Deck 1: Overview of a Financial Plan

Question 1

Which of these statements is true with regards to the 2008-2009 financial crisis?

A) More than half of the people in the United States lost their jobs.
B) The values of many homes were cut in half or more.
C) The values of most investments declined by no more than 10%.
D) Having a financial plan is of no help when economic conditions are as weak as they were during the crisis.

Answer 1

The values of many homes were cut in half or more.

Question 2

The first step in budgeting is to evaluate your current financial position by looking at just your income and expenses.

Answer 2

False

Question 3

"Big savers" focus their budget decisions on

A) reducing expenses.
B) increasing income.
C) spending most of their income.
D) saving as much of their income as possible.

Answer 3

saving as much of their income as possible.

Question 4

Personal finance does not include the process of planning your

A) spending.
B) financing.
C) investing.
D) spirituality.

Question 5

An understanding of personal finance is not necessary to judge the quality of advice that a financial adviser may give.

Question 6

Which of the following is not a financing decision?

A) Should you buy Apple stock with savings?
B) Should you borrow on your home equity loan to buy Apple stock?
C) Should you take a loan and buy a car?
D) Should you take a 15- or 30-year mortgage to buy a house?

Question 7

Which of the following is not an asset?

A) Your house that you rent
B) Your car that you financed
C) Your coin collection given to you by your grandfather
D) Your textbooks

Question 8

A good understanding of the financial planning process will allow you to make informed decisions without relying on the advice of financial advisers.

Question 9

A thorough understanding of this personal finance book qualifies you to become a financial adviser.

Question 10

Which of the following items is not a liability?

A) The balance due on your credit card
B) Your college loans
C) The wages you give up to take a class
D) An IOU to your roommate

Question 11

All of the following are true with regard to the demand for financial advisers, except

A) many people lack an understanding of personal finance.
B) many people prefer to rely on advisers rather than making their own decision.
C) many people are just not interested in making their own financial decisions.
D) only financial advisers can purchase mutual funds for a person's 401(k).

Question 12

"Big spenders" focus their budgeting decisions on

A) reducing expenses.
B) increasing income.
C) spending most of their income.
D) saving most of their income.

Question 13

If a person focuses their budget on "spending" vs. "saving," it is more likely they will

A) oversave.
B) overspend.
C) save just the right amount.
D) all of these

Question 14

The current market value of what you own minus the value of what you owe is called your net worth.

Question 15

Which item is not one of the components of a personal financial plan?

A) Setting aside money for season tickets to your favorite football team is an example of
B) Investing your money
C) Planning your retirement
D) Budgeting

Question 16

A measure of your wealth is

A) the highest level of education you've attained.
B) the amount of your annual income.
C) the current market value of what you own minus the value of what you owe.
D) your tax bracket.

Question 17

A personal financial plan specifies financial goals and describes

A) saving, investing, and asset valuation.
B) spending, saving, and credit card financing.
C) spending, financing, and investment plans.
D) saving and spending only.

Question 18

Various government agencies have conducted surveys that show most people have a good understanding of personal finance.

Question 19

Most Americans will never be able to understand and develop a personal financial plan.

Question 20

The simple objective of financial planning is to make the best use of your resources to achieve your financial goals.

Question 21

Which of the following is a credit management decision?

A) Purchasing a used car with cash
B) Investing your savings in the stock market
C) Obtaining a student loan to attend college
D) Putting money into your retirement account

Question 22

Organizational skills are an important component in developing a personal financial plan because

A) decisions related to one component of the plan may affect all other components.
B) you can apply organizational skills on the job.
C) it is hard to make a decision when your desk is a mess.
D) Both A and B are correct.

Question 23

As a result of the increased estate tax exemption limits enacted with the 2018 Federal income tax law changes, it is no longer necessary for a family to do estate planning.

Question 24

People do not need to determine how much money to set aside for retirement and how those funds should be invested until they near their retirement age.

Question 25

Your financial plan should include a plan for protecting and enhancing your assets and income through carrying excess insurance coverage so you can profit in the event of a loss.

Question 26

Liquidity cannot be enhanced using sound money and credit management.

Question 27

Credit should be used only when necessary, since it usually involves borrowed funds that you will need to pay back with interest.

Question 28

Effective estate planning will ensure that your wealth is distributed according to your wishes, but will do nothing to reduce the potential taxes your estate is subject to.

Question 29

________ is the process of forecasting future expenses and savings.

A) Budgeting
B) Planning
C) Predicting
D) Fortune-telling

Question 30

Money management decisions include deciding how much credit to obtain to support your spending and what sources of credit to use.

Question 31

Amanda has cash of $100, a car worth $5,000, and books worth $200. Her liabilities include a car loan of $2,000 and a credit card balance of $100. What is the total of her assets, liabilities, and net worth?

