Personal Financial Planning Test 1

series EE

"patriot bonds"

intermediate goal

1-5

managing your checking account bank reconciliation

1. Compare written checks with those reported paid Subtract the total of all checks written but not yet cleared 2. Determine deposits not on the statement Add the amount to the statement balance 3. Subtract fees or charges and ATM withdrawals from the checkbook balance 4. Add any interest to your checkbook balance

taxable income process

1. determine AGI 2. computing taxable income 3. calculating taxes owed 4.making tax payments 5. deadlines and penalties

financial planning process

1. determine current financial situation 2. develop financial goals 3. identify alternative courses of action 4. eval alternatives 5. create and implement financial action plan 6. review and revise plan

components of balance sheet

1. list items of value 2. determine amounts owed 3. compute your net worth

cash flow statement process

1. record income 2. record cash outflows 3. determine net cash flow

completing the federal income tax return

1.Filing status and exemptions 2.Income 3.Adjustments to income 4.Tax computation 5.Tax credits 6.Other taxes (such as from self-employment 7. payments 8.refund or amount you owe 9. your signature

5 steps to selecting a financial institution

1.List features most important to you 2.Rank the top 3-4 most important features 3.List local, national, and online institutions 4.Conduct research: Talk with friends Online research Personal visit 5.Balance your needs with information collected

managing your checking account writing checks

1.Record the date 2. Write the name of the person/organization receiving the check 3. Record the amount of the check in figures 4. Write the amount of check in words 5. Sign the check 6. Note the reason for the payment

Future value

= original amount of savings + interest earned

long term goal

>5

balance sheet

A financial statement that reports what an individual or family owns and owes as of a specific date Also called: Net worth statement Statement of financial position

When creating a personal balance sheet, which of the following is considered to be a personal possession asset?

A five-year-old television set

A budget deficit would result when a person's or family's

Actual spending exceeds planned spending.

The equation to calculate net worth is

Assets - Liabilities = Net worth.

traditional IRA

Available to people who are not participating in an employer sponsored program. Amounts withdrawn are included in gross income.

roth IRA

Contributions not tax deductible. Amounts withdrawn are not included in gross income.

records on personal computer

Current and past budgets Summary of checks written and other banking transactions Past income tax returns Account summaries, performance results of investments Digital versions of wills, estate plans, and other documents

use a credit card to

Delay payment Build a credit history Buy online Major purchases Earn rewards

financial planning in our economy

Domestic economic influences Global Influences Inflation Interest rates

main components of gross income

Earned income Usually includes wages, salary, commissions, fees, tips, and bonuses Investment income Money received in the form of dividends, interest, or rent from investments Passive income Results from business activities in which you do not directly participate, such as a limited partnership Other income Alimony, awards, lottery winnings, and prizes

financial plan

Formalized report Summarizes current financial situation Analyzes financial needs Recommends future financial activities

tax evastion

Illegally not paying all the taxes you owe, such as not reporting all income

ways to increase net worth

Increase savings Reduce spending Increase the value of investments and other possessions Reduce amounts owed

advantages of financial planning

Increased effectiveness in obtaining, using, and protecting financial resources Increased control of your financial affairs Improved personal relationships Sense of freedom from financial worries

The inability to pay debts when they are due because liabilities far exceed the value of assets is called

Insolvency.

tax exempt investments

Interest income from municipal bonds are exempt from federal and some state taxes

A personal balance sheet reports

Items owned and amounts owed.

records in home fil

Items you refer to often Personal and employment records Money management records Tax records Financial services records Credit records Consumer purchase and auto records Housing records Insurance records Investment records Estate planning and retirement records

use a debit card to

Limit spending to available funds Avoid future bills Avoid interest or annual fee Obtain better protection

budget helps with

Live within your income Spend money wisely Reach financial goals Prepare for financial emergencies Develop wise financial management habits

budgeting system

Mental Budget Appropriate if financial resources and responsibilities are limited Physical Budget Envelopes, folders, or containers Written Budget On paper Computerized Budget Spreadsheet or specialized software

home ownership

One of the best tax shelters Deduct mortgage loan interest and property taxes Reduces your taxable income

Which of the following are two personal financial statements that you create yourself?

