Personal finance chapter 1

Evaluating your financial health consists of

All of the above. Determining where your money comes from and where it goes, preparing a personal balance sheet, determining what you are worth , and preparing a personal income statement)

Suppose that you just completed your first year of college with $12,000 in loans and plan to borrow the maximum each year from now until graduation. You have never accounted for the way you spend your money, do not have a budget, and want to insure that you will be able to repay your loans after college. What is the most important thing you can do right now?

Immediately begin to develop a personal financial plan

Why do you need to have liquidity?

Liquidity allows you to access your money with ease, when you need it. Life happens; at any moment, you could develop an illness, lose a job, or wreck your car. When unforeseen circumstances occur, you need to have access to enough money to make it through.

Which of the following is one of the five basic steps in personal financial planning?

Develop a plan of action

While reviewing your current financial plan, you discover that you most likely wonʹt achieve your long term financial goals. What should you do now?

A) Look at increasing your income. B) Look at cutting back on your expenses. C) Look at revising your goals. D) All of these would be realistic things to d Answer is D

You need to review your progress and reevaluate and revise your plan (Step 5) because

All of these are good reasons to periodically review your financial plan.

What is one difference between stage 2 in the Financial Life Cycle and stage 3 in the Financial Life Cycle

During stage 2, you will earn more than you spend; whereas during stage 3 you will spend more than you earn

After retirement starts, which aspect of financial planning becomes imperative?

Estate planning

1) Today, most Americans over the age of 65 have adequate savings and income available to them during retirement. T/f

False

2) The most important aspect of choosing a career is the amount of income that career will generate over your lifetime

False

A financial plan is only concerned with your future earnings and expenses. An examination of your current financial situation is not so important

False

A well-educated and trained employee is virtually guaranteed job security by todayʹs employers. Therefore, he or she doesnʹt need to worry about keeping his or her skills current.

False

Which statement is true about managing personal finances?

Financial difficulties can be a major cause of marital problems.

According to a recent Rockefeller Foundation report, the financial issue Americans worry about the most is the ability to pay

For retirement expenses

Which of the following statements applies to obtaining an undergraduate college degree?

It may be the single best investment you will ever make.

Step 3 of the personal financial planning process is ʺDevelop a Plan of Action.ʺ According to your text, which of the following is not one of the ʺcommon concernsʺ that should guide all financial plans?

Long term profitability

This course/text will assist you in accomplishing six financial objectives. What are they

Manage the unplanned. 2. Accumulate wealth for special expenses. 3. Realistically save for retirement. 4. Cover your assets. 5. Invest intelligently. 6. Minimize your payments to Uncle Sam.

What did the economic downturn that began in 2008 reveal about many Americansʹ financial concerns? How can you alleviate those concerns in your own personal financial planning?

Many Americans are not adequately prepared for retirement and have insufficient emergency funds, too much debt, and inadequate health insurance. These concerns can be alleviated with proper financial planning, maintaining a sufficient emergency fund, avoiding excessive debt, and carrying adequate health insurance

Which basic step to personal financial planning should be considered when examining your current financial situation?

One

What should you do with your goals on a frequent basis throughout your lifetime?

Prioritize them Modify them Put them in writing

Why should you prioritize your financial goals?

Prioritizing goals might make you realize that some of your goals are simply unrealistic, leading you to reevaluate them. However, once your final goals are in place, they become the cornerstone of your personal financial plan, serving as a guide to action and a benchmark for assessing the effectiveness of the plan.

While each personʹs financial plan is different, some common factors guide all sound financial plans. Which of the following is one of the common factors?

Protection

Suppose you have just retired, have accumulated many luxury goods over the years, still owe a mortgage on your home, still have unpaid travel expenses on your credit cards, and have helped your adult children financially. Your spouse has recently passed away, and you miss his/her contribution to the household income. Which step in the personal financial planning process have you neglected?

Review your progress, reevaluate, and revise your plan

) According to a resumedoctor.com recruiting survey, the most common mistake made by job interviewees is talking too much.

True

4) The first steps in career planning are conducting a self-assessment and developing an understanding of what sort of lifestyle you wish to lead.

True

Estate-planning tools such as wills, living wills, health proxies, powers of attorney, and record-keeping should all be in place to help protect you, your assets, and your heirs.

