Deck 1: Overview of a Financial Plan

Question 1

In the United States many people

A)save about 50% of income earned.
B)save about 25% of income earned.
C)save about 1% of income earned.
D)have no savings.

Answer 1

save about 1% of income earned.

Question 2

Personal finance does not include the process of planning your

A)spending.
B)financing.
C)investing.
D)spirituality.

Answer 2

spirituality.

Question 3

A thorough understanding of this personal finance book qualifies you to become a financial adviser.

Answer 3

False

Question 4

A good understanding of the financial planning process will allow you to make informed decisions without relying on the advice of financial advisers.

Question 5

An example of an opportunity cost is the wages that you could have earned but did not because you were in class.

Question 6

A personal financial plan specifies financial goals and describes

A)saving,investing,and asset valuation.
B)spending,saving,and credit card financing.
C)spending,financing,and investment plans.
D)saving and spending only.

Question 7

The simple objective of financial planning is to make the best use of your resources to achieve your financial goals.

Question 8

Your budget is influenced by your income,which in turn is influenced by your education and career decisions.

Question 9

The wages that you forego when you leave work early to attend class is an example of a(n)________.

Question 10

Most Americans will never be able to understand and develop a personal financial plan.

Question 11

Josh has decided to take a course at the local community college that could help him get a promotion at work.The course begins at 5 p.m.and goes until 9 p.m.on Monday nights.Josh normally works until 5 p.m.each day,but because of the drive time to the community college,he will need to leave work at 3 p.m.on class days.Josh currently earns $18.50 per hour.His employer contributes 10% of Josh's gross earnings to a 401(k).If the class meets 16 times,what is Josh's total opportunity cost for the class.
(a)$592.00
(b)$800.00
(c)$651.20
(d)None

Question 12

The first step in budgeting is to evaluate your current financial position by looking at your income and expenses.

Question 13

The demand for financial advisers is not impacted because

A)many people lack an understanding of personal finance.
B)financial matters have become so difficult that making decisions alone is impossible.
C)many people are just not interested in making their own financial decisions.
D)the law requires that you use them before making investments.

Question 14

If you do not have access to money to cover cash needs,you may have insufficient liquidity.

Question 15

The value of what you own minus the value of what you owe is called your "net assets."

Question 16

Which of the following is an example of an opportunity cost?

A)Renting an apartment near school
B)Taking a class instead of working at your part-time job
C)Setting aside money for paying income tax
D)Purchasing automobile insurance

Question 17

A complete financial plan consists of budgeting,taxes,financing,and investing.

Question 18

Various government agencies have conducted surveys that show most people have a good understanding of personal finance.

Question 19

Opportunity cost refers to

A)money needed for major consumer purchases.
B)what you give up or forego as a result of making a decision.
C)the amount paid for taxes when a purchase is made.
D)evaluating different alternatives for financial decisions.

Question 20

An understanding of personal finance is not necessary to judge the quality of advice that a financial adviser may give.

Question 21

One of the considerations in determining your investment choices is evaluating the level of risk you are willing to take.

Question 22

Liquidity cannot be enhanced using sound money and credit management.

Question 23

When estimating expenses for a budget,

A)last month's and last year's expenses are not a good starting point.
B)many of the same expenses do not occur each month.
C)large unusual expenses such as car or hospital bills should not be included.
D)estimating your future assets is a good starting point.

Question 24

"Big spenders" focus their budgeting decisions on

A)reducing expenses.
B)increasing income.
C)spending most of their income.
D)saving most of their income.

Question 25

A part of your financial plan should involve a plan for protecting your assets and income through insurance coverage.

Question 26

To increase your savings,

A)income must be increased.
B)expenses must be increased.
C)income must be decreased.
D)net worth must be decreased.

Question 27

Effective estate planning will ensure that your wealth is distributed according to your wishes,but will do nothing to reduce the potential taxes your estate is subject to.

Question 28

Budgeting helps set goals by estimating ________ on a monthly basis to determine how much to save and spend.

A)assets and income
B)liabilities and expenses
C)income and expenses
D)net worth and income

Question 29

Which of the following items is not a liability?

A)The balance due on your credit card
B)Your college loans
C)The wages you give up to take a class
D)An IOU to your roommate

Question 30

A complete financial plan contains all of the following categories except

A)managing liquidity.
B)budgeting and tax planning.
C)investing money.
D)spiritual training.

