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Personal finance 1 > Personal finance chapter 1 > Flashcards

Personal finance chapter 1 Flashcards

Chapter 1 review

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1
Q

Define personal financial planning

A

The process of managing your money to achieve personal economic satisfaction

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2
Q

Give 4 advantages of financial planning

A

1 increase effectiveness in obtaining, using and protecting your financial resources throughout your lifetime
2 increase control of your financial affairs by avoiding excessive debt bankruptcy and dependency on others for economic security
3. Improve personal relationships resulting from well-planned and effective communicated financial decisions
4. A sense of freedom from financial worries obtained by looking to the future anticipating expenses and achieving your personal economic goals

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3
Q

What are the six steps in financial planning process

A

1 develop financial goals
2 determine your current financial situation
3 identify alternative courses of action
4 evaluate alternatives
5 create and implement a financial action plan
6 reevaluate and revise the plan

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4
Q

List types of financial planning professionals

A 
Financial planner 
 Bankers 
 Accountants 
 Insurance agents 
 Lawyers 
Tax preparers
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5
Q

What do you need to look at to develop your financial goals

A

Analyze your financial values and attitudes towards money

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6
Q

How do you determine your current financial situation

A

By preparing a list of current assets and debt balances and amount spent for various items use personal finance statements

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7
Q

What are the 4 possible courses of action

A

Continue the same course of action
Expand the current situation
Change the current situation
Take a new course of action

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8
Q

What is opportunity cost

What does it include

A

Opportunity cost is what you give up by making a choice

interest liquidity and safety of investment

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9
Q

Opportunity cost is measured in terms of what

A

The time value of money

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10
Q

What is time value of money

A

Time value of money measures the increase in the amount of money as a result of interest earned therefore a dollar given today is worth more than a dollar given some time in the future

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11
Q

What risks and trade-offs should be considered when choosing an alternative course of action

A

Interest rate risk - changes in interest-rate
Inflation risk - rising prices
Liquidity risk- Converting investments to cash without significant loss of value
Product risk - Products or services fail to meet expectations
Risk of death
Risk of income loss
Health risks
Asset and liability risk where assets may be stolen or damaged

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12
Q

What steps should we take in developing our financial plan list 6

A

Develop financial goals
Determine current financial situation
Identify alternative courses of action
Evaluate alternatives
Create and implement a financial action plan
Reevaluate and revise the plan at least once every year

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13
Q

What are some risk associated with financial decisions

A 
Interest rate risk 
 Inflation 
Liquidity 
Product 
Health 
 Income loss 
 Asset and liability risk losses
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14
Q

What are some common sources of financial planning information

A

Financial planners, bankers, accountants, insurance agents, lawyers, tax preparers

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15
Q

Why should you reevaluate your actions after making personal financial decisions

A

Life situations change, adult life cycle

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16
Q

What are the 3 types of goals for different financial needs

A

Consumable product goals - food clothing entertainment
Durable product tools -infrequent purchases expensive items
Intangible purchase goals -relate to personal relationships health education and leisure

17
Q

What website feature of advocis.ca or Canadianfinancial.com would provide assistance with your financial planning decisions

A

Advocis provide personal financial planning assistance

18
Q

How should financial goals be stated

A

Realistic, specific measurable terms, have a time frame, indicate the type of action to be taken Smart Dash specific measurable action orientated realistic timely

19
Q

List three types of financial planning specialist some what they do

A

Fee only planners Dash hourly rate 75 to 200 or fees are fixed or annual fee percentage of the value of assets
Fee and commission planners and commission from investments and insurance products charge a fixed fee for advice
Commission only planners – receive only revenue from the commission on sales of insurance mutual funds and other investments

20
Q

What is a credit counsellor

A

A professional that suggest ways to reduce spending any laminate credit problems through financial planning

21
Q

What is the difference between a financial planner and an investment counsellor

A

Financial planner coordinates financial decisions into a single plan
Investment counsellor provides information and Handles transactions for stocks and bonds and other investments

22
Q

What methods do financial planners use to determine how they are paid for services

A

Fee only planners
Fee and commission planners
Commission only planners

23
Q

What two factors influence financial aspirations

A

Personal values and attitude towards money

Goal time frame, type of financial need, your life situation

24
Q

Identify for common financial goals and in which lifecycle stage the goal is likely to be very important

A

Create an affective financial record keeping system All lifecycles
Develop a regular saving and investment program Early to mid
Purchase appropriate types and amounts of insurance coverage
Create and implement a flexible budget
Make a will in developing a estate plan

25
Q

Like four factors comprise a good financial goal statement

A

SMART. Specific, measurable, action orientated, realistic, and timely

26
Q

What are examples of long-term goals

A

Goals that are five years or longer like saving for a house a car a big vacation expensive items

27
Q

What personal demographic variables influence financial activities and decisions

A

Age
Dependence
Married or single
Mixed generational household

28
Q

Define economics

A

Economics is the study of how wealthy is created and distributed

29
Q

What are the two main forces affecting the price of goods and services

A

Supply and demand

30
Q

List three economic conditions that will affect financial decisions

A

Consumer prices
Consumer spending
Interest rates

31
Q

How does the global marketplace influence financial activities

A

Foreign investors and foreign competition can reduce the funds available for domestic spending and investment

32
Q

What does consumer pricing referred to

A

Inflation inflation is a rise in the general level of prices the main cause for inflation is an increase in demand without a comparable increase in supply inflation is most harmful to people living on a fixed income

33
Q

Define consumer spending

A

The total demand for goods and services in the economy influences employment opportunities and potential income

34
Q

Defined interest rates and why they’re important

A

Interest represents the cost of money the forces of supply and demand influence interest rates. When consumer Savings increase the supply of money increases interest rate decrease when consumer business and government and foreigners borrow i savings increase the supply of money increases interest rates decrease when consumer business government and foreigners burro Increases the demand for money increases interest rates tend to rise increases the demand for money increases interest rates tend to rise

35
Q

What economic conditions typically cause inflation

A

An increase in demand without a comparable increase in supply

36
Q

What type of family life cycle is most harmed by inflation

A

People who live on a fixed income or retired people whose income does not change receives smaller amount for the same goods and services

37
Q

What factors influence interest rate levels

A

more savings equals lower rates more borrowing/debt equals higher rates

38
Q

When should you consider financial opportunity cost

A

Every time you spend save invest or borrow money

Personal finance 1 (1 decks)

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