Deck 3: Tools for Financial Planning - Planning With Personal Financial Statements

Question 1

Cash inflows tend to be higher for younger individuals and lower for individuals in their fifties.

Answer 1

False

Question 2

Cash outflows represent your liabilities, such as the pay-off value on your car or home.

Answer 2

False

Question 3

Individuals who switch from a low-demand industry to a high-demand industry usually earn higher incomes.

Answer 3

True

Question 4

The most common error people make is to underestimate cash inflows and overestimate cash outflows.

Question 5

Long-term liabilities are debts that will be paid at least three years into the future.

Question 6

Careful budgeting and controlled spending lead to self-reliance and a feeling of financial freedom.

Question 7

Getting financial help from family and friends is easy and should be one of your first options in case of emergencies.

Question 8

A personal cash flow statement is usually the starting point for an individual's or family's budget.

Question 9

Detecting future cash flow overages and deficiencies in cash inflows and outflows improves with practice in the budgeting process.

Question 10

Some people with large incomes spend their entire paycheques within a few days, while others with small incomes may be big savers.

Question 11

A high debt ratio indicates an excessive amount of debt and should be reduced over time to avoid any debt repayment problems.

Question 12

During the final stage in the life cycle, retirement, people experience higher incomes from their demanding careers.

Question 13

Salary or wages are the only cash inflows for most working people.

Question 14

Your net worth can change even if your net cash flows are zero.

Question 15

Stocks are considered liquid assets since they are easy to sell without a loss in value.

Question 16

For most people, the first obstacle is to correctly assess their true net income.

Question 17

Net cash flows are the difference between cash inflows and cash outflows and can be either positive or negative.

Question 18

One of the problems in making a monthly budget is that some expenses fluctuate quite a bit from month to month.

Question 19

A three-month budget is easier to prepare, anticipates large and unusual expenditures, and gives a better picture than a 12-month budget.

Question 20

One advantage of budgeting several months in advance is that you will be warned of potential deficiencies and can determine how to cover them.

Question 21

Most people's consumption behaviour is affected by their incomes.

Question 22

Net worth always increases when you increase the value of your assets.

Question 23

The key factors affecting your cash flow are career path and job skills.

Question 24

It is difficult to overestimate income and underestimate expenses.

Question 25

It is possible to budget for irregular expenses paid infrequently.

Question 26

To increase wealth a plan must attempt to maximize earnings and maximize expenses.

Question 27

Savings allocated to an emergency fund can assist in handling expected expenses.

Question 28

As people grow older and before retirement they tend to spend more money on cars, houses, and vacations.

Question 29

Assets valued at $400 000 with liabilities of $300 000 means a liquidity ratio of 3 to 1.

Question 30

Budgeting is the forecasting of future income, expenses, and savings.

Question 31

A net worth statement can be used to monitor the progress of a financial plan.

Question 32

Net worth is a component of a personal balance sheet.

Question 33

Net worth is calculated by subtracting all debt from current assets.

Question 34

Students with a negative net worth are essentially bankrupt.

Question 35

Having a budget means that your net worth will always be positive.

Question 36

During retirement years people tend to slow their spending as they adjust to a lower income.

Question 37

Your cash flow statement for last month is of no importance to your forecasting cash flow for this month.

Question 38

The longer you have been budgeting, the easier it becomes to find new sources of cash for savings.

Question 39

Budgets prepared to forecast over a smaller time period are usually more accurate.

Question 40

If your income is more than your expenses, you will need a budget to help you save money.

Question 41

Assets valued at $400 000 with liabilities of $300 000 means a debt to asset ratio of 0.75 to 1.

Question 42

What is the purpose of creating your personal cash flow statement?

A)To compare income and expenses to develop your budget
B)To detail every minor expense you have for accuracy
C)To track your net worth
D)For your annual tax return records

Question 43

Stocks are certificates representing the amount issued by borrowers and stockholders may receive interest payment.

Question 44

Joshua has $1000 in income from his job and $200 in stock dividends this month. This month he has rent and utilities of $300 and he spent $300 on groceries and $200 on clothing. What is his cash inflow this month?

A)$1200
B)$400
C)$600
D)$1000

Question 45

Cash outflows are also called

A)assets.
B)expenses.
C)income.
D)liabilities.

Question 46

The lower your debt to asset ratio is, the easier it is to increase net worth.

Question 47

What does the personal cash flow statement measure?

A)The rate of cash flow
B)Expenses
C)Cash inflows and outflows
D)Net worth

Question 48

It is more favourable to have a liquidity ratio of less then 1.

Question 49

Mutual funds are portfolio investments that require investors to make individual stock or bond investment decisions themselves.

Question 50

Income of $2760 monthly with expenditures of $2880 monthly will result in a negative cash flow of $120.

Question 51

The more liquidity you have, the easier it is to budget.

Question 52

Jill has $1000 in income from her job and $200 in stock dividend income this month. This month she has rent and utilities of $300 and she spent $300 on groceries and $200 on clothing. Which of the following is true?

A)Jill has a net cash flow of $400
B)Jill has net expenses of $400
C)Jill has a net cash flow of $200
D)Jill has net income of $400

Question 53

Over time, liquid assets tend to make up a larger proportion of your total assets than do household assets.

