Personal Financial Stewardship Exam #1 CH. 2 (multiple choice)

When creating a budget, it is important to A) Set aside savings after your variable expenses are paid. B) Save the amount you have left at the end of the month. C) Save an amount no more than 3% of your annual income in an emergency fund. D) "Pay yourself first" by setting aside savings before other expenses are budgeted. E) Spend the amount of money you have budgeted in each category.

"Pay yourself first" by setting aside savings before other expenses are budgeted.

Given the following information, calculate the net worth: Assets = $8,000 Cash inflows = $6,000 Cash outflows = $4,500 Liabilities = $5,000 A) $1,500 B) $3,500 C) $2,000 D) $3,000 E) $500

$3,000

Financial experts recommend monthly savings of ________ of gross income. A) 20% B) 5-10% C) 0% D) 50% E) 25-35%

5-10%

When creating a personal balance sheet, which of the following is considered to be a personal possession asset? A) Retirement accounts B) A five-year-old television set C) Vacation property D) Cash in a checking account E) A home

A five-year-old television set

A budget deficit would result when a person's or family's: A) Actual spending equals planned spending. B) Net worth decreases. C) Actual spending exceeds planned spending. D) Actual spending is less than planned spending. E) Assets exceed liabilities.

Actual spending exceeds planned spending.

Which of the following is a liquid asset? A) Money market accounts B) Checking account balance C) Savings/money market accounts D) Cash surrender value of life insurance E) All of these are liquid assets

All of these are liquid assets

Which of the following is a component of money management? A) Creating and implementing a plan for spending and saving. B) Creating a cash flow statement. C) Storing and maintaining personal financial records and documents. D) Creating a balance sheet. E) All of these choices are components of money management.

All of these choices are components of money management

The main purposes of personal financial statements are to: A) Provide data for preparing tax forms or applying for credit. B) Maintain information about your financial activities. C) Measure your progress toward financial goals. D) Report your current financial position. E) All of these choices are correct

All of these choices are correct

How long should you keep your documents relating to investments? A) No need to since the broker probably has a copy. B) Seven years. C) As long as you own these items. D) Permanently. E) Ten years.

As long as you own these items.

The equation to calculate net worth is A) Cash inflows minus Cash outflows = Net worth. B) Assets minus Cash outflows = Net worth. C) Cash inflows minus Liabilities = Net worth. D) Assets minus Liabilities = Net worth. E) Cash inflows + Liabilities = Net worth.

Assets minus Liabilities = Net worth.

Items that you own that have a monetary value are referred to as: A) Net worth. B) Assets. C) Variable expenses. D) Liabilities. E) Income.

Assets.

When household budgets must be cut, which of the following categories would be most difficult to cut? A) Cable B) Lawn services C) Vacations D) Charitable donations E) Auto insurance

Auto insurance

Another name for a statement of financial position is a A) Time value of money report. B) Balance sheet. C) Cash flow statement. D) Budget. E) Bank statement.

Balance sheet.

The current financial position of an individual or family is best presented in the form of a: A) Bank statement. B) Balance sheet. C) Time value of money report. D) Cash flow statement. E) Budget.

Balance sheet.

The document that would report your current financial position is the A) Cash flow statement. B) Budget. C) Balance sheet. D) Bank statement. E) Credit card statement.

Balance sheet.

The document that would be most useful to plan spending and saving to achieve financial goals is the A) Budget. B) Monthly investment brokerage statement. C) Bank statement. D) Credit card statement. E) Balance sheet.

Budget.

The document that would tell you what you received and spent over the past month is the A) Credit card statement. B) Bank statement. C) Cash flow statement. D) Budget. E) Balance sheet.

Cash flow statement.

Money Management refers to: A) Day-to-day financial activities B) Trade-offs that occur with financial decisions C) Preparing personal financial statements D) Spending money on current living expenses E) Storing financial records for easy access

Day-to-day financial activities

Which of the following will increase the net worth of a household? A) Decrease spending by $5 per day B) Increase the amount borrowed for major purchases C) Increase spending by $5 per day D) Decrease saving by $50 per month E) Invest in possessions whose values do not increase

Decrease spending by $5 per day

The money left over after paying for housing, food, and other necessities is called A) Disposable income. B) Discretionary income. C) Take-home pay. D) Monthly savings. E) Gross income.

Discretionary income.

An example of a variable expense is a(n) A) Electric bill. B) Mortgage or rent payment. C) Monthly train ticket for commuting to work. D) Installment loan payment. E) Monthly allocation for life insurance.

Electric bill.

A home file should be used to keep: A) Records that are difficult to replace. B) Documents that require maximum security. C) Financial records for current needs. D) Obsolete financial documents. E) All financial documents and records.

Financial records for current needs.

An example of a fixed expense is A) Recreation. B) Medical expenses. C) Home rental payment. D) Utilities. E) Gifts.

Home rental payment.

Which of the following is a cash inflow? A) Income from employment B) Purchase of groceries C) Payment for loan D) Payment for medical expenses E) Payment for rent

Income from employment

All of the following are ways that households can increase their net worth except: A) Reduce spending. B) Increase their debt ratio. C) Increase value of investments. D) Decrease their debt ratio. E) Increase their savings.

Increase their debt ratio.

The number of personal financial records a household has to organize may seem overwhelming. How long should you keep documents relating to the purchase and sale of real estate? A) Indefinitely B) Until the mortgage is paid off C) Until you move out of the house D) Three years E) Seven years

Indefinitely

The inability to pay debts when they are due because liabilities far exceed the value of assets is called: A) Insolvency. B) Liquid assets. C) Cash flow. D) Liabilities. E) Net worth.

