Personal Finance Exam 1 Study Guide
Things on the exam:
All multiple choice questions – no short answers
Over chapters 1-4
No formula sheet
Memorize ratios from Chapter 2
Chapter 1
Know steps of financial planning process
What common features exist in financial plans
Chapter 2
Calculating your net worth
Balance sheets
Income statement
KNOW ratios
Chapter 3
Time value of money
Bring financial calculator
Payments
Chapter 4
You don’t have to calculate taxes
Know about the process
Taxable income
What you have to take away to get income
Difference between deduction and exemption
Personal Finance Exam 1 Study Guide
Chapter 1
Personal Financial Planning Process
Evaluate your financial health
Examination of current financial situation
Consider all sources of income
Keep track of what you spend
Define your financial goals
Write down your financial goals
Attach costs to those goals
Determine when the money needed to achieve these goal will be needed
Develop a plan of action
Financial plan should include:
Informed and controlled budget
Investment strategy
Unique personal goals
Common to all sound financial plans:
Flexibility – adjusting and adapting to life changes
Liquidity – access to liquid funds, the ability to convert an asset to cash without losing value
Protection – protecting your assets
Minimization of taxes
Implement a plan
Track income and spending
Long-term goals
Review your progress, reevaluate and revise plan
Reexamine your plan
Things may change
Time Horizons
Short term
Accomplished within a 1-year period
For example: buying a TV or going on vacation
Intermediate term
Takes from 1 to 10 years to accomplish
For example: saving for house down payment
Long term
Takes more than 10 years
For example: Retirement
Financial Life Cycle
Stage 1 – through age 54
Time of wealth accumulation
First two decades of life involve “negative income”
After education is complete, financial life cycle begins
Focus
All multiple choice questions – no short answers
Over chapters 1-4
No formula sheet
Memorize ratios from Chapter 2
Chapter 1
Know steps of financial planning process
What common features exist in financial plans
Chapter 2
Calculating your net worth
Balance sheets
Income statement
KNOW ratios
Chapter 3
Time value of money
Bring financial calculator
Payments
Chapter 4
You don’t have to calculate taxes
Know about the process
Taxable income
What you have to take away to get income
Difference between deduction and exemption
Personal Finance Exam 1 Study Guide
Chapter 1
Personal Financial Planning Process
Evaluate your financial health
Examination of current financial situation
Consider all sources of income
Keep track of what you spend
Define your financial goals
Write down your financial goals
Attach costs to those goals
Determine when the money needed to achieve these goal will be needed
Develop a plan of action
Financial plan should include:
Informed and controlled budget
Investment strategy
Unique personal goals
Common to all sound financial plans:
Flexibility – adjusting and adapting to life changes
Liquidity – access to liquid funds, the ability to convert an asset to cash without losing value
Protection – protecting your assets
Minimization of taxes
Implement a plan
Track income and spending
Long-term goals
Review your progress, reevaluate and revise plan
Reexamine your plan
Things may change
Time Horizons
Short term
Accomplished within a 1-year period
For example: buying a TV or going on vacation
Intermediate term
Takes from 1 to 10 years to accomplish
For example: saving for house down payment
Long term
Takes more than 10 years
For example: Retirement
Financial Life Cycle
Stage 1 – through age 54
Time of wealth accumulation
First two decades of life involve “negative income”
After education is complete, financial life cycle begins
Focus