Introduction

Question 1

what is financial planning?

Answer 1

The business of providing a person a tangible plan recommending strategies to help achieve the all-encompassing goals of that
person.

Question 2

what are the 5 stages in the financial planning process?

Answer 2

1. establish financial objectives
2. gather , process and analyze relevant information
3. develop a financial plan
4. implement the plan
5. monitor plan & update as needed

Question 3

what does the acronym SMART stand for?

Answer 3

SPECIFIC
MEASURABLE
ATTAINABLE
REALISTIC
TIME FRAMED

Question 4

what is a financial goal vs financial desire?

Answer 4

a financial goal must at least possess two of the SMART goal attributes:
specific
measurable
attainable
realistic
time framed

Question 5

what is a short term goal and an example?

Answer 5

<2 years
= saving $2000 by the end of the year to go on vacation

Question 6

what is a long term goal and an example?

Answer 6

more than 5 years
example: same SOL for child to age 18 if 1 parent should die or become disabled

Question 7

how do short term goals and long term goals interact with each other?

Answer 7

some long term objectives require the accumulation of funds over time - this is met through short term objectives

Question 8

what are the 4 broad categories of financial objectives?

Answer 8

1. capital accumulation
2. property accumulation
3. protection against personal risks
4. other financial objectives

Question 9

what are 4 examples of capital accumulation?

Answer 9

1. emergency funds for repairs, unemployment, etc
2. educational needs of children
3. retirement savings
4. increase in financial security

Question 10

what are 4 examples of property accumulation?

Answer 10

1. buy a new home
2. purchase a vacation property
3. transportation needs
4. acquire artworks, jewellery, etc.

Question 11

what are 6 examples of protection against personal risks?

Answer 11

1. life insurance
2. disability insurance
3. long-term care insurance
4. critical illness insurance
5. liability insurance
6. property insurance

Question 12

what are 3 examples of other financial objectives?

Answer 12

1. charitable contributions
2. extended travel or sabbatical from work
3. care for elderly dependents or child with special needs

Question 13

what are financial assets?

Answer 13

provide income or are part of what you will consume in retirement
these are the most important for planning purposes because they are the resources that determine progress towards financial goals.

Question 14

what are personal assets?

Answer 14

are the ones you use in everyday life - the house, car, clothing etc

Question 15

what are luxury assets?

Answer 15

are for personal use, but they are very marginal to the family’s needs.

Question 16

what are current liabilitites & an example?

Answer 16

are due within one month
-cell phone bill

Question 17

what are long term liabilities and an example?

Answer 17

are due later than one month, and often are payable monthly for many years.
ex) mortgage

Question 18

what is net worth?

Answer 18

assets - liabilities

Question 19

what is a liquid asset and an example?

Answer 19

an asset that can be easily converted into cash
ex: bonds and stocks

Question 20

what is real estate and an example?

Answer 20

a type of financial asset
ex: a family home

Question 21

what are the major components of the balance sheet?

Answer 21

1. assets: financial &
   personal use
2. liabilities

Question 22

what is human capital in financial terms?

Answer 22

is the earning power that a person possesses.

Question 23

what are the three important personal finance decisions related to human capital?

Answer 23

1. The decision to acquire it (go to school vs not)
2. to protect human capital (more to lose)
3. to maintain human capital (depreciates over time)

Question 24

what is cash flow statement?

Answer 24

measures your cash inflows and outflows to show you your net cash flow for a specific period.

Question 25

what is employment income?

Answer 25

the wages employees earn from their business

Question 26

what is take home pay?

Answer 26

the net amount of income receive after the deduction of taxes, benefits, and voluntary contributions from a pay-check.

Question 27

what is disposable income?

Answer 27

disposable income is the amount of money an individual has left to spend or save after all taxes are deducted from gross income

Question 28

what is discretionary income?

Answer 28

income remaining after deduction of taxes, other mandatory charges, and expenditure on necessary items

Question 29

what is pension income?

Answer 29

the regular payments an individual receives during retirement from various pension plans or retirement accounts they have contributed to during their working years.

Question 30

what is a fixed expense with an example

Answer 30

costs that typically remain the same in price and frequency
example= car payment

Question 31

what is a variable expense and an example?

Answer 31

variable expenses change from month to month
ex: medical expenses, groceries

Question 32

what is a discretionary expense and an example?

Answer 32

a cost that a household can survive without, if necessary
example: restauaraunts, entertainment

Question 33

what is a non-discretionary expense with an example?

Answer 33

mandatory expense
ex: housing and groceries

Question 34

what are the 4 components of basic financial data?

Answer 34

-assets
-liabilities
-income
-cash flows

Question 35

what are some qualitative factors (5)?

Answer 35

-desire to acieve financial independence
-plans to start/add to a family
-probable career path
-tolerance for investment risk
-preferred investment types

Question 36

what is the purpose of various financial statements? (3 points)

Answer 36

-understand current financial position
-identify areas that could/should be changed
-assess whether objectives are realistic

Question 37

what are 2 strategies/actions that will help acieve the obejctives?

Answer 37

-time frames
-dollar amounts

Question 38

what are the 3 objectives of the FP Canada?

Answer 38

-to have a consistent national curriculum
-to promote comprehensive national practice standards, ethics & conduct criteria
-to monitor & supervise the activities of financial planners with respect to: educational requirements & practice standards

Question 39

why has financial planning become more important to individuals in recent years?

Answer 39

-more complex personal finances

Question 40

what is the envelope system vs pay yourself first?

Answer 40

envelope system - sort your income between necessary all payments, spend the remaining
pay your self first - take out money for yourself first, then pay off all your necessitites