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personal financial planning

Questions and Answers of Personal Financial Planning

Define and discuss the net worth category listed on the balance sheet.
List documents that a client can provide to the financial planner as sources of information to properly prepare financial statements.
List and define the common forms of property ownership.
Discuss the difference between income and savings contribution categories listed on the income statement.
Define the expense category of the income statement and give examples of variable and fixed expenses.
Define net discretionary cash flow.
What is the purpose of the statement of net worth?
List what should be reflected on forecasted financial statements.
What is a financial planner’s purpose in creating a client’s budget?
Define and explain the purpose of financial statement analysis.
Define vertical and horizontal analysis as comparative financial statement tools.
Define ratio analysis.
Define the emergency fund ratio.
Define housing ratios 1 and 2.
Define the savings rate.
Define performance ratios.
Your client, Tom, asked you to prepare his financial statements. He believes that his wife is the root of all of their financial problems because of her spending habits. His wife, on the other hand,
Your client, Meg, asked you several questions about her balance sheet. She doesn’t understand how the assets, liabilities and net worth are related. Which of the following statements is true?a. Net
Craig’s financial planner is preparing his balance sheet. Which of the following would not generally be considered “cash and cash equivalents?”a. Cash value in life insurance.b. Money market
Craig’s financial planner is preparing his balance sheet. Which of the following would be considered an “investment asset?”a. A certificate of deposit with a maturity of exactly 1 year.b. The
Which of the following statements concerning the valuation of assets on the balance sheet is correct?a. Since a financial planner has access to all of the client financials, a privately held small
Which of the following would not generally be considered a short-term liability?a. An automobile loan.b. Credit card bills.c. Medical expenses.d. Unpaid taxes.
Jay purchased a new home for $100,000. He put $20,000 down and financed the$80,000 balance. What is the impact of this transaction on his net worth?a. His net worth increases.b. His net worth
Nathan and Evan (two brothers) are joint property owners. Nathan owns 60% and Evan owns 40%. How is this property owned?a. Sole Ownership / Fee Simple.b. Tenants in Common.c. Joint Tenancy.d. Tenancy
Which of the following property ownership regimes has a right of survivorship feature?a. Sole Ownership / Fee Simple.b. Tenancy in Common.c. Tenancy by the Entirety.d. Community Property.
Which of the following statements concerning income and expenses listed on the Income Statement is correct?a. Charitable contributions are always a discretionary expense.b. Reinvested dividends is an
A financial planner is currently preparing a client’s cash flow statement. Which of the following would the planner classify as a financing activity?a. The purchase of a new residence.b.
A client, Marie, age 35, came into a financial planner’s office today. She provides the planner with the following information for the upcoming year:When considering the targeted benchmarks, which
Roger and Julie are married. Roger is a police officer and earns $50,000 per year. He contributes 10% of his salary to his retirement plan. His employer also makes a 5%match contribution. Julie stays
While meeting with your new client about his retirement needs you have made several assumptions regarding income growth, savings rate, inflation rates, and investment returns. You engage in the
Describe and explain the personal risk management process and its seven steps.
Determine and select the best risk management alternatives using the risk management decision chart for individuals.
Explain the causes and contributors to losses including perils and hazards.
Identify the requisites for an insurable risk.
Describe insurance as a legal contract including the elements of a valid contract and the unique characteristics of an insurance contract.
Describe insurance on the person including life insurance.
Identify the three methods used to determine the amount of life insurance needed and be able to calculate each.Describe the types of life insurance including term and permanent.
Describe a health insurance plan and differentiate between an indemnity plans and managed care options.
Describe the risk associated with long-term disability and the coverages that longterm disability plans provide.
Describe long-term care insurance, activities of daily living, and important features associated with long-term care insurance policies.
Describe homeowners and renters insurance policies.
Describe automobile insurance policies and which factors affect premium rates.
Describe personal liability umbrella insurance policies and the risks that they mitigate against.
