Finance Midterm #1 Saturday March 5th - 12pm to 1:30pm Chapters 1-7 Chapter 1 - Overview of a Financial Plan Benefits of personal finance - Make your own financial decisions - Prioritize your goals - Financial advice isn’t free. Do it yourself and save - Avoid scams Every decision has an opportunity cost In addition to being SMART (specific, measurable, action-oriented, realistic, and time bound) Must also prioritize your goals Regulators are moving from product sales to providing more financial advice. There has been an increase of finance companies in the TSX. Brokers receive fees for selling products/services. Consulting is growing. Average wealth planner is 49 years old with 12 years experience. The goal of financial planning is to maximize your aftertax cash flow. In other places interest rates have been negative. Japan has been in a recession since the early 1990s. Financial planning life stages. There are various life stages with different goals. Education Early Career Family and Mid Career Prime Earning Early retirement Late retirement Your biggest investment is yourself. By investing in education you are building your intellectual capital. You need to balance money and credit to manage liquidity. How financial planning affects your cash flow 1. Your job - income 2. Financial management 3. Protecting your assets and income (insurance) 4. Investing 5. Retirement and estate planning Components of a financial plant - Budgeting and tax planning - Managing liquidity - Financing your large purchases - Protecting your assets and income (insurance) - Investing your money - Planning your retirement and estate Downloaded by Abdra Sree (shahdd2014@gmail.com) lOMoARcPSD|10935195 RRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRRR Chapter 1 Questions 1. Define personal financial planning. How you spend, finance, and invest your money. Takes into account uncontrollable events. 2. What is the op. cost of $10 a week on lotto? $10 a week that you could’ve spent elsewhere, or saved. But if you’re feeling lucky, the opportunity cost of not buying the lottery ticket is winning the jackpot. 6. How is net worth calculated? Assets minus liabilities (debt) 7. What factors influence income? Important factors include age, education status. It is important to have an accurate amount of spending, because then you know how much you can save. 8. What are key financial considerations during the early life stage? Manage your debt, buy a car and furniture, invest. 11. What is liquidity? Liquidity is how easily the asset can be turned into cash. Stocks are high liquidity and property is less liquid. 20. What are the six steps to develop a financial plan? 1 - establish goals 2 - consider your current financial position 3 - identify plans to achieve your goals 4 - Select and implement the best plan for your goals 5 - Evaluate your financial plan 6 - Revise your financial plan 21. What is a smart goal? Specify, Measure, Act, Realistic, Time. How does your money fit into your financial plan? My financial goals fit into my financial plan because saving over time and growing my money will help me achieve my goals. 27. What are some unethical behaviours a financial planner might engage in? Unethical behaviour would be charging too much to clients, or leading them to invest their money in ways that wouldn’t be of the best use.