Question 31

The best measure of a person's or family's net wealth is

A)the highest level of education received.
B)the amount of annual income.
C)the value of what you own minus the value of what you owe.
D)their tax bracket.

Question 32

Money management decisions include deciding how much credit to obtain to support your spending and what sources of credit to use.

Question 33

Which of the following is not a decision that you would probably encounter in managing your budget?

A)What expenses should you anticipate
B)How much money you should attempt to save each month
C)How will you allocate your estate among your heirs
D)How long will you take to pay off a specific loan

Question 34

The major source of cash outflow for most people is the income they receive from employers.

Question 35

A budget does not

A)require thinking and planning.
B)require an evaluation of your current financial position.
C)help you account for all your income and expenses.
D)require the preparation of a will.

Question 36

If your income exceeds the amount you spend,you should ________ your investments or ________ loans.

A)reduce; repay existing
B)reduce; obtain more
C)increase; repay existing
D)increase; obtain more

Question 37

________ is the process of forecasting future expenses and savings.

A)Budgeting
B)Planning
C)Predicting
D)Fortune-telling

Question 38

Determining how much money you should set aside for retirement and how those funds should be invested should not be of concern for people until they near their retirement age.

Question 39

Credit should be used only when necessary,since it usually involves borrowed funds that you will need to pay back with interest.

Question 40

Which of the following is not an asset?

A)Your house which you rent
B)Your car which you financed
C)Your coin collection given to you by your grandfather
D)Your textbooks

Question 41

Retirement planning should take place

A)when you retire.
B)shortly after you retire.
C)well before you retire.
D)at any time.

Question 42

________ management involves decisions regarding how much money to retain in a liquid form and how to allocate funds among short-term investment instruments.

A)Investment
B)Money
C)Credit
D)Liquidity

Question 43

Cash flows are affected by financial planning decisions.Which of the following is not correct?

A)Insurance payments are a cash outflow
B)Investing in stock is a cash outflow
C)Buying on time results in a cash inflow
D)Income is a cash inflow

Question 44

Insurance planning is not designed to protect your wealth in which of the following ways?

A)Protecting the assets that you own
B)Limiting your exposure to potential liabilities
C)Protecting your income
D)Downturns in the stock market

Question 45

Which of the following is not a type of decision to manage your liquidity?

A)Deciding how much money to keep in savings
B)Choosing between credit cards
C)Determining how much money to save versus how much to spend
D)Building and maintaining a monthly/yearly budget with allocations to expenses and investments

Question 46

________ allows access to funds to cover any short-term cash deficiencies.

A)Investment
B)Money
C)Liquidity
D)Risk

Question 47

From a financial standpoint when should a person start retirement planning and saving?

A)When he or she first starts receiving a salary
B)At 45-50 years of age
C)At 50-55 years of age
D)At 55-60 years of age

Question 48

Potential investments include all of the following instruments except

A)stocks and bonds.
B)mutual funds.
C)real estate.
D)lottery tickets.

Question 49

Cash flows are affected by financial planning decisions.Which of the following is correct?

A)Car payments you make are cash outflows
B)Investments you make in stock are cash inflows
C)Your routine monthly expenses are cash inflows
D)Your income is a cash outflow

Question 50

Which of the following would not be a factor in evaluating your current financial position?

A)Income
B)Expenses
C)Possible lottery winnings
D)Assets

Question 51

Which of the following does not protect your assets and/or income?

A)Self insurance
B)Disability insurance
C)Automobile insurance
D)Life and health insurance

Question 52

Which of the following would not be considered a very good investment?

A)A new television set
B)An art collection
C)A savings account
D)A mutual fund of stocks and bonds

Question 53

________ management involves decisions regarding how much credit you need to support spending and which sources of credit to use.

A)Investment
B)Money
C)Credit
D)Liquidity

Question 54

Which of the following is a credit management decision?

A)Purchasing a used car with cash
B)Investing your savings in the stock market
C)Obtaining a student loan to attend college
D)Putting money into your retirement account

Question 55

Your net worth will not be increased by which of the following actions?

A)Increasing your savings from 10% to 15% of your earnings
B)A $100 birthday present from your grandmother
C)Buying a new stereo system and putting the entire amount on your credit card
D)Receiving an inheritance

Question 56

Estate planning results in

A)protecting your wealth against unnecessary taxes.
B)sheltering your wealth against all taxes.
C)ensuring that your wealth is distributed in the manner that the court determines.
D)eliminating all controversy in your family.

