Personal Finance

What are the 6 steps of the financial planning process?

Determine → Develop →identify →evaluate → Create/ implement → review/revise

What does SMART stand for?

Specific, Measurable, Action-oriented, Realistic, Time-based

What are the three goal time frames?

• Short-term: 2 years or less

• Intermediate: 2–5 years

• Long-term: More than 5 years

What is opportunity cost?

The trade-off that results from choosing one option over another.

What are personal opportunity costs?

Time, effort, and health.

What are financial opportunity costs based on?

The time value of money.

What do present value and future value measure?

How money's value changes over time through saving, investing, borrowing, or purchasing.

What factors affect financial decisions?

Personal: income, age, household size, health, life events, values
Economic: consumer prices, interest rates, employment opportunities

What is the foundation of a satisfying work life?

Understanding your interests and abilities.

: What are the 6 career planning/advancement steps?

1. Assess/research goals, abilities, career fields

2. Evaluate employment market & opportunities

3. Develop résumé + cover letter

4. Interview

5. Evaluate position offered

6. Plan & implement career development

What factors influence employment opportunities?

Personal: abilities, interests, experience, training, goals
External: demographic trends, economic conditions, industrial/technological trends

What is the purpose of a résumé and cover letter?

To present your qualifications for a specific position.

What is the purpose of interview skills?

To communicate enthusiasm and competence.

What should you evaluate when offered a job?

Salary, work environment, and compensation package.

What should you consider when evaluating employee benefits?

Market value, future value, taxability, and your personal needs/goals.

What does career development involve?

Education and training that support professional development and career changes.

What legal protections are mentioned?

Fair hiring practices and equal opportunities.

What 3 things must be coordinated for successful money management?

Financial records + personal financial statements + budgeting

What is a personal balance sheet?

A net worth statement / statement of financial position listing assets and liabilities.

How do you calculate net worth?

Total Assets − Total Liabilities = Net Worth

What is a cash flow statement?

A statement summarizing cash receipts and payments over a period and showing income/spending patterns.

What are the 4 phases of budgeting?

1. Assess current situation

2. Plan direction/goals/budget allowances

3. Implement budget

4. Evaluate & revise

What should saving goals be based on?

Balance sheet + cash flow statement + budget + life situation + personal values

Why save current income?

To support long-term financial security.

What can future value/present value calculations help determine?

The increased value of savings toward financial goals.

Why are taxes important in personal financial planning?

Taxes influence spending, saving, borrowing, and investing decisions.

What are the major types of taxes you should know?

Income, sales, excise, property, estate, inheritance, gift, and Social Security taxes.

What is taxable income?

Gross income after subtracting adjustments to income, deductions, and allowances for exemptions.

How is total tax liability determined?

It is based on published tax tables/schedules, less tax credits.

What is a tax credit?

An amount that is subtracted from the tax liability.

What are the major sections of Form 1040?

1. Filing status

2. Income from wages/other sources

3. Business, rental, unemployment income

4. Adjustments to income

5. Standard or itemized deductions

6. Taxable income

7. Other taxes owed

8. Amounts withheld/paid in advance

9. Credits

10. Refund or additional amount owed

11. Signature if mailing

Where can you get tax assistance?

IRS services/publications, tax publications, the internet, tax software, commercial tax services, enrolled agents, accountants, and attorneys.

What is the purpose of tax planning?

To potentially reduce your tax burden through planning involving purchases, debt, investments, and retirement.

What are financial services?

Services used for daily financial activities, including savings plans, payment accounts, loans, trust services, and mobile/online banking.

What factors influence your choice of financial services?

Technology, opportunity costs, and economic conditions.

What are common financial service providers?

• Commercial banks

• Credit unions

• Thrifts

• Life insurance companies

• Investment companies

• FinTech organizations

• Online banks

What should you consider when evaluating a financial service provider?

Services offered, rates/fees, safety, convenience, and special services.

What are common savings plans?

• Regular savings accounts

• High-yield savings accounts

• CDs

• Money market accounts

• Money market funds

• U.S. savings bonds

What factors should you use to evaluate a savings plan?

Rate of return, inflation, taxes, liquidity, safety, restrictions, and fees.

What are digital payment methods?

Debit cards, mobile/online payment systems, stored-value cards, smart cards, and digital wallets.

What are the three major types of checking accounts?

Traditional, special feature, and checkless.

What should you compare when choosing a checking account?

Minimum balance/restrictions, fees/charges, interest, and special services.

: What are alternatives to regular checks?

Certified checks, cashier's checks, money orders, and traveler's checks.

What is consumer credit?

The use of credit by individuals/families for personal needs.

What are advantages of consumer credit?

• Buy goods when needed and pay gradually

• Meet emergencies

• Shopping convenience

• Establish a credit rating

What are disadvantages of consumer credit?

• Costs money

• Can encourage overspending

• Ties up future income

What is closed-end credit?

A one-time loan with a stated repayment period and specified number of payments

What is open-end credit?

Credit that allows continuous borrowing, with partial payments billed periodically.

What are the Five Cs of Credit?

Character — willingness to repay
Capacity — ability to repay
Capital — financial resources
Collateral — assets securing credit
Conditions — circumstances affecting the loan

What does a creditor use to evaluate creditworthiness?

Information from one of the three national credit bureaus or a regional bureau.

What are credit capacity rules used to measure?

Debt payments-to-income ratio or debt-to-equity ratio.

What should you do about a billing error?

Notify the creditor in writing within 60 days.

What can you do if a billing error isn't resolved?

You can place your version of the dispute in your credit file.

When may you withhold payment for defective goods/services purchased with a credit card?

When you have attempted to resolve the problem with the merchant.

What consumer credit laws are listed in your review?

• Truth in Lending Act

• Consumer Leasing Act

• Equal Credit Opportunity Act

• Fair Credit Billing Act

• Fair Credit Reporting Act

• Consumer Credit Reporting Reform Act

• Fair and Accurate Credit Transactions Act