True

Financial planning is an ongoing process. As your financial situation and position in life change, the plan changes

True

Its important to take a close look at the 2008 economic downturn as a means to highlight how vulnerable Americanʹs finances are

True

One purpose of financial planning is to help you legally reduce the amount of taxes you have to pay on your earnings.

True

Proper financial planning can help you use your current income to achieve your long term financial goals

True

Salaries vary for individuals working in similar jobs for different companies, but one thing is clear: the more specialized skills and training a job requires, the higher the job tends to pay.

True

While each personʹs financial plan is different, some common factors guide all sound financial plans: flexibility, liquidity, protection, and minimization of taxes

True

Based on the Life Cycle of Financial Planning, when would be a good time to review and possibly adjust an effective financial plan?

When you get married and have children

Why do individuals need to plan for their finances?

Without financial planning individuals will suffer and be at a loss both in the present time and in the future. Too many people reach retirement broke and in poor health. Their financial means are so limited they live out a meager existence and become a burden upon family and society. Life is meant to be enjoyed and only by planning can we do that. Because it is always easier to spend than save, financial planning is a must!

Elaborate upon the four common concerns that should guide all financial plans.

Your financial plan should be flexible enough to respond to changes in your life and unexpected events. Planning must allow some funds to be liquid to allow access to money when you need it quickly. Plan for protecting your assets and yourself with adequate insurance. Finally, your financial plan should take taxes into account to pay as little as legally possible.

1) The economic downturn that began in 2008 resulted in negative consequences, including

a dramatic increase in unemployment rates. B) disrupted financial markets. C) difficulty for consumers to borrow money from lending institutions ABc

Personal financial planning can help you to

- deal with unplanned health issues. - minimize your tax payments to Uncle Sam. - minimize your chances of personal bankruptcy. - have enough money for a comfortable retirement.

Which basic step to personal financial planning should be considered when establishing your personal financial goals

2

The personal financial planning process consists of

5 steps

How will a financial plan help you save for retirement?

A strong financial plan will help you forecast the costs of retirement and develop a plan that will allow you to live a comfortable life after you retire.

What elements are found in an effective financial plan?

A) Flexibility to allow for changes in your situation B) Sufficient liquidity to meet unexpected needs C) Insurance protection from catastrophic events D) Helps you legally reduce the amount of taxes you owe All of the above !!

Which of the following typically occur(s) during stage 1 of the financial life cycle?

A) Initial goal setting B) Insurance planning C) Saving for goals D) Home purchase

What is the significance of the financial life cycle?

Both To better understand how your financial needs will most likely change over time and To allow you to be more proactive in dealing with expected changes in the future and take steps today to prepare for them are significant aspects of the financial life cycle.

What is the main factor in determining your potential income level?

Education and skills that you have attained

In the typical consumerʹs financial life cycle, one difference between stage 2 and stage 3 is that in stage 3 you will earn more than you spend, whereas in stage 2 you will spend more than you earn

False

Most individuals will reach their financial goals without planning or budgeting.

False

Once a sound financial plan is in place, there should be no need to ever change it.

False

The amount of current income that you earn today isnʹt relevant to setting your long term goals for the future.

False

The economic downturn that began in 2008 demonstrated that many Americans have sufficient emergency funds.

False

When comparing two different investment opportunities the investor should always choose the investment that minimizes the total amount of taxes paid.

False

short-term goal might take from one to 10 years to accomplish.

False

Annual public school tuition and fees are three times more expensive than private school tuition and fees.

Falsw

In order for your financial plan to be realistic and attainable it needs to be based upon your

Income level

Suppose that you are a 21-year-old college student. What stage of the financial life cycle are you currently in?

Stage 1: wealth accumulation

Which stage in the Financial Life Cycle is the longest in terms of years?

Stage 1: wealth accumulation

According to the Keown book, you might begin to think about estate planning during this stage of the financial life cycle.

Stage 2: the golden years

ne of the most important factors to remember when hunting for your first job is to

Start early

2) All else being equal, an increase in inflation will cause investors to require a higher rate of return on an asset.

T

According to a 2014 resumedoctor.com recruiting survey, the most common mistake made by job interviewees is

Talking too much

During which stage of the financial life cycle do many people make their biggest investment, the purchase of a home?

The wealth accumulation

The major reason to make a financial plan is to

achieve your financial goals

_____ is the process of identifying a job that you feel is important and that will lead to the kind of lifestyle you desire.

career planning

On his goals worksheet, James has written down his short-term goals for the next year. He has prioritized his goals and determined a feasible due date by which he wants to achieve his goals. According to the textbook, the final step James needs to complete in the goals process is to

determine an appropriate cost for each of his listed goals.

