Exam 3: Tools for Financial Planning - Planning with Personal Financial Statements

Budgeting is the forecasting of future income,expenses,and savings.

Long-term liabilities are debts that will be paid off at least three years into the future.

Should Shane be concerned about his liquidity ratio of 80 percent?

If Jo Ann had $4000 in liquid assets and $1000 in current liabilities,she would have a current ratio of

A high debt-to-asset level is common during the early- to mid-earning life stages.

Which of the following actions will decrease your net worth?

Last year John purchased a car for $45 000,a desktop computer for $4000,and a camera for $2500.At present,John has $1000 in credit card debt and a $1800 bank loan.With reasonable estimate of market values,John's car is worth $40 000,computer is worth $2000,and camera is worth $3000.What is John's net worth today?

Use an example with numbers to illustrate how someone's net worth could increase over a year while their cash flow was negative.

Ben's salary is $3000 per month,taxes are $500,fixed expenses are $1500 and savings are $500.His disposable income is

Jason is a stockbroker who is on variable compensation.In good years he receives a healthy bonus that might triple his base salary.During these times he is accustomed to a lavish lifestyle,driving expensive cars and taking exotic vacations.He knows it is important to save for retirement but he makes RRSP contributions only in years in which he receives good bonus cheques.In poor years he will receive only a base salary.During these poor years he finds himself scrambling to pay off debts and meet monthly expenses. He always seems to have more unexpected expenses during these times,too.He always has at least $1000 cash in his wallet and tries to avoid the use of credit cards as much as possible.Jason is funding all short-term goals with current earnings and hasn't set any mid- or long-term goals. He is frustrated by his wildly fluctuating income and his constant concern about his potential earnings at the beginning of each year.How can you assist Jason?

A personal cash flow statement is usually the starting point for an individual's or family's budget.

Balance sheet assets should be valued at

Which of the following has the best debt-to-asset ratio?

Your net worth can change even if your net cash flows are zero.

A personal balance sheet summarizes

Property such as a person's home,car,and furniture is called

Bills that are to be paid off within a year are called

Liabilities can be calculated by

Robert feels his personal finance is not so healthy in terms of managing debt.He has a $12 000 credit card liability,a $10 000 car loan,and a $300 000 mortgage liability.Robert possesses a car worth $12 000 and a house worth $388 000.What is Robert's debt-to-asset ratio?

It is possible to budget for irregular expenses paid infrequently.