Chapter 1

Question 1

Personal Financial planning
(Personal Finance)

Answer 1

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 events such as death or disability.

Question 2

Personal financial plan

Answer 2

A plan that specifies your financial goals and describes the spending, financing, and investing activities that intended to achieve those goals and the risk management strategies that are required to protect against uncontrollable events, such as death or disability.

Question 3

Per capita debt

Answer 3

The amount of debt each individual in Canada would have if total debt (consumer debt plus mortgages) were spread equally across the population.

Question 4

Opportunity Cost

Answer 4

What you give up as a result of a decision.

Question 5

FP Canada

Answer 5

A national professional body working in the public interest that is dedicated to championing financial health for all Canadians by certifying professional financial planners and leading the advancement of professional financial planning in Canada.

Question 6

What are the 5 key components to a complete financial plan?

Answer 6

1) Budgeting and tax planning
2) Managing your financial resources
3) Protecting your assets and income (insurance)
4) Investing your money
5) Planning your retirement and estate.

Question 7

Budget planning

Answer 7

The process of forecasting future income, expenses, and saving goals.

Question 8

Liquidity

Answer 8

Access to ready cash, including savings and credit, to cover short-term or unexpected expenses. Also, the ease with which an investor can convert an investment into cash without a loss of capital.

Question 9

Money Management

Answer 9

Decisions regarding how much money to retain in liquid form and how to allocate the funds among short-term investment instruments.

Question 10

Emergency fund

Answer 10

A portion of savings hat you have allocated to short-term needs such as unexpected expenses in order to maintain adequate liquidity.

Question 11

Credit management

Answer 11

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

Question 12

risk

Answer 12

exposure to events (or perils) that can cause a financial loss

Question 13

risk management

Answer 13

decisions about whether and how to protect against risk

Question 14

insurance planning

Answer 14

determining the types and amount of insurance needed to protect your asssets

Question 15

Investment risk

Answer 15

uncertainty surrounding not only the potential return on an investment but also its future potential value

Question 16

risk tolerance

Answer 16

a person’s ability to accept risk, usually defined as a potential loss of return and/or loss of capital

Question 17

retirement planning

Answer 17

determining how much money you should set aside each year for retirement and how you should invest those funds

Question 18

estate planning

Answer 18

determining how your wealth will be distributed before and/or after your death.

Question 19

What are the components of a financial plan?

Answer 19

Retirement and estate planning
Personal investing
Protecting your wealth
managing your financial resources
tools for financial planning

Question 20

What are the 6 steps involved in developing each component of your financial plan?

Answer 20

1) Establish your financial goals
2) Consider your current financial position
3) Identify and evaluate alternative plans that could help you achieve your goals
4) Select and implement the best plan for achieving your goals
5) Evaluate your financial plan
6) Revise your financial plan

Question 21

What does SMART stand for?

Answer 21

Specific
Measurable
Action-Oriented
Realistic
Time-Bound