Question 57

The income in your budget is not affected by

A)your education.
B)your career decisions.
C)the tax laws.
D)the standard of living you experienced as a child.

Question 58

Which of the following is an example of money management?

A)Putting your money in a passbook account at your bank
B)Shopping around for the credit card with the best interest rate
C)Deciding to delay buying a new car until you can pay cash
D)Paying off a loan early to reduce the interest charges

Question 59

The act of determining how wealth will be distributed before or upon death is

A)estate planning.
B)retirement planning.
C)not needed for most people.
D)liquidity planning.

Question 60

A plan for ________ is needed to determine how much you could afford to borrow,the length of the loan,and to select a loan that charges competitive interest rates.

A)buying
B)financing
C)spending
D)saving

Question 61

Which of the following would be classified as a short-term goal?

A)Purchasing a house in three years
B)Buying new clothes this month
C)Retiring in ten years
D)Paying for your two-year-old child's college education

Question 62

Jakob received a $1,000 a year raise in January,sold stocks in March for $6,000 that were originally purchased for $4,000,and in July had a $100 monthly increase in mortgage payments on an adjustable rate mortgage.The increased mortgage payment was in effect the remainder of the year.What was the total impact on Jakob's cash flow for the year?
(a)$1,000
(b)$5,400
(c)$6,400
(d)$7,600

Question 63

Goals with a time frame five or more years into the future are called intermediate-term goals.

Question 64

List the five components of a financial plan.

Question 65

By establishing high and unrealistic financial goals,you will probably

A)improve the likelihood of achieving at least some success.
B)become discouraged and lose interest in planning.
C)increase the viability of your plan.
D)impress your spouse or significant other.

Question 66

During his ________ your Uncle Harvey decides to cut you out of his will.

Question 67

Nancy is paid $2,000 biweekly (26 pays per year)in her job as a market researcher.Her expenses are $400 per month rent on her apartment,$100 per month for food,and $100 per month for utilities.Nancy also has student loans on which she makes monthly payments of $200.Nancy is considering the purchase of a new car,but also is very determined to save at least 50% of any budget surplus each month.If Nancy adheres to this savings plan,how much would she have available each month for a car payment.Round to the nearest dollar.
(a)$3533
(b)$1766
(c)$1600
(d)None since there is a budget deficit

Question 68

Jessie has $4,000 in a bank account,$2,800 in a 401(k)plan at work,a car with a current value of $28,000,and a house that she purchased for $92,000 that has a current value of $118,000.The current balance of her home mortgage is $81,000,she has one credit card with a $3,000 balance,and a school loan with a balance of $6,000.What is Jessie's current net worth?
(a)$62,800
(b)$46,800
(c)($242,800)
(d)($62,800)

Question 69

Amanda has cash of $100,a car worth $5,000,and books worth $200.Her liabilities include a car loan of $2,000 and a credit card balance of $100.What is the total of her assets,liabilities,and net worth?

Question 70

Your ability to access funds to cover any short-term cash deficiencies is your ________.

Question 71

Goals should be set as high as possible regardless of reality because they may be obtainable.

Question 72

Which of the following would be a long-term goal?

A)Paying off a school loan in three years
B)Purchasing a car within six months
C)Saving enough money to retire in 20 years
D)Paying for two years of college

Question 73

Goals with a time frame of between one and five years are classified as

A)short-term.
B)long-term.
C)intermediate.
D)unrealistic.

Question 74

Most investments are subject to ________,which is the uncertainty surrounding their potential return.

Question 75

If you set realistic goals rather than unrealistic ones,your plan becomes a more useful one.

Question 76

If prepared properly,financial plans are set for life and should not need to be adjusted.

Question 77

________ is the process of forecasting future expenses and savings.

Question 78

In addition to the text,Web sites and financial magazines are good sources for additional help in financial planning.

Question 79

During the past year,Fritz spent $3,000 to take a cruise,bought stock costing $5,000 that by year-end had increased to $6,000,and paid off a credit card of $3,500.What was the net effect on Fritz's net worth of these transactions?
(a)$11,500
(b)$12,500
(c)$8,500
(d)$1,000

Question 80

Which of the following goals would be easiest to measure?

A)Reduce debt payments
B)Save funds for an annual vacation
C)Save $100 a month to create a $4,000 emergency fund
D)Invest for a comfortable retirement