Personal Financial Planning Study Set 5

Business

Quiz 1 :

Understanding the Financial Planning Process

Quiz 1 :

Understanding the Financial Planning Process

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Summarize current and projected trends in the economy with regard to GDP growth, unemployment, and inflation. How should you use this information to make personal financial and career planning decisions
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Economic growth of a country is being measured mainly with the help of the three factors they are Gross Domestic Product, Unemployment and Inflation.
The economic activity levels change continually, this change creates an upward and downward movement of economic activity which is called to be as Economic cycles or Business cycles. The constant level changes in the cycle will be of four phases they are Expansion, Recession, Depression and Recovery.
The current and projected trends of Gross Domestic Product, Unemployment, and Inflation are as follows:
• Gross Domestic Product: In 2013 GDP trend is Q1-1.70%, Q2-1.80%, Projected Q3-1.95% which indicates a continuous increase in GDP (%) resulting effective growth in economy.
• Unemployment: Unemployment rate in 2013 for the months of January, February, March, April and May is 7.9%, 7.7%, 7.6%, 7.5% and 7.6% respectively. However, Unemployment rate is projected to range between 7.3% -7.6% throughout 2013, and projected to be around 6.0% - 6.5% in 2014 which indicates Decrease in level of unemployment paving for growth in economy.
• Inflation: The core inflation rate is expected to be 1.9% in 2013, 2.1% in 2014, 2.2% in 2015 which depicts a growth in inflation rate leading to rise in prices, interest rates, stock and bond prices resulting strong need for financial and career planning.
Personal Financial and Career planning decisions in view of above information:
With the help of GDP, Unemployment and Inflation trends individual can plan for their career that which leads a substantial growth, financial goals that which leads a quality of life. In the present context,
• As the GDP and Inflation rate is higher it indicates growth in economy with higher prices, interest rates, stock and bond prices etc., by considering another factor Unemployment which is though declining but unstable, one has to plan for long-term and short-term financial goals with a view of income and purchasing power.
• One should avoid Frequent Switchover in job as the competition for employment opportunity is more and make a career plan of studies or any growth related to career not in the view of income but in the view of purchasing power and financial goals that are set.

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Chad Jackson's investments over the past several years have not lived up to his full return expectations. He is not particularly concerned, however, because his return is only about 2 percentage points below his expectations. Do you have any advice for Chad
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Person CG's investments have earned about 2% less than expected over the past several years. Currently, he is not concerned about the lower rate of return because he feels it is not significant.
First, it is important to the note that CG's decision to invest his excess funds is an extremely smart decision. Building wealth through investing is a smart way to save for retirement and other major life expenditures. If there is a higher rate of return on investments, wealth will accumulate at a higher rate.
Person CG should be concerned about his investments earning 2% less than expected. This seemingly small percentage can have a significant effect on the amount of money he is actually earning. This is because of compound interest.
As an example, imagine you have invested $1,000 today and it earns 4% interest. After 40 years, your money will have grown to $4,801. Now imagine that same $1,000 invested today is earning 6% interest. After 40 years, your money will have grown to $10,286 - which is more than twice as much as you would have earned at 4%!
From the above example, Person CG should realize that a 2% lower rate of return than expected does have a significant effect on the amount of money he is earning on his investments. It is recommended that he talk to his financial advisor to investigate new ways to increase his investment earnings.

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Discuss the relationship of life-cycle considerations to personal financial planning. What are some factors to consider when revising financial plans to reflect changes in the life cycle
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Making financial plan is a Dynamic procedure. At different stages of your life, your requirements and goals will be different. Yet certain economic goals are important despite of age. Having extra capital to fight economic depression will remain a part of financial plan despite of age. Having extra capital to fall back on in a financial downturn or a period of redundancy should be a priority whether you are 25, 45 or 65. Some changes-a new job, marriage, children, moving to a new area-may be part of your unique plan.
As we pass from one stage of maturation to the next in our life, our patterns of earnings, home possession, and debt also gets modified. Many young people focus on their careers and building a financial base before marrying and having children. The families of women, who interrupt their careers to stay home with their children, whether for 6 months or 6 years, will experience periods of reduced income. A divorce, a spouse's death, or remarriage can also drastically change your financial circumstances. Many people in their 30's, 40's and 50's find themselves in the "sandwich generation," supporting their elderly parents while still raising their own children and paying for college. And some people must cope with reduced income due to jobs lost because of corporate downsizing or early retirement.

