4. Manage Money (15%) Flashcards
What is the primary purpose of a cash flow statement?
A. To track spending habits.
B. To calculate a client’s net worth.
C. To analyze the effectiveness of a spending plan.
D. To show income and expenses over a specific period.
D. To show income and expenses over a specific period.
A cash flow statement provides an overview of all the income and expenses for a specific time frame.
Which of the following best describes a savings account?
A. A type of checking account used for regular transactions.
B. An account that provides interest for deposited funds.
C. An investment account used for long-term goals.
D. An account with a high risk of loss.
B. An account that provides interest for deposited funds.
A savings account is primarily used to hold funds that earn interest.
What is the main benefit of creating a spending plan?
A. To identify debt management options.
B. To prioritize wants over needs.
C. To track expenses and savings to meet financial goals.
D. To eliminate all variable expenses.
C. To track expenses and savings to meet financial goals.
A spending plan helps monitor spending to achieve financial objectives.
Which of the following is a fixed expense?
A. Utility bill
B. Groceries
C. Mortgage payment
D. Entertainment
C. Mortgage payment.
Fixed expenses remain constant each month, such as a mortgage payment.
Which ratio is used to measure liquidity?
A. Debt-to-Income Ratio
B. Savings Ratio
C. Liquidity Ratio
D. Expense Ratio
C. Liquidity Ratio.
The liquidity ratio measures the ability to cover current liabilities with liquid assets.
What does BAH stand for in a military pay statement?
A. Basic Assistance Housing
B. Base Annual Housing
C. Basic Allowance for Housing
D. Base Allowance for Household
C. Basic Allowance for Housing.
BAH is a military benefit to help cover housing costs.
What does an emergency fund typically cover?
A. Vacation costs
B. Regular utility bills
C. Unforeseen expenses like medical emergencies
D. Entertainment expenses
C. Unforeseen expenses like medical emergencies.
Emergency funds are set aside to handle unexpected financial needs.
Which account type is best for immediate access to funds?
A. Certificate of Deposit
B. Retirement Account
C.Checking Account
D. Mutual Fund
C. Checking Account.
Checking accounts allow for immediate access to cash.
What is the goal of accumulating a three-to-six-month emergency fund?
A. To afford a new car
B. To cover regular bills if an income source is lost
C. To invest in the stock market
D. To pay for planned vacation expenses
B. To cover regular bills if an income source is lost.
The emergency fund should support expenses during income loss or emergencies.
What is an advantage of a money market account?
A. It has no withdrawal limits.
B. It offers higher interest rates than regular savings accounts.
C. It offers guaranteed returns.
D. It has lower fees than a checking account.
B. It offers higher interest rates than regular savings accounts.
Money market accounts typically provide higher returns than standard savings.
Which strategy would you recommend to a client to ensure they stay within their budget?
A. Use cash only for all expenses.
B. Create a detailed spending plan and track all expenses.
C. Avoid tracking small expenses.
D. Use credit cards for all purchases.
B. Create a detailed spending plan and track all expenses.
A spending plan helps clients monitor their financial activities.
How should a client prioritize debt repayment if they have multiple loans?
A. Pay the smallest loan first.
B. Pay the loan with the highest interest rate first.
C. Pay all loans equally.
D. Ignore low-interest loans.
B. Pay the loan with the highest interest rate first.
Paying high-interest loans first reduces overall interest paid.
Which savings product would you recommend for short-term savings goals?
A. 401(k)
B. Certificate of Deposit
C. Money Market Account
D. Individual Retirement Account (IRA)
C. Money Market Account.
Money market accounts offer better liquidity for short-term goals.
If a client has variable income, what budgeting method would be most suitable?
A. Zero-based budgeting
B. Envelope system
C. Priority-based budgeting
D. Incremental budgeting
C. Priority-based budgeting.
Priority-based budgeting allows flexibility for fluctuating incomes.
What is the first step in creating a spending plan?
A. List all fixed and variable expenses.
B. Set financial goals.
C. Calculate discretionary income.
D. Cut unnecessary expenses.
B. Set financial goals.
Setting goals provides direction for the budgeting process.