Financial Planning
Which of the following falls under the category of mind games, financial personality, and your money?
.Viewing your tax refund as "mad money" The sunk cost effect Mental accounting All of the above
Why is financial planning, or just plain money management, a challenge for most people?
A. Financial planning is challenging for some people due to a lack of financial knowledge, Financial planning skills have to be learned, In many families a fear of finance may develop from disagreements about money, Learning financial planning skills isn't always easy.
Personal financial planning can help you to
A.deal with unplanned health issues. B.minimize your tax payments to Uncle Sam. C.minimize your chances of personal bankruptcy. D.have enough money for a comfortable retirement. ALL OF THE ABOVE
Why do "ethical violations end careers"?
Although ethical behavior has always been a professional expectation, recent national attention on the "transparency" of corporate and individual actions has increased the importance of ethical behavior. A loss of confidence by the boss or other co-workers in individual professional integrity can end a career.
________ 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
What is the main factor in determining your potential income level?
Education and skills that you have attained
When you are involved in ________ planning, you are planning for your eventual death and the distribution of your wealth to your heirs.
Estate
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 short−term goal might take from one to 10 years to accomplish.
False
The personal financial planning process consists of ________ steps.
Five
What elements are found in an effective financial plan?
Flexibility to allow for changes in your situation Sufficient liquidity to meet unexpected needs Insurance protection from catastrophic events 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?
Home purchase Saving for goals Initial goal setting Insurance planning All the above
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.
Which of the following statements applies to obtaining an undergraduate college degree?
It may be the single best investment you will ever make.
Why is financial planning, or just plain money management, a challenge for most people?
Learning financial planning skills isn't always easy, Financial planning is challenging for some people due to a lack of financial knowledge, In many families a fear of finance may develop from disagreements about money, Financial planning skills have to be learned.
The term that considers having money readily available when you need it is the concept of
Liquidity
Step 3 of the personal financial planning process is "Develop a Plan of Action." According to your text, which of the following is not one of the "common concerns" that should guide all financial plans?
Long-term profitability.
Which of the following statements describe a good, or effective, job interview?
Look and act with professional confidence. Develop answers to the most common interview questions. Gain a thorough knowledge of the company.
While reviewing your current financial plan, you discover that you most likely won't achieve your long term financial goals. What should you do now?
Look at increasing your income. Look at cutting back on your expenses. Look at revising your goals. ALL of these would be realistic things to do.**
What are the reasons why college seniors returning to campus for the fall semester should have a résumé already prepared? Choose all that apply.
Many companies begin recruiting in the fall, The hectic fall schedule will likely prevent you from immediately preparing a résumé, Starting your job search immediately conveys to employers that you are organized and serious about employment.
Which of the following is outlined in the text as reason(s) why many people do not have an adequate financial plan?
Many of us lack the proper knowledge. Procrastination can affect everyone. For most people it is easier to spend than save. There is never enough time for organizing and planning. All of the above are common excuses for not planning.**
What should you do with your goals on a frequent basis throughout your lifetime?
Prioritize them Modify them Put them in writing All of the above
While each person's financial plan is different, some common factors guide all sound financial plans. Which of the following is one of the common factors?
Protection
During which stage of the financial life cycle do many people make their biggest investment, the purchase of a home?
Stage 1: wealth accumulation
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
Suppose that you are a 60−year−old business owner. What stage of the financial life cycle are you currently in?
Stage 2: the golden years
One of the most important factors to remember when hunting for your first job is to
Start early.
What are the reasons why college seniors returning to campus for the fall semester should have a résumé already prepared? Choose all that apply.
Starting your job search immediately conveys to employers that you are organized and serious about employment, Many companies begin recruiting in the fall, The hectic fall schedule will likely prevent you from immediately preparing a résumé.
Many people who signed up for adjustable−rate mortgages during the sub−prime mortgage debacle were no longer able to afford their payments. Many of these people were misled by their lenders. Which financial principle from Chapter 1 most applies?
The best protection is knowledge.
What four common concerns should guide the development of their financial plan?
The four principles of flexibility, liquidity, protection, and minimization of taxes should guide the development of any financial plan.
Being financially secure involves balancing what you earn with
What you spend.
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 When you have children
The major reason to make a financial plan is to
achieve your financial goals.
According to a recent Rockefeller Foundation report, the financial issue Americans worry about the most is the ability to pay
for retirement expenses.
Manage unplanned events so that you can avoid the problem of:
going to the coin-operated laundry because your washer is beyond repair and you have no emergency funds for buying a new one.
Most individuals will reach their financial goals without planning or budgeting.
False
Which of the following is one of the five basic steps in personal financial planning?
Develop a plan of action.
The concept that emphasizes that people should not put all their eggs in one basket is
Diversification reduces risk.
After retirement starts, which aspect of financial planning becomes imperative?
Estate planning
Which of the following are the steps that make up the financial planning process?
Evaluating your financial health. Developing a plan of action. Implementing your plan. Reviewing your progress, reevaluating, and revising your plan. Defining your financial goals.
A well−educated and trained employee is virtually guaranteed job security by today's employers. Therefore, he or she doesn't need to worry about keeping his or her skills current.
False
Annual public school tuition and fees are three times more expensive than private school tuition and fees.
False
In the typical consumer's 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
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 isn't 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
Today, most Americans over the age of 65 have adequate savings and income available to them during retirement.
False
Which statement is true about managing personal finances?
Financial difficulties can be a major cause of marital problems.