Question 32

If you do not have access to money to cover cash needs, you may have insufficient liquidity.

Question 33

Making personal finance decisions enhances your employability because

A) employers prefer to hire people with significant assets.
B) making decisions increases your decisiveness.
C) you are managing yourself and showing initiative.
D) None of these are correct.

Question 34

A complete financial plan consists of budgeting, taxes, financing, and investing.

Question 35

________ involves having access to funds to cover any short-term cash needs.

A) Investment
B) Money
C) Liquidity
D) Risk

Question 36

________ management involves decisions regarding how much money to retain in a liquid form and how to allocate funds among short-term investment instruments.

A) Investment
B) Money
C) Credit
D) Liquidity

Question 37

Retirement planning should begin

A) as early as possible in order that you accumulate sufficient funds for retirement.
B) as soon as you start working full time.
C) a few years before you plan on retiring.
D) you do not need to plan since Social Security and your firm's pension will be sufficient.

Question 38

One of the considerations that determines your investment choices is the level of risk you are willing to tolerate.

Question 39

________ management involves decisions regarding how much credit you need to support spending and which sources of credit to use.

A) Investment
B) Money
C) Credit
D) Liquidity

Question 40

Which of the following is an example of money management?

A) Putting your money in a savings account at your bank
B) Shopping around for the credit card with the best interest rate
C) Deciding to delay buying a new car until you can pay cash
D) Paying off a loan early to reduce the interest charges

Question 41

Which of the following does not protect your assets and/or income?

A) Money insurance
B) Disability insurance
C) Automobile insurance
D) Life and health insurance

Question 42

What is the core purpose of buying insurance?

A) Protect your wealth and assets
B) Make sure you make money on any claim
C) Insurance is an expense a careful investor needs to minimize
D) Make sure you leave an estate when you are gone

Question 43

The first step in developing your financial plan is

A) establish your financial goals.
B) pay off all your credit cards.
C) buy a cool car then begin saving money.
D) get a good job.

Question 44

Your ability to access funds to cover any short-term cash deficiencies is your ________.

Question 45

A plan for ________ is needed to determine how much you could afford to borrow, the length of the loan, and how to select a loan that charges competitive interest rates.

A) buying
B) financing
C) spending
D) saving

Question 46

From a financial standpoint when should a person start retirement planning and saving?

A) When he or she first starts receiving a salary
B) At 45-50 years of age
C) At 50-55 years of age
D) At 55-60 years of age

Question 47

Which of the following would not be considered an investment?

A) A membership in a golf or swim club
B) An art collection
C) A savings account
D) A mutual fund of stocks and bonds

Question 48

Retirement planning should begin

A) when you retire.
B) shortly after you retire.
C) well before you retire.
D) at any time.

Question 49

Which of the following is not a decision that you would probably encounter in managing your budget?

A) What expenses you should anticipate
B) How much money you should attempt to save each month
C) How you will allocate your estate among your heirs
D) How long you will take to pay off a specific loan

Question 50

Most investments are subject to ________, which is the uncertainty surrounding their potential return.

Question 51

Which of the following is not a way that insurance is designed to protect your wealth?

A) Protecting the assets that you own
B) Limiting your exposure to potential liabilities
C) Enhancing your income in the event of a loss
D) Protecting your investments from downturns in the stock market
E) B and D are both correct

Question 52

The major source of cash outflow for most people is the income they receive from employers.

Question 53

Estate planning

A) protects your wealth against unnecessary taxes.
B) shelters your wealth against all taxes.
C) ensures that your wealth is distributed in the manner that you determine.
D) A and C are correct.

Question 54

Potential investments include all of the following instruments, except

A) stocks and bonds.
B) mutual funds.
C) real estate.
D) lottery tickets.

Question 55

During his ________ your Uncle Harvey decides to cut you out of his will.

Question 56

The act of determining how wealth will be distributed before or upon death is

A) estate planning.
B) retirement planning.
C) not needed for most people.
D) liquidity planning.

Question 57

Budgeting helps set goals by estimating ________ on a monthly basis to determine how much to save and spend.

A) assets and income
B) liabilities and expenses
C) income and expenses
D) net worth and income

Question 58

List the six components of a financial plan.

Question 59

A budget does not

A) require thinking and planning.
B) require an evaluation of your current financial position.
C) help you account for all your income and expenses.
D) require the preparation of a will.

Question 60

________ is the uncertainty surrounding the potential return on an investment.

Question 61

Cash flows are affected by financial planning decisions. Which of the following is not correct?

A) Insurance payments are a cash outflow.
B) Investing in stock is a cash outflow.
C) Paying off a loan early is not an outflow since you are reducing a debt.
D) Income is a cash inflow.

