Deck 1: Overview of a Financial Plan

Question 1

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

Answer 1

False

Question 2

A financial plan should include estimates of the cost of a long-term goal.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

Most Canadians are capable enough to understand and develop a personal financial plan.

Question 5

Liquidity cannot be enhanced using sound money and credit management.

Question 6

An example of an opportunity cost is the cost of tuition while attending college or university instead of the hourly rate you could earn from being employed.

Question 7

The Financial Planning Standards Council (FPSC)is a profit-oriented organization created to benefit the public with regards to financial planning.

Question 8

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

Question 9

An understanding of personal finance is necessary to judge the quality of advice that a financial adviser may give.

Question 10

What you owe minus what you own equals the net assets you have.

Question 11

Placing exact estimates on the cost of long-term goals is necessary for a financial plan to be successful.

Question 12

The per capita debt of Canadians has multiplied by more than five times from $5470 in 1980.

Question 13

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

Question 14

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

Question 15

The value of what you own minus the value of what you owe is called your "net assets."

Question 16

Your budget is influenced by your income, which in turn is influenced by your education and career decisions.

Question 17

Financial advisers are in demand because most people lack understanding or are not interested in making their own financial decisions.

Question 18

An important step in developing a financial plan is to record specific goals you want to achieve.

Question 19

Budgets have to be exact and inflexible to work properly.

Question 20

If you do one thing, you usually give up the chance to do something else. This is called "opportunity cost."

Question 21

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

Question 22

Only the wealthiest 10 percent of the population need to be concerned with estate planning, since the estate tax has been almost eliminated for most people.

Question 23

Saving too much for short-term needs does not limit your opportunity for long-term growth.

Question 24

If prepared properly, financial plans are set for life and should not need to be adjusted.

Question 25

An emergency fund is not a component of a long-term financial plan.

Question 26

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

Question 27

Any savings you have in excess of what you need to maintain liquidity should be spent immediately.

Question 28

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

Question 29

The savings for a short-term goal will earn more interest than investments in a long-term goal such as a retirement plan.

Question 30

An understanding of personal finance allows you to follow the guidance of financial advisers.

Question 31

Your financial plan should include a plan for protecting your assets and income through insurance coverage.

Question 32

An unexpected emergency may result in the excess use of credit.

Question 33

Determining how much money you should set aside for retirement and how those funds should be invested should not be a concern for people under the age of 50.

Question 34

In addition to the text, websites and financial magazines are good sources for additional help in financial planning.

Question 35

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

Question 36

One of the considerations in determining your investment choices is evaluating the level of risk you are willing to take.

Question 37

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

Question 38

You should strive to balance your savings goals among short-, medium-, and long-term goals.

Question 39

If you set realistic goals rather than unrealistic ones, your financial plan becomes a more viable one.

Question 40

It is better to seek advice and information for your plan from only one source.

Question 41

If you spend $20 for your dinner, the opportunity cost is that you have forgone the possibility of using that money to buy gasoline for your car.

Question 42

Death and disability are examples of controllable events in financial planning.

Question 43

From 1990 to 2008, consumer bankruptcies increased 111.8 percent.

Question 44

For each dollar of personal income received in 2008, Canadians saved only 4.7 cents.

Question 45

John earns $3000 monthly income and he decides to set aside 10 percent as savings. In his savings, John wants to reserve 20 percent as his emergency fund. What amount should John accumulate as emergency fund annually?

A)$60
B)$120
C)$360
D)$720

Question 46

For each dollar of personal income received in 1982, Canadians saved only 11 cents.

Question 47

As of 2008, Canadians were saving

A)about 2.5 percent of income earned.
B)about 25 percent of income earned.
C)about 4.7 percent or less of income earned.
D)about 47 percent of income earned.

Question 48

An emergency fund is required in financial planning to

A)maintain credit rating.
B)maintain certain standards of living.
C)maintain sufficient insurance.
D)maintain adequate liquidity.

Question 49

Opportunity cost refers to

A)money needed for major consumer purchases.
B)what you give up as a result of making a decision.
C)the non financial cost of a missed opportunity.
D)evaluating different alternatives for financial decisions.

Question 50

Uncontrollable events in financial planning must be taken into account.