Question 54

What are net cash flows?

A)All assets minus liabilities
B)All incomes minus living expenses
C)Current assets minus current liabilities
D)After-tax income minus expenses

Question 55

Which of the following is not a cash inflow?

A)Interest received
B)Dividend income
C)Car payment
D)Salary

Question 56

To save money, excess cash flow will be required. What is excess cash flow?

A)Funds remaining after all debts are paid off
B)Net salary after expenses
C)Net profit from the sale of an investment
D)Surplus cash after all expenses are paid

Question 57

Raymond has a $5000 bank loan due in nine months, $3000 in credit card liabilities due in 1.5 months, and another $4000 loan due in 1.5 years. In this case, Raymond has total long-term liabilities of $4000.

Question 58

If you have an increase in monthly salary from $4000 to $4500 and an increase in entertainment and dining spending of $650 per month, your net worth is reduced by $150 per month.

Question 59

A high debt to asset level means your liquidity may be at risk.

Question 60

Which of the following is required in creating a cash flow statement?

A)The values of all assets
B)Value of all liabilities
C)Amounts used for expenses
D)The ideal emergency fund amount

Question 61

What error do many individuals make in budgeting?

A)Overestimate expenses and underestimate income
B)Overestimate income and underestimate expenses
C)Overestimate income and expenses
D)Underestimate income and expenses

Question 62

What tends to be the case for the retirement life stage?

A)Income tends to be less than when working.
B)Managing expenses for new hobbies becomes challenging.
C)Managing RRSP investments becomes paramount.
D)Taxes increase due to tax on retirement funds.

Question 63

Why is excess cash flow important in financial planning?

A)It enables you to buy luxury items
B)It can enable you to reach long term goals
C)It works as an emergency fund for unexpected expenses
D)It eliminates financial stress

Question 64

Jeff has a $1000 salary and a $100 dividend income this month. This month Jeff has rent and utilities of $600 and he spent $200 on groceries and $100 on clothing. What is his net cash flow this month?

A)$500
B)$100
C)$200
D)$1100

Question 65

All of the following affect cash outflows except

A)the size of the family.
B)your age.
C)your education level.
D)your personal consumption behaviour.

Question 66

If both a husband and a wife are employed full time, their consumption behaviour

A)is usually higher.
B)tends to decrease.
C)will decrease as they age.
D)is unlikely to be affected.

Question 67

As people grow older, into their fifties, they

A)tend to spend more money on vacations.
B)relax their careers and earn less.
C)sell assets to raise cash.
D)are no longer candidates for promotions.

Question 68

Cash inflows from wages tend to be the highest in which of the following?

A)Early earning stage
B)Retirement
C)Prime earning stage
D)First career stage

Question 69

A budget is

A)the same thing as a cash flow statement.
B)a method to measure net worth and monitor wealth.
C)an historical record of income and expenses.
D)a forecast of all items on the cash flow statement.

Question 70

Which of the following is not a cash outflow?

A)Salary
B)Rent
C)Telephone bill
D)Car payment

Question 71

Which of the following is the worst approach to solving the problem of an annual budget deficit?

A)Liquidate enough savings or investments to make up the deficit
B)Get an additional credit card and cover the deficit with that
C)Renegotiate debt to longer term, lower interest options
D)Increase income by getting an additional part-time job

Question 72

What is a good way to determine the accuracy of your budget?

A)Review your forecast carefully and project it into the future.
B)Be more cautious and reduce your income estimates.
C)Compare your actual inflows and outflows for a recent period to your forecast.
D)Be more cautious and increase your expenses estimates.

Question 73

If you do not budget for unexpected expenses, you will likely experience

A)cash shortages.
B)an increase in your emergency fund.
C)an increase in assets.
D)a decrease in liabilities.

Question 74

Which one of the following is a liquid asset?

A)Cash in a savings account
B)A car
C)Cash in an RRSP
D)Stock held in an investment account

Question 75

A cash flow statement is

A)an accurate recording recent actual expenses and incomes.
B)a forecast of cash inflows and outflows in the future.
C)not concerned with unusual sources of income or irregular minor expenses.
D)only concerned with the most recent regular expenses and incomes.

Question 76

What do many individuals tend to do with their cash outflows?

A)Overestimate them
B)Balance them
C)Maximize them
D)Underestimate them

Question 77

Which of the following usually affects cash inflows the most?

A)The education and income of your parents
B)Your job skills
C)Your personal consumption behaviour
D)The size of your family

Question 78

What is a practical way to make sure you stay within your budget and achieve your savings goals?

A)Use the pay yourself first method
B)Use a credit card for all expenses
C)Reduce your spending
D)Get a second job

Question 79

Which cash inflow will probably be discontinued after retirement?

A)Dividend and interest received from investments
B)Pension payments
C)Salary
D)Social assistance benefits

Question 80

A budget will not do which of the following?

A)Help determine if cash outflows will be sufficient to cover cash inflows
B)Anticipate cash shortages
C)Determine the excess you have to invest
D)Determine the additional payments you can make to reduce personal debt