Learning Outcome 02 - Financial Planning Principles

Question 1

For what reasons is a net worth statement usually prepared?:

Answer 1

Alive today
At retirement
Catastrophe scenario: incapacity
Catastrophe scenario: death of a client
Education funding
Estate planning issues

Question 2

A Personal Financial Statement outlines what?

Answer 2

A Persons financial position at any given time.

Their purpose is to provide information about the current financial position and summary of income and spending

Question 3

What are the key points regarding preparation of a net worth statement?:

Answer 3

• It must state a date of preparation
• It must contain the name(s) of the client(s)
• Assets are grouped so that it is easy to identify sources of wealth
• Liabilities are also detailed
• Explanatory notes indicate what is included and excluded in the net worth statement and how the value has been calculated

Question 4

List the common elements included in the process of proposing solutions?:

Answer 4

Setting up an emergency fund
Putting in place risk management strategies
Reduce debt
Strategies to achieve goals
Reduce expenditure
Increase income
Save and invest more
Take more risks
Move target date
Monitor progress
New opportunities
Change in circumstances/attitudes
Track progress
Improved wellbeing

Question 5

Financial Management is important for 4 important reasons

Answer 5

1. Conflicting Demands
2. Increased Life Expectancy
3. Behavioural biases
4. investing in riskier portfolios