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Exam 24: Managing Personal Finances

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Question 41

Multiple Choice

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

A) keep track of all your expenses.
B) prepare a budget.
C) take inventory of your assets.
D) start a savings program.

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Question 42

Multiple Choice

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Which of the following would be included as an asset in the preparation of a personal balance sheet?

A) credit-card debt
B) home mortgage
C) your salary from a part-time job
D) your computer

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Question 43

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Elizabeth has just opened a 401(k) retirement plan. The money she invests in this plan will reduce her present taxable income.

Personal financial planners often encourage their clients to write down every single penny they spend each day. The main purpose of this is to

Which of the following is a form of whole life insurance that provides a death benefit that varies with the performance of the investments of the insurance company?

If your personal liabilities exceed your assets, you are on the road to financial security.

From an investment viewpoint, it is a good idea to buy a large home in an area of town where homes are less expensive.

About 35% of U.S. households do not have a retirement account.

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. -As their situation began to improve, the financial adviser began discussing investment strategies with Penny and Ira. He suggested that they might want to invest in the stock market. He surprised them by saying that they should try to buy stocks during a major downturn in the market-just when most people were trying to sell. This statement suggests that the financial advisor agreed with the

The federal government discourages home ownership through high tax rates.

A contrarian would advise you to buy stock when stock prices are falling and most other people are selling.

Only large corporations with at least 500 employees can offer their employees a simple 401(k) retirement plan that allows for greater contribution maximums.

Financial planners encourage individuals to begin contributing funds into an IRA as early as possible. The major benefit of early and regular contributions is that

Both the Roth and traditional IRA allow individuals to put as much money as they want into their retirement account.

Investments in IRA accounts

Historically, the best place to invest has been in U.S. government savings bonds.

Which of the following is true of credit cards?

Accumulating money through savings allows you to participate in the growth of a capitalist society.

A benefit of using credit cards is that they

________ insurance provides protection from losses of furniture, appliances, and clothes.