Chapter 1: Financial Planning

Question 1

What is meant by “utility”?

Answer 1

The personal benefit/value proposition that you place on an item, thing etc. that is very personal. I.e. A woman having 30 purses compared to her husband’s 30 watches.

Question 2

What is Standard of Living

Answer 2

The way you are used to living

Question 3

What are the steps of the financial plan?

Answer 3

1. Determine current situation
2. Develop goals
3. Identify alternative courses of actions
4. Evaluate alternatives
5. Create and implement an action plan
6. Review and revise plan periodically

Question 4

Personal beliefs affect financial planning

Answer 4

I.e. It is against certain religions to incur interest on money

Question 5

What are some common financial goals for everyone?

Answer 5

1. Retirement
2. Emergency fund
3. Debt freedom

Question 6

What do we mean by opportunity costs?

Answer 6

What you give up makings a choice (I.e giving up full time pay to go to college).

Question 7

What is inflation?

Answer 7

Increase in the general level of prices

Question 8

What is hidden inflation?

Answer 8

Lowering the quality or size of products but keeping the price the same

Question 9

What is the Time Value of Money?

Answer 9

How much money is worth in the future; money is worth the most today and depreciates over time.

Question 10

What is compound interest?

Answer 10

Interest on the interest

For example: year 1: $100x10%=$10, year 2: $110x10%=$11, year three: $121x10%=$12.10 etc.

Question 11

What is simple interest

Answer 11

Interest only on the original amount

Question 12

What is deflation?

Answer 12

Decline in prices

Question 13

What is a lump sum?

Answer 13

One time deposit of money

Question 14

What is an annuity

Answer 14

Multiple deposits over time