Chapter 1 personal financial planning in action

Question 1

Financial and Personal satisfaction are the result of an organized process that is commonly referred to as ____.

Answer 1

Personal economic satisfaction.

Question 2

What is personal financial planning?

Answer 2

The process of managing your money to achieve personal economic satisfaction

Question 3

A _____ can enhance the quality of your life and increase your satisfaction by reducing uncertainty about your future needs and resources.

Answer 3

A comprehensive financial plan

Question 4

What is a financial plan?

Answer 4

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

Question 5

What are some advantages of personal financial planning?

Answer 5

• increased effectiveness in obtaining, using, and protecting your financial resources throughout your life.
• increased control of your financial affairs by avoiding excessive debt, bankruptcy, and dependence on others
• improved personal relationships resulting from well-planned and effectively communicated financial decisions
• A sense of freedom from financial worries obtained by looking to the future anticipating expenses, and achieving personal economic goals.

Question 6

What is an adult life cycle?

Answer 6

The stages in the family situation and financial needs of an adult.

Question 7

What are values?

Answer 7

Ideas and principles that a person considers correct, desirable and important.

Question 8

What are economics?

Answer 8

The study of how wealth is created and distributed.

Question 9

What is inflation?

Answer 9

a rise in the general level of prices

Question 10

To achieve a successful financial situation you must coordinate various components through a(n)_____.

Answer 10

organized plan and wise decision making.

Question 11

What are the financial planning activities?

Answer 11

• Obtaining financial resources
• Planned spending through budgeting
• savings plan
• Credit buying
• spending plan
• insurance coverage
• investing
• retirement and estate planning

Question 12

What is bankruptcy?

Answer 12

A set of federal laws allowing you to either restructure your debts or remove certain debts.

Question 13

Why do people have money problems?

Answer 13

Weak money management habits in areas such as spending and the use of credit

Question 14

What are short term goals?

Answer 14

goals achieved within the next year or so, such as saving for a vacation or paying off small debts.

Question 15

What are intermediate goals?

Answer 15

have a time frame of two to five years

Question 16

What are long term goals?

Answer 16

financial plans that are more than five years off, such as retirement, money for children’s college education, or the purchase of a vacation home.

Question 17

How should long term goals be planned?

Answer 17

in coordination with short term and intermediate goals.

Question 18

What are consumable- product goals?

Answer 18

items that are used up relatively quickly such as food clothing and entertainment.

Question 19

What are durable product goals?

Answer 19

involve infrequently purchased, expensive items such as appliances, cars, and sporting equipment/ tangible items.

Question 20

What are intangible purchase goals?

Answer 20

personal relationships, health, education, community service, and lea sure.

Question 21

____: is central to financial decision making.

Answer 21

goal setting.

Question 22

What should effective financial goals be?

Answer 22

• realistic
• stated in specific measurable terms
• based on a time frame
• action oriented.

Question 23

What is opportunity cost?

Answer 23

what a person gives up by making a choice.

Question 24

what is time value of money?

Answer 24

increase in an amount of money as a result of interest earned

Question 25

What are the three amounts used to calculate interest?

Answer 25

• the amount of the savings/ principle
• the annual interest rate
• the length of time the money is on deposit

Question 26

What is an annuity?

Answer 26

a series of equal deposit or payment.

Question 27

What is present value?

Answer 27

The current value for a future amount based on a certain interest rate and a certain time period; also referred to as discounting.

Question 28

What are the steps in the personal financial planning process?

Answer 28

• Determine your current financial situation
• Develop your financial goals
• Identify alternative course action
• Evaluate your alternatives
• Create and implement your financial action plan
• Review and revise your plan