Personal finance chapter 1 Flashcards
Chapter 1 review
Define personal financial planning
The process of managing your money to achieve personal economic satisfaction
Give 4 advantages of financial planning
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
What are the six steps in financial planning process
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
List types of financial planning professionals
Financial planner Bankers Accountants Insurance agents Lawyers Tax preparers
What do you need to look at to develop your financial goals
Analyze your financial values and attitudes towards money
How do you determine your current financial situation
By preparing a list of current assets and debt balances and amount spent for various items use personal finance statements
What are the 4 possible courses of action
Continue the same course of action
Expand the current situation
Change the current situation
Take a new course of action
What is opportunity cost
What does it include
Opportunity cost is what you give up by making a choice
interest liquidity and safety of investment
Opportunity cost is measured in terms of what
The time value of money
What is time value of money
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
What risks and trade-offs should be considered when choosing an alternative course of action
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
What steps should we take in developing our financial plan list 6
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
What are some risk associated with financial decisions
Interest rate risk Inflation Liquidity Product Health Income loss Asset and liability risk losses
What are some common sources of financial planning information
Financial planners, bankers, accountants, insurance agents, lawyers, tax preparers
Why should you reevaluate your actions after making personal financial decisions
Life situations change, adult life cycle
What are the 3 types of goals for different financial needs
Consumable product goals - food clothing entertainment
Durable product tools -infrequent purchases expensive items
Intangible purchase goals -relate to personal relationships health education and leisure
What website feature of advocis.ca or Canadianfinancial.com would provide assistance with your financial planning decisions
Advocis provide personal financial planning assistance
How should financial goals be stated
Realistic, specific measurable terms, have a time frame, indicate the type of action to be taken Smart Dash specific measurable action orientated realistic timely
List three types of financial planning specialist some what they do
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
What is a credit counsellor
A professional that suggest ways to reduce spending any laminate credit problems through financial planning
What is the difference between a financial planner and an investment counsellor
Financial planner coordinates financial decisions into a single plan
Investment counsellor provides information and Handles transactions for stocks and bonds and other investments
What methods do financial planners use to determine how they are paid for services
Fee only planners
Fee and commission planners
Commission only planners
What two factors influence financial aspirations
Personal values and attitude towards money
Goal time frame, type of financial need, your life situation
Identify for common financial goals and in which lifecycle stage the goal is likely to be very important
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
