Exam #1

Of the 3 elements that affect personal financial planning (economic factors, personal values, life situation), which one does a person have no control over?

economic factors

Cash flow is the ______ and _______ of cash during a given period of time

inflow and outflow

Goal with a 2-5 year time frame. ex: vacation, grad school, new car, home remodel

intermediate goal

What measures the increase in an amount of money as a result of interest earned?

time value of money

The goals of tax planning:

-maintain complete and appropriate tax records -understanding how tax laws impact you -making purchases and investments that reduce tax liability

John has an interest rate of 7.2% on his savings account. Using the rule of 72, his money will double in __ years.

10

An adequate emergency fund is usually

3-6 months of living expenses.

Place the following steps of budgeting in the correct order: 1. Record spending amounts and evaluate revisions 2. Budget known expenses 3. Set financial goals 4. Allocate an emergency fund and savings 5. Budget estimated expenses 6. Estimate expected income

3. Set financial goals 6. Estimate expected income 4. Allocate an emergency fund and savings 2. Budget known expenses 5. Budget estimated expenses 1. Record spending amounts and evaluate revisions

TRUE OR FALSE: Personal balance sheet and the cash flow statement come from financial institutions, businesses, or the government.

FALSE

______ _____ are imposed by federal, some state, and some local governments to fund government operations.

Income taxes

______ ________ is a tax on wages to fund old-age, survivor, and disability income benefits by the federal government.

Social Security

TRUE OR FALSE: Net worth is found by subtracting liabilities from assets.

TRUE

Tax form for salary, wages, and taxes withheld.

W-2

Tax form for pension income.

W-2P

Gross income that has been reduced by IRA contributions, alimony, and other adjustments.

adjusted gross income

Interest rates represent the ____ __ _____.

cost of money

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends future financial activities.

financial plan

A cash _______ results when cash inflows (receipts) are greater than cash outflows (expenditures)

surplus

Tax form for interest, dividends, capital gains and losses, self-employment income, and lump-sum payments.

1099

How long should records pertaining to property and investments be retained?

as long as you own the assets

The measure of the average change in the prices urban consumers pay for a fixed "basket" of goods and services.

consumer price index

Income left after you have paid for housing, food, and other necessities.

discretionary

Components of income include:

earned, investment, and passive income.

A tax imposed on the value of a person's property upon that person's death.

estate tax

The amount to which current savings will increase based on a certain interest rate and a certain time period.

future value

"Hidden" inflation exists when the cost of ___________ rises at a higher rate than ____________ items.

necessities; nonessential

A ________ _______ _____ also called a net worth statement or statement of financial position, reports what you own and what you owe.

personal balance sheet

Time used for one activity that cannot be used for others (trade-off). ex: time, energy, health, abilities, knowledge

personal opportunity costs

The ____ _______ represents the "extra" amount that you can expect to receive for investing in an instrument due to factors such as expected inflation and the uncertainty of getting your money back.

risk premium

When you calculate a budget ________, you determine the difference between the actual amount spent or received and the amount budgeted.

variance