Chapter 1: Personal Finance Planning

opportunity cost

when you give up something when you make one choice instead of another.

Future value is... (A) the amount to which your original deposit will increase based on a certain interest rate and a certain amount of time. (B) the gross national product forecasted over a ten-year period. (C) the current interest rate. (D) the result of supply and demand.

(A)

Time value of money is best described as... (A) an increase in an amount of money as a result of interest or dividends earned. (B) what one hour of your time is worth in today's dollars. (C) the current value of the dollar. (D) the amount of work time needed to make up for inflation.

(A)

A series of equal deposits is... (A) serial deposits. (B) an annuity. (C) time deposits. (D) annual deposits.

(B)

Inflation refers to... (A) a balloon payment. (B) a general rise in prices of goods and services. (C) the rise in the price of a stock. (D) the cost of intangible goods.

(B)

Present value is... (A) the amount spent to provide someone with a gift. (B) last year's inflation rate adjusted to today's dollar. (C) the amount of money you need to deposit now to attain a desired future amount. (D) the current value of a past investment.

(C)

The ability to easily convert your financial resources into cash without loss in value is called... (A) inflation. (B) compounding. (C) liquidity (D) present value.

(C)

The amount that your original deposit will be worth on a specific date, based on a specific interest rate over a period of time, is called... (A) present value. (B) increased value. (C) future value. (D) dollar value.

(C)

Which of the following is not part of the financial planning process) (A) determining current financial situation. (B) developing financial goals. (C) acquiring consumable and durable goods on credit. (D) identifying and evaluating alternative courses of action.

(C)

The trade-off when you make a choice is called... (A) cost of choice (B) a financial goal (C) opportunity lost (D) opportunity cost

(D)

What are the factors that affect how much money you will save?

- Amount of money. - Interest rate. - Time.

What should financial goals be?

- Be realistic. - Be specific. - Have a clear time frame. - Help you decide what type of action to take.

What are the 6 steps to help you reach your goals (financial planning process)?

- Determine your current situation. - Develop financial goals. - Identify your options. - Evaluate your alternatives. - Create and use your financial plan of action. - Review and revise your plan.

What are the benefits of personal financial planning?

- Have more money & financial security. - Know how to use money to achieve goals. - Less chance of going into debt.

What are some factors that influence financial planning?

- Life situations. - Personal values. - Economic factors. - Market forces - Supply, Demand - Global Influences - Economic Conditions - Consumer Prices - Consumer Spending - Interest Rates

What are the 8 strategies to avoid common money mistakes (achieving financial goals)?

- Obtain financial resources by working, investing, and/or owning property. - Plan how you will spend your money. - Spend wisely; spend less than you earn. - Save to pay bills, major purchases, and/or coping with emergencies. - Borrow wisely: only when necessary: protect your credit. - Invest in CD's, stock, mutual funds, etc. - Manage risk: insurance coverage. - Plan for retirement.

What are the factors that influence financial goals?

- Time frame in which you would like to achieve your goals. - Type of financial need that inspires your goals.

How will you be able to live according to your values and meet your financial needs and goals throughout your life?

By recognizing the tradeoffs of financial decisions and learning to use your money wisely.

When you are borrowing money, what happens to the time, amount of money, and interest rate?

It decreases.

When you are saving money, what happens to the time, amount of money, and interest rate?

It increases.

When the down payment is a higher percentage, the monthly payment and interest is...?

Less.

When you have excellent credit, the monthly payment and interest is...?

Less.

When you have a loan for a longer time, the monthly payment and interest is...?

MP: less Interest: more

When you have a loan for a shorter time, the monthly payment and interest is...?

MP: more Interest: less

When the downpayment is a lower percentage, the monthly payment and interest is...?

More.

When you horrible credit, the monthly payment and interest is...?

More.

down payment

a partial payment made at the time of purchase.

personal finance planning

arranging to spend, save, and invest money to live comfortably, have financial security, and achieve goals.

liquidity

the ability to easily convert financial assets into cash without loss in value.

present value

the amount of money you would need to deposit now in order to have a desired amount in the future.

future value

the amount your original deposit will be worth in the future, based on earning a specific interest rate over a specific period of time.

values

the beliefs and principles you consider important, correct, and desirable.

Federal Reserve System

the central banking system of the United States.

interest

the price that is paid for the use of another's money.

inflation

the rise in the level of prices for goods and services over time.

economics

the study of the decisions that go into making, distributing, and using goods and services.