Financial Assessment and Tools

Question 1

How do you calculate Net Worth?

Answer 1

Assets-Liabilities

Question 2

How do you calculate Liquidity Ratio?

Answer 2

Monetary Assets / Monthly expenses

Recommended should be 3-6 months

Question 3

True or False. Ratios can be used to assess clients’ financial situations and use the information to help write goals.

Answer 3

True

Question 4

What is a cash flow statement?

Answer 4

Income - Expenses

Question 5

How do you calculate Debt to Income Ratio?

Answer 5

(Annual debt repayments/yearly gross income) x 100

36% or less is recommended

Question 6

What should goals be based on?

Answer 6

Goals follow from your values

Question 7

Define financial strategies

Answer 7

Pre-established plans of action to be implemented

Question 8

What is the purpose and the components of a net worth statement?

Answer 8

Financial snapshot of your current situation. Includes information on what you own, owe and what the net result would be if you paid off all of your debts.

Question 9

Give examples of Monetary Assets

Answer 9

savings or near cash items that can be readily converted to cash (CDs, tax refunds due, checking/savings accounts)

Question 10

What are some Tangible Assets?

Answer 10

Personal property used in every day life. Furniture, vehicles, house. They are items that generally depreciate over time.

Question 11

What are examples of Investment Assets?

Answer 11

Stocks, bonds, IRAs, life insurance, real property, retirement accounts.

Question 12

When is a person insolvent?

Answer 12

When they have more debts than assets.

Question 13

What is another way to say Cash Flow Statement?

Answer 13

Income and Expense Sheet

Question 14

What is the purpose and the components of a Cash Flow Statement?

Answer 14

Where your money is coming from and where it went on a statement during a fixed period of time. It includes income, expenses and any surplus. Shows whether you are living within your means.

Question 15

What are fixed expenses? And give some examples

Answer 15

Usually paid in the same amount during each time period. Typically inflexible and contractual. (Rent, mortgage, car note, loans, insurance, taxes).

Question 16

What are variable expenses? Give examples

Answer 16

Expenditures over which you have considerable control. Food, entertainment, clothing, utilities, education, furnishing, vacations, credit card payments, savings, personal care.

Question 17

What can be learned from a Liquidity Ratio?

Answer 17

The number of months in which living expenses can be paid should an emergency arise.

Question 18

What can be learned from a debt-to-income ratio?

Answer 18

Do I have enough assets to meet my debt obligations? Do I have enough liquidity to pay for emergencies?

Question 19

List some ways to reduce spending

Answer 19

Reduce variable expenses, have savings automatically deposited directly from your paycheck. Sell an asset.

Question 20

What should be done before budgeting?

Answer 20

Understand your expenses and income. Understand where you want to be in the future and take action to set financial goals.

Question 21

Define Disposable Income

Answer 21

Also known as take-home pay which is available for budgeting.

Question 22

Define Discretionary Income

Answer 22

Controllable expenses used to pay for variable expenses. . In other words, the money that is left over after paying for necessities such as housing, utilities, food, etc.

Question 23

What are some of the purposes of a Revolving Savings Account?

Answer 23

A variable expense budgeting tool that serves two purposes. 1. Accumulate funds for large non-monthly, irregular expenses such as insurance premiums, medical costs, gifts, vacations. 2. To meet occasional deficits due to income fluctuations.

Question 24

If I wanted to know where my money came from and where it went over the course of the past month or year, what statement would I compile?

Answer 24

Cash Flow Statement

Question 25

Divide monthly living expenses into monetary (liquid) assets to arrive at the….

Answer 25

Liquidity Ratio

Question 26

Divide annual debt repayments by gross yearly income to arrive at the…..

Answer 26

Debt-to-income ratio

Question 27

A motor home would be an example of what kind of asset?

Answer 27

Tangible Asset

Question 28

A monthly health insurance premium would be an example of

Answer 28

Fixed Expenses

Question 29

Most financial planning experts recommend that people have a liquidity ratio of at least how many months?

Answer 29

3- 6 months

Question 30

A budget should be based on previous spending, current economic trends, goals or net worth?

Answer 30

Goals