Chapter 1 = Overview of a Financial Plan

Question 1

The process of planning your spending, financing, and investing activities, while taking into account uncontrollable events such as death or disability in order to optimize your financial situation over time

Answer 1

Personal Finance

Question 2

The process of forecasting future income, expenses, and savings goals

Answer 2

Budgeting Planning (budgeting)

Question 3

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

Answer 3

Money Management NOT LIQUIDITY (access to ready cash, including savings and credit, to cover short term or unexpected expenses)

Question 4

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

Answer 4

Emergency Fund

Question 5

Exposure to events that can cause financial loss

Answer 5

Risk

Question 6

Decisions about whether and how to protect against risk

Answer 6

Risk management

Question 7

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

Answer 7

estate planning

Question 8

Components of your Financial Plan

Answer 8

Tools for Financial Planning (income)
Financial Management (Savings Account)
Protecting your assets and Income (insurance)
Investing (Investments)
Retirement and Estate Planning (Investments for Retirement)

Question 9

The act of shopping boots morale of some people

Answer 9

Shopping therapy/retail therapy

Question 10

A financial statement that measure a person’s income and expenses

Answer 10

Personal cash flow statement

Question 11

A cash flow statement that is based on forecasted cash flows for a future period

Answer 11

Budget

Question 12

What months will we be paid 3 times? (2)

Answer 12

May, October

Question 13

Envelope method is for Xs that are…(2)

Answer 13

Hardest to control/able to pay in cash

Question 14

How does the Pay yourself first method differ from the envelope method?

Answer 14

sets aside form your budget at the beginning of the budget period

Question 15

A summary of your assets, your liabilities, and your net worth

Answer 15

Personal balance sheet

Question 16

Items normally owned by a household, such as a car and furniture

Answer 16

Household assets

Question 17

Are stocks liquid?

Answer 17

No. B/c you will incur a loss if you had to sell them to satisfy day-to-day Xs

Question 18

Investment companies that sell shares to individuals and invest the proceeds in an overall portfolio of investment instruments such as bonds or stocks

Answer 18

Mutual Funds

Question 19

Rental Property and Land

Answer 19

Real Estate

Question 20

Housing or commercial property that is rented out to others

Answer 20

Rental Property

Question 21

What is a measure of your wealth?

Answer 21

Net worth

Question 22

What is a healthy liquidity ratio?

Answer 22

between 3.0 to 6.0

Question 23

These 3 periods are associated with high debt to asset ratio

Answer 23

Pre career, early earning, mid earning

Question 24

Personal income taxes are generally paid as income is earned during the year in a process called…?

Answer 24

withholding (withheld from each paycheck)

Question 25

Taaxes are paid on capital assets when they are… (4)

Answer 25

Sold, gifted, transferred**(not always. Ex. spouse), or inherited

Question 26

Reflects the amount of taxes that should be paid on property for every x dollars of assessed property value

Answer 26

Mill rate

Question 27

Used to reduce a particular gvmt benefit provided to taxpayers who have income that exceeds a certain threshold amount

Answer 27

Clawback

Question 28

Difference between tax avoidance and tax evasion

Answer 28

tax avoidance is legal whereas tax evasion is illegal

Question 29

Another name for a contributor to an RESP is…

Answer 29

A subscriber

Question 30

Financial institutions that accept deposits and provide loans to individuals and businesses

Answer 30

Depository Institutions

Question 31

Financial institutions that do not offer federally insured deposit accounts but provide various other services

Answer 31

Non-depository institutions

Question 32

Define Schedule I, II and III banks

Answer 32

I: Domestic; authorized to accept depsoits
II: foreign banks with subsidiaries operating in Canada
III: foreign banks with subsidiaries operating in Canada BUT are restricted in their authority to accept deposits

Question 33

Financial institutions that offer a diverse set of financial services to individuals or firms

Answer 33

Financial Conglomerates

Question 34

Which are depository Institutions: (3)

Answer 34

Chartered Banks, Trust and Loan Companies, Credit Unions/Caisse Populairs

Question 35

Which are non-depository Institutions? (8)

Answer 35

Finance and Lease Companies, Mortgage Companies, Investment Dealers, Insurance Companies, Mutual Fund Companies, Payday Loan Companies, Cheque Cashing Outlets, Pawnshops

Question 36

Provincially incorporated cooperative financial institutions that are owned and controlled by their members

Answer 36

Credit unions/caisses populaires

Question 37

Non-depository institutions that [facilitate the purchase or sale of various investments] by firms or individuals providing banking and brokerage services

Answer 37

Investment Dealers

Question 38

What should you consider when choosing a financial institution

Answer 38

convenience, deposit rates, deposit insurance, and fees

Question 39

What is revolving open end credit?
Example?
Instalment loan?
Example?

Answer 39

A type of credit with a maximum based on one’s income, debt, credit history, and anything else the lender deems important = credit card
Loan that is paid back on a regular basis, typically with blended premium and interest payments

Question 40

Equity =

Answer 40

mkt value of home less mortgage balance/debts

Question 41

Prime Rate =

Answer 41

Interest rate a bank charges to its best customers

Question 42

Amortize (loan) =

Answer 42

To repay principal of a loan in a series of equal payments