Personal balance sheet and cash flow statement

financial planning

Process of managing your money to achieve personal economic satisfaction

sedwig speaker

Professional voicemail Professional email address It is okay to negotiate salary Pay attention to benefit package Retirement Paid off time (POT) Ask for benefits summary when you get job offers PDF is preferred for resumes Don't waste time with cover letters

safe deposit box

Records and items that would be hard to replace Birth, marriage and death certificates List of checking, savings, and financial institution account numbers Citizenship and military papers Adoption and custody papers Serial numbers and photos of valuables CDs and credit and banking account numbers Mortgage papers and titles List of insurance policy numbers Stock and bond certificates Coins and other collectibles Copy of will

Effective Goals

S = Specific M = Measurable A = Action-oriented R = Realistic T = Time-based

financial services research

Services offered Fees disclosure Minimum balance Savings rate sheet Sample loan application Sufficient deposit insurance

All of the following are sources of income except

Social Security taxes

Mint Video

Spend less than you earn Make your money work for you Protect your money - emergency fund Prepare for the unexpected Mint allows you to track spending, user friendly, time efficient Allows you to see where all of your money is going Identify areas that you can be more efficient in with your money Save $200 a month for next 5 years at age 25 or 30 when you started, you would have about 1 million saved by the time you retire "Where we are now and we want to go in the future"

Which of the following is NOT a main purpose of a budget?

Spend your money without care

plan for effective budgeting

Step 1: Set Financial Goals Step 2: Estimate Income Step 3: Budget an Emergency Fund and Savings Step 4: Budget Fixed Expenses Step 5: Budget Variable Expenses Step 6: Record Spending Amounts Step 7: Review Spending and Saving Patterns

types of taxes

Taxes on Purchases Sales tax and excise tax Taxes on Property Real estate property tax Personal property tax Taxes on Wealth Federal estate tax State inheritance tax Taxes on Earnings Income tax and Social Security

values

The ideas and principles you consider correct, desirable, and important

characteristics of successful budget

Well planned Realistic Flexible Clearly communicated

Which of the following is a liquid asset?

all of the above

savings ratio

amount saved each month/gross income

personal property and investments

as long as you own them

copies of tax returns and supporting data

at least 7 years, 10 is best

financial opportunity costs

based on time value of money

economys influence on financial planning

business, labor, and gov

durable product goals

car, appliances

deposit institutions

commercial banks savings and loan ass mutual saving bank credit unions

interest rate

cost of money

Which of the following ratios indicates that liquid assets are available to pay current liabilities for a household?

current ratio

present value

current value of a future amount based on a certain interest rate and time period discounting

money management

day-to-day financial activities necessary to manage current personal economic resources, while working toward long-term financial security

payment methods electronic payments

debit card trans online payment stored value cards smart cards peer to peer pay

deflation

decline in prices

online banking

direct deposit automatic payments transfer fund atm access debit card

compounding

earning interest on your interest

intangible purchase goals

education, health

A budget is a record of how a person or family has spent their money.

false

A high debt ratio is best.

false

Birth certificates, wills, and Social Security data should be kept for up to 7 years.

false

Financial advisers suggest that an emergency fund should cover one to two months of living expenses.

false

One method to spend more money is to deduct an amount automatically from your salary in a direct deposit system

false

consumable product goal

food, clothing

inflation

increase in the general level of prices

future value definition

increased value of money from interest earned

documents re:purchase and sale of real estate

indefinitely

eval savings plans

inflation taxes liquidity safety via FDIC and NCUA restric and fee

risk premium of interest rate

lenth of time funds in use expected inflation uncertainty

debt ratio

liabilities/net worth

non-deposit institutions

life insurance comp investment comp brokerage firm credit card comp finance comp mortgage comp

financial decision are affected by

life situation personal values economic factors

current ratio

liquid assets/current liab

liquidty ratio

liquid assets/monthly expenses

sources of quick cash

liquidate savings borrow

When creating a personal balance sheet, which of the following is a current liability?

medical bill

deby payments ratios

monthly credit payments/take home pay

major elements of financial planning

obtaining planning saving borrowing spending managing risk investing retirement and estate planning

managing daily money needs common mistake

overspending insufficient liquid assets using savings or borrowing to pay for current expenses failing to put unneeded funds in interest savings

problematic financial buss

payday loan comp rent to own center car title loans

birth certificate, will, SS

permanently

cash flow statement

personal income and expenditure statement

payment methods checking accounts

regular checking ac activity ac inter-earning certified check cashier check money order traveler check

types of financial services

savings payment services borrowing for the short or long term other financial services

us savings bonds

series HH I bonds registration treasury direct

annuity

series of equal deposits at equal intervals earning a constant rate

budget

spending plan

available tax assistance sources

tax publications internet tax preparation services

mobile banking

text banking mobile web banking banking apps drawback privacy security fees

personal opportunity costs

time effort health

average tax rate

total tax due / taxable income

job related expenses

union dues bus tools job search costs

All of the following are fixed expenses except a(n)

utilities

what not to keep

wastebasket receipts for small purchases expired warranties shredder quartley investment documents you no longer need (SS) Computer recycle bin empty

opportunity cost

what you give up making a choice

short term goal

within 1 year

A budget system that can be kept on notebook paper or accounting paper is called a

written budget