Why are cars generally considered expenses rather than investments?

They lose value over time (depreciate) and require continuous cash for maintenance and operation.

What is Depreciation?

The process of an asset losing value over time rather than increasing in value.

What are two online resources for checking car depreciation?

Kelley Blue Book (KBB.com) and Edmunds.com.

What does the 'total cost of ownership' for a car include?

Estimates for maintenance, repairs, gas, and insurance.

What is a recommended tactic when pressured by a dealership?

Stick to your written plan, say no, or leave the dealership.

Why is it inadvisable to buy an important item only when damaged?

Desperation makes a buyer easier to take advantage of by sellers.

What should you do with money from car loan payments once paid off?

Put the same monthly amount into a savings account for your next car purchase.

What is the primary benefit of using the financial planning process for small items?

It provides practice so the process becomes automatic for major life decisions.

What are the three essential elements of a budget?

Income, saving and investing, and expenses.

The amount of money remaining from a paycheck after all taxes and deductions have been removed.

The total amount of money earned before any taxes or deductions are taken out.

What is the 'pay yourself first' principle?

Set aside money for savings and investments before paying bills or making optional purchases.

Why are automatic payroll deductions effective for saving?

They move money into savings before the individual has the chance to spend it.

How does investing differ from bank savings in terms of risk?

Investing offers higher potential returns but carries a higher risk of loss.

What are fixed expenses?

Expenses that cost about the same every month and are predictable, such as rent or insurance.

What are Variable Expenses?

Costs that change based on priorities and available funds, such as groceries, gas, or clothing.

What are 'needs' in expense categorization?

Essential items required for survival, such as food, basic clothing, safe housing, and medical care.

What are 'wants' in expense categorization?

Optional items like restaurant meals, designer clothes, or video games that are purchased if funds allow.

What does it mean for a budget to be 'balanced'?

Every dollar of income is accounted for, and the amount left for expenses minus total expenses equals zero.

Why is taking on debt to cover a budget shortfall poor?

It worsens future cash shortages because the debt must eventually be paid back with interest.

The total measure of wealth calculated by subtracting total liabilities from total assets.

Valuable things that an individual owns, such as earnings, savings, and investments.

What are Liabilities?

Debts or financial obligations that an individual owes to others.

What is the formula for calculating Net Worth?

Assets - Liabilities = Net Worth$

What must happen to assets and liabilities for net worth to grow positively?

Assets must increase and liabilities must decrease.

Why do many people have a negative net worth after college?

They often have high student debt (liabilities) that exceeds the value of what they own (assets).

What is a 'bad practice' that leads to a debt hole?

Using credit to buy more than needed and increasing total debt.

What distinguishes fixed expenses from variable expenses?

Individuals have a much higher degree of control over variable expenses than fixed ones.

Why is working overtime often discouraged for college students?

The time commitment can quickly become overwhelming and interfere with coursework.

What figure should be used as the starting point for 'Total Income'?

Monthly net pay (or total disposable income).

How is the 'Amount Left for Expenses' calculated?

Total Income - (Saving + Investing) = Amount Left for Expenses$

What is the consequence of 'emotional spending'?

It is a bad practice that contributes to digging a debt hole.

Why might a five- or six-year-old car be the 'best deal'?

It avoids the heavy initial depreciation of a new car while providing a functional vehicle at a lower cost.

What does a balance sheet represent?

A 'snapshot' or a moment in time used to check financial progress.

What is the primary goal of conducting online research before visiting a car dealership?

To save time and avoid traveling from place to place by comparing offers in advance.

When is the best time to save for an emergency fund?

Continuously, but especially before a major item stops working and needs replacement.

What does 'Implementing' involve in financial planning?

Taking the small steps identified in the written plan, even if only a few can be done each week.

How can one avoid 'losing money'?

By stopping the payment of fees on checking accounts and interest on loans.

Financial Planning and Management Flashcards: 50 Cards

Student preview

50 questions

Show all answers

1.

FLASHCARD QUESTION

Front

How is practicing money management similar to playing a video game?

Back

Success requires learning rules, using tools, following expert strategies, and consistent practice.

2.

FLASHCARD QUESTION

Front

Research suggests that individuals with stronger finances experience better _____ functioning.

Back

cognitive

3.

FLASHCARD QUESTION

Front

What are the five distinct steps of the financial planning process?

Back

Goal setting, evaluating, planning, implementing, and monitoring.

4.

FLASHCARD QUESTION

Front

What is the primary question asked during the 'Develop Personal Goals' step?

Back

What do I want my life to look like?

5.

FLASHCARD QUESTION

Front

Which step involves looking at savings, debt, income, and expenses?

Back

Identify and Evaluate Alternatives

6.

FLASHCARD QUESTION

Front

What is the purpose of the 'Monitor and Adjust' step?

Back

To ensure life distractions do not derail the plan and to make necessary adjustments.

7.

FLASHCARD QUESTION

Front

How can the financial planning process be used in everyday life?

Back

It can be applied to major purchases like cars, computers, or renting an apartment to get better deals.

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