When you are involved in ________ planning, you are planning for your eventual death and the distribution of your wealth to your heirs.

estate

An economic condition in which rising prices reduce the purchasing power of money is termed

inflation

The term that considers having money readily available when you need it is the concept of

liquidity

Differentiate between short-term, intermediate, and long-term goals. Give example

r: Short-term goals can be accomplished within one year, such as taking a vacation. Intermediate goals take between one and ten years to reach, such as saving for a college education or the down payment on a house. Long-term goals take more than ten years to accomplish. Retirement planning is a common long-term goal.

What elements are included in a solid financial plan?

solid personal financial plan includes an informed and controlled budget, outlines your investment strategy, and reflects your unique personal and financial goals.

Being financially secure involves balancing what you earn with

what you spend

Probably the most important determinant of your future earnings will be

your highest level of education obtained

Describe the five steps in the personal financial planning process

Step 1: Evaluate your financial health by examining your current financial situation. Look at your whole financial picture. Keep records and determine your net worth. Step 2: Define your financial goals by describing what, when, and how much you want to do. Written goals will draw you to them. Step 3: Develop a plan of action to reach your goals. Donʹt just think about goals decide how you will carry them out! Let flexibility, liquidity, protection, and minimization of taxes guide your plan. Step 4: Implement your plan by carrying it out just do it! Stick to your plan. Step 5: Review your progress, reevaluate, and revise your plan periodically and as needed.

Give an example of a decision that might not be considered a financial decision but will have a major impact on your financial situation.

The decision to have a child will have a major impact on your financial situation. Although finances arenʹt considered the primary factor determining when to have children, the timing certainly has enormous financial implications, causing significant changes in housing, child care, and education costs. Considering that childrearing can cost $9,683 to $22,210 per child per year, saving to finance that childʹs college education might pose as a real challenge.

Suppose that you are a 60-year-old business owner. What stage of the financial life cycle are you currently in

The golden years

Why is it important to conduct an effective self-assessment?

Conducting an effective self-assessment allows you to look honestly at many aspects of your life. After completing the assessment, you will have a valuable understanding of your interests, skills, values, personal traits, and desired lifestyle. Then you can research career options and identify those in which your abilities are valued. Once youʹve narrowed down a list of possibilities, weigh the positive and negative aspects of each profession.

List some way to increase your value as an employee

Do your best work. Project the right image-one aligned with the organizationʹs values. Gain an understanding of the organizationʹs power structure so that you can work within it. Gain visibility. Make those with power aware of your contributions. Request new assignments in order to gain experience and an understanding of the various operations of the organization. Be loyal to and supportive of your boss. Remember, he or she controls your immediate future. Continually acquire new skills-particularly skills that are not easy to duplicate. Develop a strong network of people who can assist you when you look for a new job. Pay attention to ethical considerations. The most damaging event that you can experience is for your coworkers to lose confidence in your ethical standards. Ethical violations end careers.

Explain the essence and importance of each of the stages in the financial life cycle.

The overall financial life cycle allows you to better understand the timing and areas of financial concern that youʹll probably experience. It allows you to focus on those concerns earlier and to plan ahead to avoid future financial problems. Stage 1 is a time of wealth accumulation, initial goal setting, home purchase, family formation, insurance planning, saving for goals, and some tax and estate planning. Itʹs a time to develop a regular pattern of saving because itʹs tempting to spend rather than save. Consumers are ages 18 through 54 in this stage. Stage 2 covers ages 55 to 64 or the golden years approaching retirement. This is a transition from the earning years when you will earn more than you spend. Much of the financial activities will be spent in fine tuning. Consumers put an emphasis on tax and estate planning, paying ourselves first, and insurance planning. Stage 3 consists of the retirement years, for most people age 65 and older. Consumers reap the benefits of sound planning or the losses from unsound planning. You will attempt to ensure continued financial security and perhaps work part-time.

What is the relationship between earnings, education, and standard of living

There is a direct relationship between earnings and standard of living and education. The more education an individual has, the more he or she will earn in general and thus enjoy a higher standard of living. The opposite holds true also. The less education one has the lower the earnings and standard of living

Financial planning might not help you earn more, but it can help you use the money you do earn to achieve your

financial goals