Chapter 1- Overview Of Financial Plans

Question 1

Personal financial plan

Answer 1

Specifies financial goals and describes the spending, financing, and investing activities that are intended to achieve the goals and the risk management strategies that are required to protect against uncontrollable events.

Question 2

Per capita debt

Answer 2

The amount of debt each individual would have in Canada if total debt was spread equally to everyone

Question 3

Financial planning standards council (FPSC)

Answer 3

Is a non-for-profit organization created to benefit the public through reinforcement and promotion of ethical standards of financial planning

Question 4

What are the 5 components of a financial plan?

Answer 4

1. Budgeting 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

Budget planning is…

Answer 5

The process of forecasting future income, expenses and savings goals

Question 6

Assets

Answer 6

What you own

Question 7

Liabilities

Answer 7

What you owe, your debt

Question 8

Net worth

Answer 8

The value of what you own minus the value of what you owe

Assets-liabilities

Question 9

Liquidity

Answer 9

Access to ready cash, including savings and credit to cover short term and unexpected expenses

Question 10

How can you enhance your liquidity?

Answer 10

Money management and Credit management

Question 11

Money management is..

Answer 11

Decisions regarding how much money to retain in liquid form and how to allocate the funds amount short-term investments

Question 12

Why should you have an emergency fund?

Answer 12

If you cannot cover short term needs or insufficient liquidity amounts

Question 13

Credit management

Answer 13

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

Question 14

Why would you need a loan?

Answer 14

To finance a large expenditure

Question 15

What is financial risk?

Answer 15

Exposures to events that can cause financial loss.

Question 16

Risk management

Answer 16

Decisions about whether and how to protect against risk

Question 17

Insurance planning

Answer 17

Determining the types and amount of insurance to protect your assets

Question 18

Why should you invest

Answer 18

Any savings beyond what you need to maintain liquidity

Question 19

Where can you invest money?

Answer 19

Stocks, bonds, mutual funds, real estate

Question 20

Retirement planning

Answer 20

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

Question 21

Estate planning

Answer 21

Determining how your wealth will be distributed before and or after you die
Protects your wealth

Question 22

How can psychology affect a financial plan?

Answer 22

Shopping therapy
Wants overpower needs
A hopeless feeling that the small amount you save will never be enough

Question 23

Developing a financial plan 6 stages

Answer 23

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

Question 24

Establishing your financial goals involves what?

Answer 24

SMART 
specify your goals
Measure your goals 
Act on your goals 
Select realistic goals 
Timings of goals

Question 25

What is personal finance?

Answer 25

The process of planning your spending, financing, and investing activities while talking into account uncontrollable events. Such as death, or disability in order to max your financial situation over time