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Exam 23: Bonus C: Managing Your Personal Finances

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Question 51

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Identify and discuss the six steps that individuals can take to gain control of their personal finances.

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Step 1.Take inventory of your financial ...

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Question 52

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Mini-Case Ira Roth and Penny Weiss met and married in the early 1990s,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 in the latter half of the booming 1990s.Ira used his marketing major and extensive knowledge of computers to obtain a high-paying job in a successful dot-com business.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 entertainment center,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 dot-com bubble burst in the early 2000s,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. -Once Ira and Penny achieved a more solid financial foundation,they began to consider the purchase of a home.From a financial standpoint,a sound strategy for them to consider would be to:

A) buy a large house in a modest neighborhood.
B) buy a house in one of the best areas of town,even if they can afford only a relatively small house.
C) buy a house that will minimize their total real estate taxes.
D) make sure that their house payments are less than the rent they were paying on their old apartment.

E) B) and C)
F) A) and C)

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Question 53

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Listing all of your personal assets is the first step in preparing your own income statement.

Shorty is worried that his health may soon deteriorate to the point where he will no longer be able to take care of his own finances.One way he could ease his mind would be to:

Whole life insurance premiums provide the insured with both pure insurance and a savings plan.

It is likely that young adults today will benefit from the recent trend in the Social Security system to increase benefits and expand the cost-of-living adjustments.

When you prepare your personal balance sheet,remember that your ________ is equal to your total assets minus any liabilities you have.

Term life insurance is a combination insurance plan and savings plan.

Miko is in need of advice regarding investments,taxes,and insurance for herself and her family.She would be well advised to seek the advice of an insurance salesperson.

The benefit of opening an IRA while you're young is the compounding of the money invested tax-free over your working lifetime.

Which of the following accounting statements would assist an individual in taking inventory of personal assets and liabilities?

In order to accumulate capital,young adults are likely to have to:

The first step you would take to get control of your personal finances is to:

James is in the 30% tax bracket.What is the after-tax cost of a $3,000 contribution to his traditional IRA account?

Luke and Beth were recently married soon after graduating from college.Although they incurred a significant amount of debt to finance their education,both recently got good paying jobs and appear to have promising careers.Given their situation,down the road Luke and Beth:

As an employee of New Hampshire Industries,Kathleen has an opportunity to invest pre-tax income in an employer-sponsored retirement plan.Her employer will contribute 50 cents for every dollar that Kathleen contributes to this fund.This is an example of a(n) :

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

You should never borrow to cover regular expenses,but it makes perfectly good sense to use credit to cover unexpected expenses such as car or home repairs.

Throughout history an investment in ________ has yielded an excellent return,regardless of the state of the economy or political changes.

Mini-Case Ira Roth and Penny Weiss met and married in the early 1990s,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 in the latter half of the booming 1990s.Ira used his marketing major and extensive knowledge of computers to obtain a high-paying job in a successful dot-com business.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 entertainment center,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 dot-com bubble burst in the early 2000s,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?