Exam 1 notes

Question 1

5 Financial Actions:

Answer 1

• basic asset decision
• credit decisions
• insurance decisions
• investment decisions
• retirement and estate decisions

Question 2

standard of living:

Answer 2

the necessity, comforts, and luxuries we have or desire

Question 3

avg. Propensity to Consume:

Answer 3

% of each dollar of income, on average, that’s spent for current NEEDS rather than savings.

Question 4

AVG PROPENSITY TO CONSUME:

People with high average propensities to consume earn low incomes and spend most of the money they get on necessities.

Answer 4

HIGH propensity value = spending more of your paycheck

Question 5

AVG PROPENSITY TO CONSUME:

People earning more $$$ have a low propensity to consume. This is bc their cost of necessities is only a small portion of their income.

Answer 5

LOW propensity value = spending less of your paycheck on the basic stuff

Question 6

AVG PROPENSITY TO CONSUME:

The person making more money may believe it’s essential to buy better quality items – thus they will spend the same % of each dollar of income as the person making less.

Answer 6

Makes sense lol

Question 7

Wealth:

Answer 7

NET total value of all items that the individual owns….

consists of FINANCIAL and TANGIBLE assets!

Question 8

Financial Assets:

Answer 8

intangible, paper assets such as savings accounts and securities.

Question 9

Name 3 examples of Financial assets:

Answer 9

stocks, bonds, mutual funds

Question 10

Tangible Assets:

Answer 10

physical assets…can be for consumption or investment purposes

Question 11

Name 2 examples of Tangible Assets:

Answer 11

real estate, automobiles

Question 12

Personal Financial Planning:

Answer 12

systemic process that considers the most important elements of an individual’s financial affairs and is aimed at fulfilling their financial goals.

Question 13

Name the 6 Steps in the Financial Planning Process:

Answer 13

1. define financial goals
2. develop financial plans / strategies to achieve those goals.
3. implement financial plans / strategies
4. periodically develop & implement budgets (to monitor and control progress towards goals)
5. use financial statements to evaluate results of plans and budgets (taking corrective action if needed)
6. redefine goals & revise plans / strategies as circumstances change

Question 14

financial goals:

Answer 14

results that an individual wants to financial attain

Question 15

name 3 financial goals:

Answer 15

buying a home, building a college fund, achieving financial independence

Question 16

money:

Answer 16

medium of exchange used to measure value in financial transactions (standard unit of exchange)

Question 17

utility:

Answer 17

the amount of satisfaction received from buying quantities of goods & services of a given quality, that money makes possible

AKA: the usefulness of your money

Question 18

What is one of the most emotional issue in a relationship?

Answer 18

money!!!! $$$$$

Question 19

goal dates:

Answer 19

target points in the future when you expect to have achieved certain financial objectives

Question 20

what’s the length of a Long-Term goal?

Answer 20

6+ YEARS

Question 21

what’s the length of a Intermediate-Term goal?

Answer 21

2 - 5 YEARS

Question 22

what’s the length of a Short-Term goal?

Answer 22

in the next year

Question 23

Asset:

Answer 23

things we own (throughout our lives_

Question 24

liquid assets:

Answer 24

used to pay everyday expenses

ex. cash, savings accounts, money market funds

Question 25

investments

Answer 25

acquired to earn a return on our money

ex. stocks, bonds, and mutual funds

Question 26

personal property:

Answer 26

moveable property

ex. automobiles, household furniture, appliances, clothes, electronics, etc.

Question 27

real property:

Answer 27

immovable property

ex. land, houses

Question 28

liability:

Answer 28

something we owe

measured by amount of debt we incur, okurr?

Question 29

we create liabilities by ___

Answer 29

borrowing money

Question 30

What is the avg. propensity to consume of a person making 35,000 and spending 30,800?

Answer 30

spending / income = 30,800 / 35,000

= .88

Question 31

T/F: Tax plans are closely tied to investment plans:

Answer 31

True!

Question 32

T/F: Fee-only financial planners charge commission for the products they sell:

Answer 32

False :(

Question 33

Balance sheet liabilities should be recorder at their ___

Answer 33

current outstanding balance

Question 34

If your statement of income and expense shows a deficit, you may have ___:

Answer 34

increased your debts

Question 35

are budgets forward-looking or past-looking?

Answer 35

forward-looking, idek if past-looking is a thing wtf

Question 36

Solvency Ratio:

Answer 36

TOTAL_NET_WORTH / total assets

Question 37

Liquidity Ratio:

Answer 37

total liquid assets / total liabilities

Question 38

Savings Ratio:

Answer 38

cash surplus / net income

Question 39

Debt Service Ratio:

Answer 39

total mostly loan payments / monthly gross income

provides a measure of the ability to pay debts promptly

Question 40

annuity:

Answer 40

fixed sum of money that occurs annually, quarterly, monthly

Question 41

Average Tax Rate:

Answer 41

total tax / taxable income

Question 42

Marginal Tax Rate:

Answer 42

last on the last or next dollar of taxable income (the rate from the tax bracket that applies to the taxpayer)

Question 43

The average tax rate is used for ___-range planning;

The marginal tax rate is used for ___-range planning:

Answer 43

average = long-range
marginal = short-range

Question 44

Formula for Taxable Income:

Answer 44

[gross income] - [adjustments from deductions]

Question 45

For 2018, each exemption is $____:

Answer 45

$0!!!!!