Insolvency.

Common stock and bond brokerage statements are an example of a(n) ___________ record. A) estate planning B) tax C) insurance D) investment E) consumer purchase

Investment

A personal balance sheet reports: A) Family financial goals. B) Items owned, amounts owed, and your net worth. C) Amounts budgeted for spending. D) Earnings on savings and investments. E) Income and expenses for a period of time.

Items owned, amounts owed, and your net worth.

After having established a spending plan, it is important to A) Compare it to the previous budget. B) Keep track of your actual income and expenses. C) File the budget in a safe deposit box. D) Pay attention only to expenses that are more than 10 percent of your salary. E) None of these are true since budgets are just estimates.

Keep track of your actual income and expenses.

Which of the following appears as a cash outflow on a cash flow statement? A) Cash value of life insurance B) Balance of mortgage C) Net worth D) Loan payment E) Home value

Loan payment

Which of the following financial documents would most likely be stored in a safe deposit box or fireproof home safe? A) Warranties B) W-2 forms C) Bank statements D) Marriage certificates E) Personal financial statements

Marriage Certificates

When creating a personal balance sheet, which of the following is a current liability? A) Educational loan B) Medical bill C) Checking account D) Thirty-year mortgage E) 5-year home equity loan

Medical bill

Discretionary income equals A) Gross income. B) The amount being saved each month. C) Social Security taxes. D) Money left over after paying for housing, food, and other necessities. E) Take-home pay.

Money left over after paying for housing, food, and other necessities.

Take-home pay is also called A) Net pay. B) Monthly savings. C) Discretionary income. D) Deductions. E) Gross income.

Net pay.

The amount you would have left if all assets were sold and all debts were paid in full is called your: A) Budgeted expenses. B) Net worth. C) Total liabilities. D) Total income. E) Net assets.

Net worth.

When creating a budget, which of the following statements is true? A) Include in income the bonuses and gifts you expect to receive. B) Numbers in the budget are estimates. C) Common financial problems can be maximized through budgeting. D) It is better to overestimate your income for next year. E) It is easier to create a budget if your earnings vary by season.

Numbers in the budget are estimates.

How long should you keep your most current will? A) Permanently. B) No need to keep it since your lawyer probably has a photocopy. C) Three years. D) One year. E) Seven years.

Permanently.

Which of the following are two personal financial statements that you create yourself? A) Checkbook and budget B) Budget and credit card statements C) Bank statement and a balance sheet D) Personal balance sheet and cash flow statement E) Tax returns

Personal balance sheet and cash flow statement

The statement that includes liquid assets, real estate, personal possessions, and investment assets is known as a: A) Cash flow statement. B) Bank statement. C) Personal balance sheet. D) Budget. E) Time value of money report.

Personal balance sheet.

A budget system that involves envelopes, folders, or containers to hold money or slips of paper is called a(n) A) Digital budget. B) Written budget. C) Physical budget. D) Mental budget. E) Allocated budget.

Physical budget.

Which of the following is most correct? A) A marriage certificate should be kept in a home file. B) Adoption papers belong in a home file. C) A current budget belongs in your safe deposit box. D) Rare coins and stamps belong in a safe deposit box. E) W-2's for tax records belong in a safe deposit box.

Rare coins and stamps belong in a safe deposit box.

When creating a personal balance sheet, which of the following is an investment asset? A) Personal possessions in your home B) Cash surrender value of life insurance C) Checking account D) Vacation property E) Retirement account such as a 401k

Retirement account such as a 401k

The number of personal financial records a household has to organize may seem overwhelming. How long should you keep copies of your tax returns? A) Indefinitely B) Until the mortgage is paid off C) Until you move out of the house D) Three years E) Seven years

Seven years

All of the following are sources of income except: A) Interest earned on savings B) Salary C) Dividends D) Social Security taxes E) Commissions

Social Security taxes

Which of the following is a deduction to determine take-home pay? A) Housing, food and other living expenses B) Social Security taxes C) Commissions D) Dividends E) Interest earned on savings

Social Security taxes

Which of the following is most correct? A) A warranty belongs in a safe deposit box. B) A death certificate should be kept in a home file. C) Adoption papers belong in a home file. D) Tax records belong in a home file. E) A current budget belongs in your safe deposit box.

Tax records belong in a home file.

Disposable income equals: A) The amount being saved each month. B) Gross income. C) The amount a person or household has to spend. D) Money left over after paying for housing, food, and other necessities. E) Social Security taxes.

The amount a person or household has to spend.

All of the following are fixed expenses except A) An installment loan payment. B) A monthly allocation for life insurance. C) A mortgage or rent payment. D) A monthly train ticket for commuting to work. E) Utilities.

Utilities.

When creating a personal balance sheet, which of the following is a real estate asset? A) Cash value of life insurance B) Vacation property C) Retirement accounts D) Possessions in your home E) Investments for financing children's education

Vacation property

Which of the following appears as a cash outflow on a cash flow statement? A) Liquid assets B) Personal possessions C) Net worth D) Real estate assets E) Variable expenses

Variable expenses

A budget system that can be kept on notebook paper or accounting paper is called a(n) A) Written budget. B) Physical budget. C) Allocated budget. D) Mental budget. E) Digital budget.

Written budget.

A family with $100,000 in assets and $60,000 of liabilities would have a net worth of A) $40,000. B) $100,000. C) $20,000. D) $60,000. E) $160,000.

$40,000.