Question 51

Which of the following best describes the level of per capita debt for Canadians?

A)Canadian per capita debt is under control, but not so for Americans.
B)While the debt level has increased, it is not that much more than inflation.
C)Debt has increased 5.2 times between 1980 and 2006.
D)Canadian debt as a percentage of disposable income has increased to 40 percent in 2008.

Question 52

Each spending decision has an opportunity cost.

Question 53

Although average household income rose by 11.6 percent from 1990 to 2008, household spending increased by 24.4 percent during the same period.

Question 54

Personal finance does not include the process of planning your

A)insurance.
B)financing.
C)liquidity.
D)net worth.

Question 55

Savings in an emergency fund is a short-term goal.

Question 56

Which of the following is an example of an opportunity cost?

A)Renting an apartment near school instead of living with your parents
B)Saving money instead of taking a vacation
C)Saving for an emergency fund instead of maximizing your RRSPs
D)They are all examples of opportunity cost

Question 57

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 58

Which of the following is an example of investment risk in financial planning?

A)Loss of income due to short-term disability
B)Loss of liquidity by locking in fixed-term deposit
C)Loss of property by not buying insurance
D)Loss of capital in a particular mutual fund

Question 59

Financial advisers are in demand because many people lack the professional knowledge necessary to manage their own personal finances.

Question 60

Credit is commonly used to cover both large and small expenses. What is the best way to think about credit?

A)Most Canadian are over extended on credit.
B)It is a better source of liquidity than an emergency fund.
C)It is an important part of liquidity but needs to be managed.
D)It should never be used for liquidity.

Question 61

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 62

Budgeting helps set goals by estimating on a monthly basis which of the following?

A)Assets and income
B)Liabilities and expenses
C)Income and expenses
D)Net worth and income

Question 63

How much money to retain in a liquid form and how to allocate funds among short-term investment instruments is called

A)investment management.
B)money management.
C)credit management.
D)liquidity management.

Question 64

"Big spenders" focus their budgeting decisions on

A)spending what they need to and saving a planned amount.
B)increasing income.
C)spending most of their income.
D)spending and savings goals.

Question 65

A complete financial plan does not include

A)managing liquidity.
B)budgeting and tax planning.
C)investing money.
D)spiritual training.

Question 66

What is the best measure of a person's or family's net wealth?

A)The highest level of education received
B)The amount of annual income
C)The value of what they own minus the value of what they owe
D)The value of their gross income minus the value of their expenses

Question 67

Which of the following is not an asset?

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

Question 68

Which of the following items is not a liability?

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

Question 69

Which of the following is a decision that you would make during estate planning?

A)How you will minimize taxation and probate
B)How much money you should allocate to retirement plans
C)How your wealth will be distributed before and after your death
D)How to enhance your net worth

Question 70

What is the best way to describe liquidity?

A)Positive cash flow
B)Ease of access to credit
C)Access to ready cash
D)Effective money management

Question 71

What is the process of forecasting future expenses and savings called?

A)Budgeting
B)Planning
C)Predicting
D)Foreasting

Question 72

A budget does not

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

Question 73

The income in your budget is not affected by

A)your education choices.
B)your career decisions.
C)the tax laws.
D)your childhood standard of living.

Question 74

Your net worth will be increased by which of the following actions?

A)Changing your savings from 15 percent to 10 percent of your earnings
B)Investing a $100 birthday present from your grandmother
C)Buying a new stereo system and putting the entire amount on your credit card
D)Purchasing a lottery ticket

Question 75

Which of the following is required to access funds to cover any short-term cash deficiencies?

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

Question 76

Which of the following will not affect your ability to manage 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 and yearly budget with allocations to expenses and investments

Question 77

What is the term used to describe decisions on how much credit you need to support spending and which sources of credit to use?

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

Question 78

To increase your savings,

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

Question 79

The weakest reason for deciding to use the services of a financial planner is that

A)many people lack an understanding of personal finance.
B)financial matters have become so difficult that making decisions alone is impossible.
C)many people are just not interested in making their own financial decisions.
D)the law requires that you use them before making investments.

Question 80

What is first step in budgeting?

A)Determining your net worth
B)Establishing good money management habits
C)Assessing your current financial position
D)Establishing a good credit rating