Thinking like a Financial Planner

These flashcards cover key concepts from financial planning, the economy's effects on personal finance, and the time value of money, providing essential definitions and terms to study for the exam.

Financial success

Comes from spending less than you earn, building an emergency fund, limiting interest costs, and saving/investing for the future.

Financial literacy

Knowledge of money management facts, concepts, principles, and tools.

Five foundational behaviors

1.) Automate savings, 2.) Budget, 3.) Minimize debt, 4.) Protect with insurance, 5.) Plan for retirement early.

Business cycle

The cycle of economic activity consisting of expansion, peak, contraction, and trough.

Inflation

Sustained rise in the price level affecting purchasing power.

Opportunity cost

The value of the next-best alternative forgone when making a decision.

Marginal tax rate

The tax rate applied to the last dollar earned, often increasing as income rises.

Tax-deferred income

Income on which taxes are postponed until withdrawal (e.g., 401(k)).

Time Value of Money (TVM)

The concept that a dollar today is worth more than a dollar tomorrow due to its potential earning capacity.

Future value (FV)

What an investment will be worth in the future based on compounding.

Present value (PV)

The current worth of a future sum of money or a stream of cash flows given a specified rate of return.

Simple interest

Interest calculated only on the principal amount, not on the accumulated interest.

Compounding

The process where interest earns interest, leading to exponential growth of an investment.

CPI (Consumer Price Index)

A measure that examines the weighted average of prices of a basket of consumer goods and services, used to assess inflation.

Rule of 72

A way to estimate the number of years required to double the investment at a fixed annual rate of return.

Annuity

A series of payments made at equal intervals, which may help determine how much to set aside to fund future withdrawals.