Deck 24: Appendix: Managing Personal Finances

Question 1

Your computer and car should both be listed on the asset side of your personal balance sheet.

Answer 1

True

Question 2

Your personal balance sheet will reflect the same fundamental accounting equation as the balance sheet for a business: assets = liabilities + owners' equity.

Answer 2

True

Question 3

The best way to save money is to pay yourself first.

Answer 3

True

Question 4

Financial planners regularly suggest that you borrow money to pay for large purchases.

Question 5

It is usually better to use any money left after paying monthly bills to pay off debts that carry high interest rates rather than putting that money into a savings account.

Question 6

The U.S. government provides several types of financial incentives to encourage people to attend college.

Question 7

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

Question 8

The first step in getting control of your finances is to prepare a budget.

Question 9

Borrowing money for ordinary expenses is a necessary part of life.

Question 10

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

Question 11

Most financial experts will tell you to save about one month's earnings for contingency purposes.

Question 12

If you find yourself regularly running out of cash, your only real option is to focus your attention on finding ways to increase your income.

Question 13

With respect to personal financial planning, the first thing to do with any extra money you have is to start a savings plan.

Question 14

One step toward the goal of taking control of your finances is to keep track of all your expenses.

Question 15

A major source of revenue on your personal income statement is your salary or wages from your job.

Question 16

In order to get in the habit of saving, personal financial advisors suggest that you save first and wait to pay off any debts until you've accumulated at least $10,000 in cash, savings accounts, CDs, and other liquid assets.

Question 17

Managing the finances of a household is similar to managing the finances of a small business.

Question 18

Once you have evaluated your current financial situation and know your sources of income and expenses, you have reached the point where you can establish a personal budget.

Question 19

On your personal balance sheet, your assets should include anything of value that you own.

Question 20

The value of education is often exaggerated when searching for a good job.

Question 21

Serena is attending her local community college with the goal of getting a good job someday. She knows that financial planning begins first with making money.

Question 22

For individuals, budgets are usually more trouble than they are worth.

Question 23

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.

Question 24

Luke wants to get better control of his personal finances. He should begin by setting up a personal balance sheet and a personal income statement.

Question 25

Your personal budget is the same thing as your personal income statement.

Question 26

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

Question 27

If possible, it is almost always better to buy a single home rather than an attached home.

Question 28

In order to accumulate enough wealth to get started toward achieving their goals, many people have to make significant sacrifices in their standard of living for several years.

Question 29

When you buy a home, the monthly payments for the home may remain relatively fixed, but your payments for taxes and utilities are likely to increase.

Question 30

One drawback to buying a home compared to renting is that your monthly mortgage payments will increase, while rental payments are fixed.

Question 31

Once they've accumulated enough money, buying a low-priced home is often a good investment for young adults.

Question 32

Before getting married, a couple should discuss and agree upon a financial strategy.

Question 33

After marriage, one great financial strategy is to live on one income and to save the other.

Question 34

Your big-screen HDTV would be listed as an asset on your personal balance sheet. However, the loan you took out to buy the TV would be listed as a personal liability.

Question 35

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.

Question 36

Most people find it relatively easy to live frugally.

Question 37

Personal financial planners recommend renting a home, rather than incurring the cost of buying a home.

Question 38

Financial planners encourage individuals to borrow only to cover immediate expenses.

Question 39

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

Question 40

Even though they are in debt, most of today's college graduates are capital-rich.

Question 41

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

Question 42

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

Question 43

If you use a credit card to make purchases, you should make a strong effort to pay off the balance in full each month.

Question 44

Funds invested in savings accounts and certificates of deposit (CDs) have traditionally outperformed stocks as a means of generating long-term financial gains.

Question 45

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

Question 46

When young people decide to buy a house, the best approach is to buy a house in an inexpensive part of town so they can get a larger house for less money.

Question 47

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

Question 48

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

Question 49

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

Question 50

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

Question 51

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

Question 52

Interest paid on a home loan is deductible from taxable income.

Question 53

A person using a credit card to make a purchase may end up paying much more than if he or she had paid cash.

Question 54

Most financial experts believe that the stock market is likely to grow more slowly in the future than it did in the last 50 years.

Question 55

Buying an attached home and living in one side, while renting the other side, generally turns out to be more trouble than it is worth, since you have to satisfy not only your own needs, but also the needs of the renters.

Question 56

House payments tend to rise at a faster rate than do rent payments on a similar sized house.

Question 57

The federal government discourages home ownership through high tax rates.

Question 58

One danger of a credit card is that consumers often buy items they wouldn't normally buy if they had to pay cash.

Question 59

Credit cards can be used to categorize and track your purchases.

Question 60

The three keys that have the greatest influence on how the value of your home increases over time are: (1) size (square feet), (2) age, and (3) design features.

Question 61

The death benefits of a variable life insurance policy vary depending upon the performance of the investment.

Question 62

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

Question 63

If you are relatively healthy, there is no real reason to buy disability insurance.

Question 64

The tax shelter offered by home ownership increases the overall cost of owning your home.

Question 65

Investors who desire a very stable and predictable income from their investments (such as people who are nearing retirement) would be reluctant to invest heavily in the stock market.

Question 66

Shulei graduated from college two years ago. She has already accumulated enough money in her savings account and money market to meet her basic needs, and now wants to begin investing a portion of each paycheck to earn a high rate of return over the long run. Shulei's best choice as a young woman would be to put money into a bank savings account regularly.

Question 67

Multiyear level-premium insurance is a form of term insurance with fixed premiums for the life of the policy.

Question 68

Fixed annuities have become much more popular than variable annuities.

Question 69

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

Question 70

One of the keys to financial success is never to apply for a credit card.

Question 71

The younger you are when you buy term life insurance, the lower the premiums tend to be.

Question 72

The best strategy to follow in using credit cards is to pay only the minimum amount required each month.

Question 73

During the first few years of a home mortgage, almost all the payments go for interest on the loan. This high interest is a reason it is better for young people to rent rather than buy.

Question 74

Term life insurance offers pure insurance with no savings feature.

Question 75

An annuity is a contract to make regular payments to a person for life or for a fixed period.

Question 76

People who have health insurance seldom need disability insurance.

Question 77

If you are in the 25 percent tax bracket and your home mortgage interest is $1,000 per month, then your after-tax mortgage interest cost is $750 per month.

Question 78

During a recent drop in the stock market, Damon took the opportunity to buy a wide variety of stocks even though many of his friends and relatives were selling. His investment strategy appears to be consistent with contrarian views.

Question 79

Unlike whole life policies, a universal life insurance policy typically invests part of the premium in very aggressive, high-risk assets.

Question 80

Variable annuities offer investment choices identical to mutual funds.