PersonalvFinance v8thvCanadianvEditiovByvKapoor,vDlabay,vHughes,vStevensonvandvKerst
Test Bank for Personal Finance 8th Ca
v v v v v v
nadian Edition by Kapoor, Dlabay, Hu
v v v v v
ghes, Stevenson and Kerst
v v v
Testv Bank Pagev 1
, PersonalvFinance v8thvCanadianvEditiovByvKapoor,vDlabay,vHughes,vStevensonvandvKerst
Chapter 1 – An Introduction
v v v v
• Whyvfinancial vplanning vis vimportant?
o Is vthevprocess vofvmanaging vyour vmoneyvto vachieve vpersonalveconomic vsatisfaction
o Advantages: v increased veffectiveness vinvobtaining, vusing vandvprotecting vresources
o Increasedvcontrolvofvfinancialvaffairs, vimprovedv personalvrelationships, vsensevofvfreedom
• Understandvhowvlifevcycle vcan vaffect vplanning
o Earlyvyears v(upvtovmidv30’s)
▪ Focus vonvcreating vemergencyv fund, vsaving vfor vdownvpayments, vpurchasing vlife v
insurance, vretirement
o Middlevyears v(mid v30’s vtov50’s)
▪ Focus vonvbuilding vwealth vbyv paying vdownvmortgagevand vincreasing vsavings vand v
investments
o Middlevyears v(50’s v+)
▪ Focus vis vonvproviding van vadequatevretirement vplan
o Retirement v years
▪ Focus vis vonvthevefficient vmanagement vof vpreviouslyvacquiredvwealth
o Commonvgoals vandvactivities:
▪ Obtainvcareervtraining, vcreateveffective vrecord vsystem, vreg ularvsavings vandv
investmentvprogram, vaccumulatev emergencyvfund, v purchasevappropriatev
insurance, vimplement v flexiblevbudget, vevaluatevandvselectvinvestments, ve
stablishvretirement vgoals, vcreate vavwill vandv estatevplan
• 6vSteps vinvthevFinancialvPlanning vProcess
o Stepv1v–vDetermine vyourvcurrent vfinancial vsituation:
▪ Preparevavlistvofvcurrentvassetvandvdebtv balances vandvamounts vspentvforv various v
items
o Stepv2v–vDevelopv financialvgoals
▪ Analyzevyourvfinancialvvalues vandvattitudes vtowards v money
▪ Whatvis vyour vfinancialvdecisionvmaking vprocess?
o Stepv3v–videntifyvalternativevcourses vof vaction
▪ Continuevas vyou vare, vexpandv orvchangevthevcurrent vsituation, vorvtakevavnewv
coursevofvaction
o Stepv4v–vEvaluatevAlternatives
▪ Takevintovconsideration vyourvlifevs ituation, vpers onal vvalues vandvcurrentv
economicvsituation
▪ Opportunity vcostvis vwhatvyouvgivevupvbyvmaking vavchoice
▪ Thevcost, vreferredvtovas vthevtrade--‐
offvofvavdecision, vcanvbevmeasuredvinvmoneyvorvtime
Testv Bank Pagev 2
, PersonalvFinance v8thvCanadianvEditiovByvKapoor,vDlabay,vHughes,vStevensonvandvKerst
▪ Considervlostvopportunities vthat vwill vres ult vfromvdecisions
▪ Evaluatevthevrisks vfaced
• InterestvRatev–vchanging vrates vaffecting vborrowing vand vbenefits
• Inflationvriskv– vris ing vprices vcausevlost vbuying vpower
• Liquidityvriskv–
difficulty vofvconverting vtovcas h vor vsellvwithoutvsignificant vloss
v
• Productvriskv–
vproducts vflawedvor vdon’tvmeetvexpectations, vretailers vnotvhonouring vob
ligations
• Riskvofvdeath v–vprematurevdeathvcausing vfinancialvhards hip
• RiskvofvIncomevLostv–vjobvloss vorvinjury
• HealthvRiskv–
increasedvmedicalvcosts, vreduce vworking vcapacityvor vlifev expectancy
v
• AssetvandvLiabilityvRis kv–
vassets vstolenvorvdamaged, vsuing v for vnegligencev or vforv damages vcausedv
byvyourself