Describe how insurers use risk pooling to pay for losses incurred by policyholders.*
Explain the factors that affect policyholder premiums and recommend strategies for reducing household insurance costs.*
Identify and measure liability, automobile, homeowner's, flood, earthquake, health, disability, long-term care, and life risks.*
Identify the process and purpose of financial statement analysis.
Identify the common principal and sup- plementary financial statements used as part of the financial planning process.
Identify the main categories listed on a balance sheet.
Distinguish between cash and cash equivalents, investment assets, and per- sonal use assets.
Distinguish between short-term liabili- ties and long-term liabilities.
The client's balance sheet represents all income earned less expenses incurred for the period being covered.a. Trueb. False
Cash and cash equivalents are assets that are highly liquid and are either cash or can be converted to cash within the next 12 months.a. Trueb. False
Investment assets are those assets that help to maintain the client's lifestyle.a. Trueb. False
Long-term liabilities represent client financial obligations that are owed to creditors beyond the next 12 months.a. Trueb. False
Distinguish between property owned fee simple and tenancy in common.
Distinguish between property owned JTWROS and tenancy by the entirety versus community property.
Identify the importance of footnotes to financial statements.
Identify the main categories listed on the statement of income and expenses.
Identify examples of recurring income.
Identify examples of savings contribu- tions.
Distinguish between variable and fixed expenses.
Determine how net discretionary cash flow is calculated.
Main categories listed on the income statement include income, savings con- tributions, assets, and expenses.a. Trueb. False
Net discretionary cash flow represents the amount of cash flow still available after all savings, expenses, and taxes have been paid.a. Trueb. False
The client's income statement can be prepared from the client's W-2 informa- tion, credit card statement, and other billing statement information.a. Trueb. False
Recognize the purpose of a statement of net worth.
Recognize the purpose of a cash flow statement.
Determine what forecasted financial statements should reflect.
Identify the importance of budgeting and the steps to the budgeting process.
The statement of net worth explains changes to net worth such as employer contributions to retirement savings accounts.a. Trueb. False
The cash flow statement captures recur- ring income and expenses for the period being reported.a. Trueb. False
Forecasted financial statements should reflect recommendations and inflation adjusted income and expenses.a. Trueb. False
Identify the purpose of financial state- ment analysis and the tools used in the comparative financial statement analy- sis.
Identify the purpose of ratio analysis.
Vertical analysis is a tool for financial statement analysis using a common size comparison of a statement's line items.a. Trueb. False
Ratio analysis is the process of calculat- ing financial ratios that are compared to example benchmarks for meaningful interpretation of the client's actual financial status.a. Trueb. False
The emergency fund ratio measure how many times the client can satisfy their short-term liabilities.a. Trueb. False
Identify the key liquidity ratios used in financial planning ratio analysis.
Identify the key debt ratios used in financial planning ratio analysis.
Identify the key ratios for financial secu- rity goals used in financial planning ratio analysis.
Identify the key performance ratios used in financial planning ratio analysis.
Determine the various limitations on financial statement analysis.
The housing ratio 1 industry bench- mark is less than or equal to 28 percent.a. Trueb. False
The savings rate calculation includes reinvestments and the employer match.a. Trueb. False
The quality of debt assessment is based on the comparison of the term of the debt on an asset and the useful life of the asset.a. Trueb. False
Describe the personal risk management process.
List four responses to managing risk.
Define a peril.
Define the three main types of hazard.
List some of the unique characteristics of an insurance contract.
What are three methods used to determine the amount of life insurance needed?
Discuss the characteristics of term life insurance.
Define the difference between own occupation and any occupation disability definitions and the associated coverage.
Discuss the coverage available under a homeowners insurance policy.
Define a personal automobile policy (PAP).
Discuss why there is a need for personal liability insurance.
Differentiate between noncancellable and guaranteed renewable.
Identify the six steps to the personal risk management process.
Identify the difference between personal risks, property risks, and liability risks.

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