensity to consume

the percentage of each dollar of income, on average that a person spends for current needs rather than savings

Overdraft

the result of writing a check for an amount greater than the current account balance

Cash management

the routine, day to day administration of cash and near cash resources, also known as liquid assets, by and individual or family

Wealth

the total value of al items owned by an individual, such as savings accounts, stocks, bonds, home, and automobiles

liquidity ratio

total liquid assets divided by total current debts; measures the ability to pay current debts

debt service ratio

total monthly loan payments divided by monthly gross (before tax) income; provides a measure of the ability to pay debts promptly. *Makes sure you can comfortably meet your debt obligation*

solvency ratio

total net worth divided by total assets; measures the degree of exposure to insolvency

Liabilities

what you owe

Assets

what you own

compound interest

when interest earned in each subsequent period is determined by applying the nominal (stated) rate of interest to the sum of the initial deposit and the interest earned in each prior period

equity

the actual ownership interest in a specific assets or group of assets

What determines your personal income?

Demographics Education Where you live Career Planning your career

6 step financial planning process

-define financial goals -develop financial plans and strategies -implement financial plans and strategies -periodically develop and implement budgets to monitor and control progress towards goals -use financial statements to evaluate results of plans and budgets, taking corrective action as required -redefined goals and revise plans and strategies as personal circumstances change

Individual joint account

-they can each open individual checking accounts (on which the other cannot write checks) -they can open a joint account that requires both signatures on all checks -they can open a join account that allows either one to write checks (the most common type of join account)

Special types of checks

-cashier checks -traverler's checks -certified check

Types of planners

-commission based planner (earn commission on financial products they sell) -fee-only planner (charge fees based on the complexity of the plan they prepare) -Hybrid approach (charge fees and collect commissions on products they sell, offering lower fees if you make product transactions through them

Plans to achieve financial goals

-asset acquisition planning -liability and insurance planning -savings and investment planning -employee benefit planning -tax planning -retirement and estate planning

Short term goals

12 month period

Long term goals

6 years output to the next 30 or 40 years

Money market deposit account (MMDA)

A federally insured savings account, offered by banks and other depository institutions, that competes with money market mutual funds

Credit Union

A nonprofit, member owned finical cooperative that provides a full range of financial products and services to its members, who must belong to a common occupation, religious or fraternal order, or residential area. Generally small institutions when compared to commercial banks and S&L's.

Psychology of Money

Money and its utility aren't only economic concepts; they're also closely linked to the psychological concepts of values, emotion, and personality. Your personal value system--the important ideals and beliefs that guide your life--will also shape your attitude toward money and wealth accumulation.

Debit cards

Specially coded plastic cards used to transfer funds from a customer's banks account to the recipient's account to pay for goods and services

SMART

Specific Measurable Attainable Realistic Timely

Cashier's check

a check payable to a third party that is drawn by a bank on itself in exchange for the amount specified plus, in most cases, a service fee (of about $5)

Traverler's check

a check sold (for a fee of about 1.5 %) by many large financial institutions, typically in denominations ranging from $20 to $100, the can be used for making purchases and exchanged for local currencies in most parts of the world

Negotiable order of withdrawal (NOW) account

a checking account on which the financial institution pays interest; NOWs have no legal minimum balance

Budget

a detailed financial report that looks *forward*, based on expected income and expenses

Balance sheet

a financial statement that describes a person's financial position at a *given point in time*

Income and expense statement

a financial statement that measures financial performance *over time*

Money market mutual fund (MMMF)

a mutual fund that pools the funds of many small investors and purchases high-return, short-term marketable securities

Certified check

a personal check that is guaranteed (for a fee of $10 to $15 or more) by the bank on which it is drawn

ATM

a remore computer terminal that customers of depository institutions can use to make basic transactions 24 hours a day, 7 days a week

Series EE bond

a savings bond issued in various denominations by the U.S. Treasury

I savings bond

a savings bond, issued at face value by the U.S. Treasury, whose partially fixed rate provides some inflation protection

U.S. treasury bill (T-bill)

a short term (3 or 6 month maturity) debt instrument issued at a discount by the U.S. Treasury in the ongoing process of funding the national debt

Inflation

a state of economy in which the general price level is increasing

Cafeteria plan

a type of employee benefit plan wherein the employer allocates a certain amount of money and then the employee "spends" that money for benefits selected from a menu covering everything from child care to health and life insurance to retirement benefits

Certificate of Deposit (CD)

a type of savings instrument issued by certain financial institutions in exchange for a deposit; typically requires a minimum deposit and has a maturity ranging from 7 days to as long as 7 more years

Demand deposit

an account held at a financial institution from high funds can be withdrawn on demand by the account holder; same as a checking account

Overdraft protection

an arrangement between the account holder and the depository institution wherein the institution automatically pays a check that overdraws the account

cash deficit

an excess amount of expenses over income, resulting insufficient funds as well as in *decreased* net worth

Financial assets

intangible assets, such as savings accounts and securities, that are acquired for some promised future return

expenses

money spend on living expenses and to pay taxes, purchase assets, or repay debt

Commercial bank

offers checking and savings accounts and a full range of financial products and services; the only institution that can offer non interest paying checking accounts (demand deposits). The most popular of the depository financial institutions.

Tangible asset

physical assets, such as real estate and automobiles, that can be held for either consumption or investment purposes

mutual funds

provide yet another alternative to bank savings accounts. like stockbrokers, mutual fund companies offer money market mutual funds

Certified Financial Planner (CFP)

required a comprehensive education in financial planning

Financial goals

results that an individual wants to attain, such as buying a home, building a college fund, or achieving financial independence

Electronic funds transfer systems

systems using the latest telecommunications and computer technology to electronically transfer funds into and out of customers accounts

real property

tangible assets that are immovable; land and anything fixed to it, such as a house

personal property

tangible assets that are movable and use in everyday life