o Stepv5v–vCreatevand vimplement vavfinancialvactionvplan
▪ Choosevways vtovachievevyourvgoals, vassistancevfrom vothers
o Stepv6v–vRe--‐evaluatevandvrevisevyourvplan
▪ Planvshould vbevreviewed vreg ularlyvbasedvonvlifevcircumstances
• Howvtovsetvfinancial vgoals
o Influencedvby:
▪ Timing v –v short--‐term,v intermediate v andv long --‐term
▪ Needs v –
v consumablev products v (food, v clothing), v durablev products v (appliances, vcars, veq
uipment)
▪ LifevSituation v–vage, vincome, vstatus, vhousehold, vpersonalvbeliefs, vemployment
• Alsovinfluencedvbyvgraduation, vengagement vandv marriage, vbirth/ad
option, vcareervchangevor vmove, vdependent vchildren, vhealth, v divorce,
vretirement, vdeath
▪ Socialv–
marriedvatvlatervage, vmore vhouseholds /multiplev incomes, vsinglevparents, vliving v lo
v
nger
o Goals vshouldvbevrealistic, vstatedvin vspecific/meas urablevitems, vtimevframe, vindicatevtypev
ofvactionvtovbe vtaken
• Howveconomyvaffects vdecisions
o Economics v–vstudy vofvhowv wealthvis vcreatedvand vdistributed
Testv Bank Pagev 3
, PersonalvFinance v8thvCanadianvEditiovByvKapoor,vDlabay,vHughes,vStevensonvandvKerst
o Market vforces v–vs upplyvandvdemand, vproductionvcosts vand vcompetition
o Financialvinstitutions v– vinfluence vofvthe vBank vof vCanada
o Globalvinfluences v–vlevel vofvexports, vforeignvinvestors, vcompetition
Testv Bank Pagev 4
Test Bank for Personal Finance 8th Ca
v v v v v v
nadian Edition by Kapoor, Dlabay, Hu
v v v v v
ghes, Stevenson and Kerst
v v v
Testv Bank Pagev 1
, PersonalvFinance v8thvCanadianvEditiovByvKapoor,vDlabay,vHughes,vStevensonvandvKerst
Chapter 1 – An Introduction
v v v v
• Whyvfinancial vplanning vis vimportant?
o Is vthevprocess vofvmanaging vyour vmoneyvto vachieve vpersonalveconomic vsatisfaction
o Advantages: v increased veffectiveness vinvobtaining, vusing vandvprotecting vresources
o Increasedvcontrolvofvfinancialvaffairs, vimprovedv personalvrelationships, vsensevofvfreedom
• Understandvhowvlifevcycle vcan vaffect vplanning
o Earlyvyears v(upvtovmidv30’s)
▪ Focus vonvcreating vemergencyv fund, vsaving vfor vdownvpayments, vpurchasing vlife v
insurance, vretirement
o Middlevyears v(mid v30’s vtov50’s)
▪ Focus vonvbuilding vwealth vbyv paying vdownvmortgagevand vincreasing vsavings vand v
investments
o Middlevyears v(50’s v+)
▪ Focus vis vonvproviding van vadequatevretirement vplan
o Retirement v years
▪ Focus vis vonvthevefficient vmanagement vof vpreviouslyvacquiredvwealth
o Commonvgoals vandvactivities:
▪ Obtainvcareervtraining, vcreateveffective vrecord vsystem, vreg ularvsavings vandv
investmentvprogram, vaccumulatev emergencyvfund, v purchasevappropriatev
insurance, vimplement v flexiblevbudget, vevaluatevandvselectvinvestments, ve
stablishvretirement vgoals, vcreate vavwill vandv estatevplan
• 6vSteps vinvthevFinancialvPlanning vProcess
o Stepv1v–vDetermine vyourvcurrent vfinancial vsituation:
▪ Preparevavlistvofvcurrentvassetvandvdebtv balances vandvamounts vspentvforv various v
items
o Stepv2v–vDevelopv financialvgoals
▪ Analyzevyourvfinancialvvalues vandvattitudes vtowards v money
▪ Whatvis vyour vfinancialvdecisionvmaking vprocess?
