Chapter 1 -

Question 1

What is personal finance?

Answer 1

the process of planning your spending, financing, and investing activities while considering uncontrollable events such as death or disability. to maximize financial situation over time

Question 2

what is personal financial plan?

Answer 2

a plan that specifies your financial goals, describes the spending, financing, and investing activities that are intended to achieve those goals and the risk management strategies that are required to protect against uncontrollable event

Question 3

Benefits of understanding personal finance include?

Answer 3

• make informed financial decisions
• judge the advice of financial advisors
• become a financial advisor

Question 4

Five key components of a financial plan include?

Answer 4

1. budget and tax planning
2. financing your purchases
3. protecting your assets and income (insurance)
4. investing your money
5. planning your retirement and estate

Question 5

what is budget planning?

Answer 5

the process of forecasting future income, expenses and saving goals

Question 6

In order to budget plan effectively, you need to evaluate your current financial position. How do you do so?

Answer 6

1. Income and expenses
2. assets
3. liabilities (most common credit card debt, line of credit, mortgage)
4. Net Worth

Question 7

define the term Money management?

Answer 7

decisions regarding how much money to retain in liquid form and how to allocate the funds among short term investments

Question 8

ways to manage your financial resources?

Answer 8

Emergency fund 
(Path a) Money management
(path b) credit management 
loans often needed for large expenditure 
Managing loans

Question 9

What is emergency fund:

Answer 9

A portion of savings allocated to short term needs such as unexpected expenses to maintain liquidity

Question 10

What is credit management

Answer 10

decisions regarding how much credit to obtain to support your spending and which sources of credit to use

Question 11

How do you manage financial resources using money management?

Answer 11

keep some money available in case - access to money or credit - cover expenses that cannot be paid out with current income

Question 12

how do you manage financial resources using credit management

Answer 12

ensure access to credit in case it is needed - cover expenses that cannot be paid out with current income

Question 13

What is risk?

Answer 13

Exposure to events than can cause a financial loss

Question 14

What is risk Management?

Answer 14

Decisions about whether and how to protect against risk

Question 15

Define the term insurance planning?

Answer 15

Determine the types and amount of insurance needed to protect your assets and/or income

Question 16

what part of your savings should be invested?

Answer 16

Any savings you have beyond what you need to maintain liquidity should be invested to earn a return

Question 17

what is risk tolerance?

Answer 17

your ability to accept a potential loss (depends on what age stage you are in as well)

Question 18

What is retirement planning?

Answer 18

determining how much money should be set aside each year for retirement and how those funds should be invested

Question 19

define the term estate planning?

Answer 19

Determining how your wealth will be distributed before or after your death

Question 20

Retirement planning focuses on building wealth in your retirement account. T OR F

Answer 20

True

Question 21

Financial management focuses on only deposition funds to establish an emergency fund. T OR F

Answer 21

False. it also focuses on obtaining credit for your purchases

Question 22

Budgeting focuses on income and spending - but it must be equal. T OR F

Answer 22

False, it should be equal at least but it is not a must

Question 23

what are the 6 steps in developing your financial plan

Answer 23

1. establish your financial goals
2. Consider your current financial position
3. Identify and evaluate alternative plans
4. select and implement the best plan
5. evaluate your financial plan
6. Revise your financial plan

Question 24

What are ways to establish your financial goals?

Answer 24

Use the SMART approach

• specify goals
• measure goals
• act on your goals
• set realistic goals
• timing of goals

Question 25

what classifies a long term goal?

Answer 25

Beyond five years

Question 26

what classifies a medium term goal

Answer 26

between one and five years

Question 27

What classifies a short term goal

Answer 27

within a year