Fundamentals of financial Planning

Question 1

Six steps of financial planning

Answer 1

Steps in the Financial Planning Process1.Establishing client-planner engagement2.Gathering client data and determining goals and expectations3.Clarifying the client’s present financial status and identifying problem areas and opportunities4.Developing and presenting the financial plan5.Implementing the financial plan6.Monitoring the financial plan

Question 2

Discretionary expenses and Non-discretionary

Answer 2

discretionary expenses, expenses related to items which the individual desires, but are not required for “basic survival”, such as travel and entertainment, and non-discretionary expenses, such as food, clothing, shelter, and perhaps transportation.

Question 3

Strategies to improve client’s cash flow situation

Answer 3

1. Reduce discretionary expenses (refinance high-interest debt)
2. Reorganize investments- to be in TFSA or RRSP savings
3. Seek to increase income

Question 4

Debt Management

Answer 4

Reducing high-interest bearing debts like credit card balances
Look for clues in client case study
Apply general budgeting principles and cash management

Question 5

GDSR

Answer 5

GDSR =( Mortgage Payments + Property Taxes + Heating Costs + 50% of any Condominium Fees) / Gross Family Income

Question 6

TDSR

Answer 6

TDSR = (Mortgage Payments + Property Taxes + Heating Costs + 50% of any Condominium Fees + Other Debt Payments)/ Gross Family Income

Question 7

Elasticity of Demand

Answer 7

How responsive quantity demanded is to changes in the price of the good.
Elasticity (e) = Percentage change in Quantity Demanded/Percentage Change in Price

Question 8

GDP

Answer 8

Output = GDP = C + I + G + (X – M)

Question 9

Fiscal Policy

Answer 9

Expansionary Fiscal Policy:↑G or ↓T results in ⇒↑C and ↑I leading to ⇒↑GDP
Restrictive Fiscal Policy: ↑T or ↓G results in ⇒↓C and ↓I leading to ⇒↓GDP

Question 10

Monetary Policy

Answer 10

Expansionary Mon. Policy:↑Ms results in ⇒↓interest rates and ↑I leading to ⇒↑GDP
Restrictive Mon. Policy: ↓Ms results in ⇒↑interest rates and ↓I leading to ⇒↓GDP

Question 11

Leading Indicators

Answer 11

Change prior to changes in economic activity
Examples include:
1.housing starts
2.manufacturers’ new orders
3.changes in profits
4.spot commodity prices
5.average hours worked per week
6.stock prices

Question 12

Coincident Indicators

Answer 12

change at the same time as changes in economic activity.
Examples include:
1.GDP
2.industrial production
3.personal income
4.retail sales

Question 13

Lagging Indicators

Answer 13

Follow economic changes.
Examples include:
1.business investment
2.unemployment rate
3.labour costs
4.inventory levels
5.inflation