o Stepv3v–videntifyvalternativevcourses vof vaction
▪ Continuevas vyou vare, vexpandv orvchangevthevcurrent vsituation, vorvtakevavnewv
coursevofvaction
o Stepv4v–vEvaluatevAlternatives
▪ Takevintovconsideration vyourvlifevs ituation, vpers onal vvalues vandvcurrentv
economicvsituation
▪ Opportunity vcostvis vwhatvyouvgivevupvbyvmaking vavchoice
▪ Thevcost, vreferredvtovas vthevtrade--‐
offvofvavdecision, vcanvbevmeasuredvinvmoneyvorvtime
Testv Bank Pagev 2
, PersonalvFinance v8thvCanadianvEditiovByvKapoor,vDlabay,vHughes,vStevensonvandvKerst
▪ Considervlostvopportunities vthat vwill vres ult vfromvdecisions
▪ Evaluatevthevrisks vfaced
• InterestvRatev–vchanging vrates vaffecting vborrowing vand vbenefits
• Inflationvriskv– vris ing vprices vcausevlost vbuying vpower
• Liquidityvriskv–
difficulty vofvconverting vtovcas h vor vsellvwithoutvsignificant vloss
v
• Productvriskv–
vproducts vflawedvor vdon’tvmeetvexpectations, vretailers vnotvhonouring vob
ligations
• Riskvofvdeath v–vprematurevdeathvcausing vfinancialvhards hip
• RiskvofvIncomevLostv–vjobvloss vorvinjury
• HealthvRiskv–
increasedvmedicalvcosts, vreduce vworking vcapacityvor vlifev expectancy
v
• AssetvandvLiabilityvRis kv–
vassets vstolenvorvdamaged, vsuing v for vnegligencev or vforv damages vcausedv
byvyourself
o Stepv5v–vCreatevand vimplement vavfinancialvactionvplan
▪ Choosevways vtovachievevyourvgoals, vassistancevfrom vothers
o Stepv6v–vRe--‐evaluatevandvrevisevyourvplan
▪ Planvshould vbevreviewed vreg ularlyvbasedvonvlifevcircumstances
• Howvtovsetvfinancial vgoals
o Influencedvby:
▪ Timing v –v short--‐term,v intermediate v andv long --‐term
▪ Needs v –
v consumablev products v (food, v clothing), v durablev products v (appliances, vcars, veq
uipment)
▪ LifevSituation v–vage, vincome, vstatus, vhousehold, vpersonalvbeliefs, vemployment
• Alsovinfluencedvbyvgraduation, vengagement vandv marriage, vbirth/ad
option, vcareervchangevor vmove, vdependent vchildren, vhealth, v divorce,
vretirement, vdeath
▪ Socialv–
marriedvatvlatervage, vmore vhouseholds /multiplev incomes, vsinglevparents, vliving v lo
v
nger
o Goals vshouldvbevrealistic, vstatedvin vspecific/meas urablevitems, vtimevframe, vindicatevtypev
ofvactionvtovbe vtaken
• Howveconomyvaffects vdecisions
o Economics v–vstudy vofvhowv wealthvis vcreatedvand vdistributed
Testv Bank Pagev 3
, PersonalvFinance v8thvCanadianvEditiovByvKapoor,vDlabay,vHughes,vStevensonvandvKerst
o Market vforces v–vs upplyvandvdemand, vproductionvcosts vand vcompetition
o Financialvinstitutions v– vinfluence vofvthe vBank vof vCanada
o Globalvinfluences v–vlevel vofvexports, vforeignvinvestors, vcompetition
Testv Bank Pagev 4
