Exam 24: Managing Personal Finances

Joe and Megan are newly married college graduates. Both have jobs with bright futures. One strategy that they could use to accumulate capital for investment purposes, would be to

Many small-business owners invest in 401(k) plans for their retirement.

Funds deposited into an IRA cannot be withdrawn until you retire.

Real estate professionals agree that the key to getting the optimum return on the purchase of a home is

One disadvantage of having credit cards for personal use is that

Young married couples that find themselves running out of money at the end of the month might be well advised to

Credit-card debt represents an asset on a consumer's balance sheet.

Tracking business and personal spending by categories is an important technique to control expenditures.

Though stock prices do sometimes go down, investing in the stock market has generally provided very attractive returns over the long run.

A good way to save money is to spend all of your regular income, but have a strict rule to put any money from unexpected or unusual sources (such as overtime pay, bonuses, gifts, gambling payouts, or contest prizes) into a savings account.

A good manager of personal finances, like a good businessperson, uses borrowed funds whenever possible.

Which of the following is a benefit unique to buying two attached homes, as opposed to the purchase of a single-family home?

Excessive debt is as much a problem of young consumers as it is of other age groups.

For a young person, one of the worst places to invest money for the long-term is:

The Social Security program was established in

A ________ is a document that names a guardian for your children, states how you want your assets distributed, and names an executor to handle your estate when you die.

More than half of all debtors seeking help at the National Foundation for Credit were between the ages of 18 and 32.

A(n) ________ can be added to a homeowner's insurance policy that provides for coverage at a reasonable cost for items that the policy otherwise would not cover.

Bree expects to be in a much higher tax bracket when she retires than she is now, so she wants to invest in a retirement account in which her withdrawals will be tax-free. One way for her to achieve this is through a traditional IRA.

Mini-Case Ira Roth and Penny Weiss met and married in the early 2000s, during their days at State University. Both came from families with limited financial resources. They had to work at part-time jobs during school, and still needed student loans to help pay for their college education. Ira and Penny shared a strong work ethic and had a great desire to succeed financially and enjoy the good life. Penny and Ira quickly experienced financial success. Ira used his finance degree and extensive knowledge of computers to obtain a high-paying job in banking. Penny, who cleaned homes to earn money during college, used her experience to start her own business. Her entrepreneurial spirit surprised Ira and their friends, and she built a successful cleaning business with a growing base of residential clients and even a few commercial customers. She soon had to hire several part-time employees to keep up with demand. With money rolling in, Ira and Penny began to live the good life, buying an expensive new car, a state-of-the-art home electronics, and expensive wardrobes. As busy as they were, and as hard as they both worked, they often found it easier to dine at a nice restaurant rather than fix meals at home. When the Great Recession hit later in the decade, Ira was lucky enough to keep his job, but was forced to take a significant pay cut. The economic downturn forced some of the households and businesses that used Penny's company to cut back on professional cleanings, so her business suffered too. Soon the couple was struggling to pay the rent on their upscale apartment. They began relying on credit cards to cover expenses, but after a few months the credit limits on their cards had been reached. They fell behind in paying off their student loans and started getting some unpleasant calls from bill collectors. The stress and frustration led to arguments that began to threaten their personal relationship. With their personal finances out of control, Ira and Penny knew that they had to make changes to save not only their financial dreams, but also their marriage. However, they were at a loss as to where to start. Family members encouraged them to seek the advice of a financial planner. The couple reluctantly agreed that this was something they needed to do. -By using the financial planner's advice, Penny and Ira were able to find ways to cut back on their spending and began to live more modestly. They began to have a few hundred dollars left over each month after handling their normal expenses. Which of the following is the first thing they should do with their extra money?