Question 62

Opportunity cost refers to

A) money needed for major consumer purchases.
B) what you give up or forego as a result of making a decision.
C) the amount paid for taxes when a purchase is made.
D) evaluating different alternatives for financial decisions.

Question 63

Jessie has $4,000 in a bank account, $2,800 in a 401(k) plan at work, a car with a current value of $28,000, and a house that she purchased for $92,000 that has a current value of $118,000. The current balance of her home mortgage is $81,000, she has one credit card with a $3,000 balance, and a student loan with a balance of $6,000. What is Jessie's current net worth?

A) $62,800
B) $46,800
C) ($242,800)
D) ($62,800)

Question 64

Goals with a time frame of five or more years into the future are called intermediate-term goals.

Question 65

Which of the following is not a decision involved in managing your liquidity?

A) Deciding how much money to keep in savings
B) Choosing between credit cards
C) Determining how much money to save versus how much to spend
D) Building and maintaining a monthly/yearly budget with allocations to expenses and investments

Question 66

If your income exceeds the amount you spend, you should ________ your investments or ________ loans.

A) reduce; repay existing
B) reduce; obtain more
C) increase; repay existing
D) increase; obtain more

Question 67

Jakob received a $1,000-a-year raise in January, sold stocks in March for $6,000 that were originally purchased for $4,000, and in July had a $100 monthly increase in mortgage payments on his adjustable rate mortgage. The increased mortgage payment started in July and was in effect for the remainder of the year. What was the total impact on Jakob's cash flow for the year?

A) $1,000
B) $5,400
C) $6,400
D) $7,600

Question 68

Goals should be set as high as possible regardless of reality because they may eventually be obtainable.

Question 69

Your financial position is highly influenced by all of the following, except

A) the amount of education you pursue.
B) the current pay level you receive.
C) the current economy.
D) the bonus check your best friend just received.

Question 70

Which of the following is not a decision involved in managing your financing?

A) Whether to obtain a 3-year versus 4-year loan on a new car
B) Whether to obtain a 15-year versus 30-year loan on a new home
C) Whether to pay off an existing loan
D) Whether to invest income in a savings account or in a stock

Question 71

Josh has decided to take a course at the local community college that could help him get a promotion at work. The course begins at 5 p.m. and goes until 9 p.m. on Monday nights. Josh normally works until 5 p.m. each day, but because of the drive time to the community college, he will need to leave work at 3 p.m. on class days. Josh currently earns $18.50 per hour. His employer contributes 10% of Josh's gross earnings to a 401(k) retirement plan. If the class meets 16 times, what is Josh's total before-tax opportunity cost for the class?

A) $592.00
B) $800.00
C) $651.20
D) None

Question 72

To increase your savings,

A) income must be increased or expenses decreased.
B) expenses must be increased.
C) income must be decreased.
D) net worth must be decreased.

Question 73

When estimating expenses for a budget,

A) last month's and last year's expenses are not a good starting point.
B) many of the same expenses do not occur each month.
C) large unusual expenses such as car or hospital bills should be included.
D) estimating your future assets is a good starting point.

Question 74

Your decision about one component of your financial plan can affect all other components. Which statement is true?

A) The amount of life insurance you choose to carry has no effect on your future estate value.
B) There will never be any trade-offs to consider when making decisions about your financial plan.
C) If you make poor investment decisions, you may have to work longer than planned.
D) You should contribute all of your extra money to your retirement account even if it means you don't have money available for products and services today.

Question 75

Which of the following would not be a factor in evaluating your current financial position?

A) Income
B) Expenses
C) Possible lottery winnings
D) Assets

Question 76

Your net worth will not be increased by which of the following actions?

A) Increasing your savings from 10% to 15% of your earnings
B) Receiving a $100 birthday present from your grandmother
C) Buying a new home entertainment system and putting the entire amount on your credit card
D) Receiving an inheritance

Question 77

A worker making $20 per hour decides to take a day of unpaid leave from work to attend a graduation ceremony. The worker ordinarily works an 8-hour day and is subjected to a total tax rate of 20%. What is the worker's total opportunity cost from the day of unpaid leave?

A) $8.00
B) $128.00
C) $112.00
D) $160.00

Question 78

If you set realistic goals rather than unrealistic ones, your plan becomes more useful.

Question 79

The income in your budget is not affected by

A) your education.
B) your career decisions.
C) the tax laws.
D) the standard of living you experienced as a child.

Question 80

Cash flows are affected by financial planning decisions. Which of the following is correct?

A) Car payments you make are cash outflows.
B) Investments you make in stock are cash inflows.
C) Your routine monthly expenses are cash inflows.
D) Your income is a cash outflow.