Ch. 1: Overview of Personal Finance (PFH)

The best definition of personal financial planning is...

• a process of mapping decisions for spending, borrowing, and saving and investing to achieve financial goals

• an investment schedule established by a financial adviser to help a person pay a debt

• the process of determining how much a person can afford to pay for a house based on their income

• the comparison between cost of education and a person's projected income

Which is a true statement about Americans saving for retirement?

• Most Americans save more money than they need for retirement

• Americans do not need to save since social security will cover all their expenses during retirement years

• 1 out of 3 Americans has no retirement savings.

• The average American saves 9% of their income for retirement.

Which goal is correctly matched with a sound financial plan for achieving the goal?

• Buying a new computer for college in the fall: depositing 25% or more of weekly take home pay in a bank savings account.

• Having a down payment for a house in 10 years. Saving 1% of take-home pay in a checking account each month.

• Having enough money to retire in 25 years: buy all your wants / needs now and begin investing for retirement in 15 years

• Buy a new cell phone in 2 months: making the purchase on credit and paying the minimum balance each month on credit.

Money in an emergency fund should be used to pay for

• items that suddenly go on sale

• necessary expenses when a person loses a job or is unable to work because of illness or injury

• large expenses such as a house or college education

• long-term investments such as stock

The following statement about financial advice on the internet is true

• If the information has been posted to the internet, it is 100% reliable

• If the information comes from a company that is selling financial products, it is sound, objective information.

• Many valuable sources of information on the internet can be used for financial planning but we have to evaluate sites for credibility.

• The internet protects individuals against loss of income by preventing unethical people from posting scams.

When a person decides to use the services of a financial planner, the person will...

• No longer need to check on their money ever again

• always make a steady profit on the money invested by the planner

• need to make all investments with the same planner

• still need to check in regularly with the planner to review investment decisions.

A person decides to bike to school rather than drive his car. The opportunity cost related to this decision is...

• the money saved by not buying as much gas for the car

• the exercise that riding the bike provides

• the time that might be saved by driving to school

The process of

planning every aspect

of your personal finances

• Personal Financial Planning

• Practical Financial Prepping

• Pretty Fun Party

• Writing your will

Things you own that can be rapidly converted to cash without a risk of significant loss

• Liquid Assets

• Solid Assets

• Gas Assets

• Plasma Assets

Cost of pursuing one option instead of another, expressed as the value of the activity you gave up

• Option Cost

• Opinion Cost

• Opportunity Currency

• Opportunity Cost