In order for your financial plan to be realistic and attainable it needs to be based upon your
Income level
An economic condition in which rising prices reduce the purchasing power of money is termed
Inflation
What financial strategies should you develop as a result of studying personal financial planning?
Manage unplanned events. Invest intelligently. Minimize your tax payments. Accumulate wealth for special goals. Save for retirement. Use insurance to cover your assets.
What piece of advice might you give to someone for whom the act of saving is an afterthought?
Pay yourself first
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.
Which of the following are the steps that make up the financial planning process?
Reviewing your progress, reevaluating, and revising your plan. Defining your financial goals. Implementing your plan. Developing a plan of action. Evaluating your financial health.
Chapter 1 discusses 10 principles that form the foundation of personal finance. The principle stating that a person can expect to earn additional return for increasing his or her investment risk is the ________ principle.
Risk and return go hand in hand.
Charlie is sixty−four years old and is looking forward to his retirement next year. He currently has all of his 401(k) retirement money invested in the stock market. What financial principle from Chapter 1 does he need to understand better?
Risk and return go hand in hand.
Which basic step to personal financial planning should be considered when examining your current financial situation?
Step 1
Maiko lost her job and she was forced to sell a rental property because she did not have other funds (liquid, emergency, etc) available to meet her financial obligations. What financial principle best applies to this situation?
Stuff happens, the importance of liquidity.
Jessica is very proud of herself for having $5,000 in her savings account that pays 4 percent interest. She currently has a balance of $2,300 on her credit card account that charges 21 percent interest. Jessica thinks she is making a wise financial decision by keeping her money in her savings account instead of paying off her credit card balance. What financial principle from Chapter 1 would you use to give her good advice?
Taxes affect personal financial decisions. Mind games, financial personality, and your money BOTH A AND C
In Chapter 1, Principle 3 espouses the time value of money. Why is this principle so important to financial planning?
The principle shows us how important time and interest rates are to the accumulation of wealth. The principle allows us to determine how much money we will need to achieve our future goals. The principle helps us determine our savings needs today, in order to meet our future retirement goals. The principle shows us how inflation impacts our money over time. All of the above.***
Without recognizing ________ it is impossible to understand compound interest, which allows investments to grow over time.
The time value of money
What is the significance of the financial life cycle?
To allow you to be more proactive in dealing with expected changes in the future and take steps today to prepare for them,To better understand how your financial needs will most likely change over time (BOTH B AND C)
Diversification allows you to reduce risk.
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
It is important to take a close look at the 2008 economic downturn as a means to highlight how vulnerable American's finances are.
True
Judge whether the following statement is true or false. "Since the accumulation-of-wealth stage extends into the mid-50s, financing the cost of education could remain important to me should I choose to continue my education or for the education of others who are important to me (spouse, child, etc.). It is not until Stage 2: Approaching Retirement - The Golden Years that the goal of educating children is usually accomplished. During Stage 3: The Retirement Years, estate planning issues are significant, and leaving part of my estate to fund education for my grandchildren could become important."
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
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
While each person's financial plan is different, some common factors guide all sound financial plans: flexibility, liquidity, protection, and minimization of taxes.
True
What aspect of financial planning might you discuss with a friend who buys fancy coffee drinks twice a day, visits the mall at least once a week for recreational shopping, and prefers impulse buying to carefully researched purchasing?
Waste not, want not—smart spending matters.
If liquid funds are not available, an unexpected need, such as a job loss or injury may force you to
cash in a longerminus−term investment. borrow money fast. take on unexpected debt repayments. all of the above.
Invest intelligently so that you can avoid the problem of:
choosing poor investment advisors and investment products.
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.
Evaluating your financial health consists of
determining where your money comes from and where it goes, preparing a personal balance sheet, preparing a personal income statement, determining what you are worth. ALL OF THE ABOVE
The economic downturn that began in 2008 resulted in negative consequences, including
disrupted financial markets, a dramatic increase in unemployment rates, difficulty for consumers to borrow money from lending institutions.
Use insurance to cover your assets so that you can avoid the problem of:
driving a car with a badly dented fender because you couldn't afford the repair bill.
The five steps in the financial planning process are:
evaluate your financial health, define your financial goals, develop a plan of action, implement your plan, and finally, review your progress, reevaluate, and revise your plan.
Save for retirement so that you can avoid the problem of:
having to work during your "golden years" or having to sell your home because you can no longer afford it.
A solid understanding of personal finance will
help you understand the importance of planning for your financial future, give you the ability to make intelligent investments, enable you to protect yourself from an incompetent investment advisor, allow you to take advantage of changes in the economy. all of the above.
Accumulate wealth for special goals so that you can avoid the problem of:
never taking that trip to Australia that you once promised yourself.
Minimize your tax payments so that you can avoid the problem of:
paying more taxes than necessary on your income or your investments.
Chapter 1 discusses 10 principles that form the foundation of personal finance. The principle that considers the importance of insurance is the ________ principle.
protect yourself against major catastrophes
Chapter 1 discusses 10 principles that form the foundation of personal finance. The principle that considers the value of compound interest is the ________ principle.
time value of money
You need to review your progress and reevaluate and revise your plan (Step 5) because
your financial needs change over the course of your life, your family situation might change over time, your net worth changes over time, your employment situation changes over time. ALL OF THE ABOVE are good reasons to periodically review your financial plan.
Probably the most important determinant of your future earnings will be
your highest level of education obtained.
The concept of diversification is illustrated by the old saying
"Don't put all your eggs in one basket."