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What types of financial planning concerns does a complete set of financial plans cover
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Describe employee benefit and tax planning. How do they fit into the financial planning framework
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Discuss the various forms in which wealth can be accumulated.
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What is average propensity to consume Is it possible for two people with very different incomes to have the same average propensity to consume Why
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What is the role of money in setting financial goals What is the relationship of money to utility
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Explain why financial plans must be psychologically as well as economically sound. What is the best way to resolve money disputes in a relationship
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What is a standard of living What factors affect the quality of life
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Explain why it is important to set realistically attainable financial goals. Select one of your personal financial goals and develop a brief financial plan for achieving it.
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Distinguish between long-term, intermediate, and short-term financial goals. Give examples of each.
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How can using personal financial planning tools help you improve your financial situation Describe changes you can make in at least three areas.
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During the Christmas break of his final year at the University of Texas (UT), Tom Curtis plans to put together his résumé in order to seek full-time employment as a medical technician during the spring semester. To help Tom prepare for the job interview process, his older brother has arranged for him to meet with a friend, Teresa Erdman, who has worked as a medical technician since her graduation from UT two years earlier. Teresa gives him numerous pointers on résumé preparation, the interview process, and possible job opportunities. After answering Tom's many questions, Teresa asks Tom to update her on UT. As they discuss courses, Teresa indicates that of all the electives she took, the personal financial planning course was most useful. Tom says that, although he had considered personal financial planning for his last elective, he's currently leaning toward a beginning golf course. He feels that the course will be fun because some of his friends are taking it. He points out that he doesn't expect to get rich and already knows how to balance his checkbook. Teresa tells him that personal financial planning involves much more than balancing a checkbook, and that the course is highly relevant regardless of income level. She strongly believes that the personal financial planning course will benefit Tom more than beginning golf-a course that she also took while at UT. Critical Thinking Questions 1. Describe to Tom the goals and rewards of the personal financial planning process. 2. Explain to Tom what is meant by the term financial planning and why it is important regardless of income. 3. Describe the financial planning environment to Tom. Explain the role of the consumer and the impact of economic conditions on financial planning. 4. What arguments would you present to convince Tom that the personal financial planning course would benefit him more than beginning golf
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Recommend three financial goals and related activities for someone in each of the following circumstances: a. A junior in college b. A 30-year-old computer programmer who plans to earn an MBA degree c. A couple in their 30s with two children, ages 3 and 6 d. A divorced 42-year-old man with a 16-year-old child and a 72-year-old father who is ill
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Zackery Campion, a 43-year-old retail store manager earning $75,000 a year, has worked for the same company during his entire 28-year career. A major economic recession has caused massive layoffs throughout the retail industry, and Zack is among the unlucky people who lost their jobs. He is still unemployed 10 months later, and his 10 months' severance pay and 6 months' unemployment compensation have run out. Fortunately, when he first became a store manager, Zack took a personal financial planning course offered by the local university. Because he then adopted careful financial planning practices, he now has sufficient savings and investments to carry him through several more months of unemployment. His greatest financial need is to find a job. Zack actively seeks work but finds that he is overqualified for available lower-paying jobs and underqualified for higher-paying, more desirable positions. There are no openings for positions equivalent to the manager's job he lost. Although Zack attended college for two years after high school, he didn't earn a degree. He lost his wife several years earlier and is very close to his two grown children, who live in the same city. Zack has these options: • Wait out the recession until another retail store manager position opens up. • Move to another area of the country where store manager positions are still available. • Accept a lower-paying job for two or three years and then go back to school evenings to finish his college degree and qualify for a better position. • Consider other types of jobs that could benefit from his managerial skills. Critical Thinking Questions 1. What important career factors should Zack consider when evaluating his options 2. What important personal factors should Zack consider when deciding among his career options 3. What recommendations would you give Zack in light of both the career and personal dimensions of his options noted in Questions 1 and 2 4. What career strategies should today's workers employ in order to avoid Zack's dilemma
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Assume that you graduated from college with a major in marketing and took a job with a large consumer products company. After three years, you are laid off when the company downsizes. Describe the steps you'd take to "repackage" yourself for another field.
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Are consumption patterns related to quality of life Explain.
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Use Worksheet 1.1. Describe your current status based on the personal financial planning life cycle shown in Exhibit 1.7. Fill out Worksheet 1.1, "Summary of Personal Financial Goals," with goals reflecting your current situation and your expected life situation in 5 and 10 years. Discuss the reasons for the changes in your goals and how you'll need to adapt your financial plans as a result. Which types of financial plans do you need for your current situation, and why img img
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Many people's attitude toward money has as much or more to do with their ability to accumulate wealth as it does with the amount of money they earn. As observed in Exhibit 1.4, your attitude toward money influences the entire financial planning process and often determines whether financial goals become reality or end up being pipe dreams. This project will help you examine your attitude toward money and wealth so that you can formulate realistic goals and plans. Use the following questions to stimulate your thought process. a. Am I a saver, or do I spend almost all the money I receive b. Does it make me feel good just to spend money, regardless of what it's for c. Is it important for me to have new clothes or a new car just for the sake of having them d. Do I have clothes hanging in my closet with the price tags still on them e. Do I buy things because they are a bargain or because I need them f. Do I save for my vacations, or do I charge everything and take months paying off my credit card at high interest g. If I have a balance on my credit card, can I recall what the charges were for without looking at my statement h. Where do I want to be professionally and financially in 5 years In 10 years i. Will my attitude toward money help get me there If not, what do I need to do j. If I dropped out of school today or lost my job, what would I do Does your attitude toward money help or hinder you How can you adjust your attitude so that you are more likely to accomplish your financial goals (Reference Exhibit 1.4) img
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