COA 4131 1st EditionExam 1 Study Guide: Lectures 1 - 7Lecture 1Things to review:- Personal finance is the study of how people save, invest, and protect their financial resources- 3 steps: (1) setting financial goals, (2) creating and initiating plans, and (3) monitoring, evaluating, and revising plans- Key players of the general economy: (1) economics, (2) consumers, (3) government, (4) business, (5) government, and (6) media - Economic cycle is unpredictable and constantly occurring; includes expansion, recession, decline/depression, and recovery- Understand your benefits from your employer and retirement plans- The value of money usually increases, but may decrease, in investment and reinvestment price, thus, it is important to consider present values, future values, and compound interest1. What is the difference between a need and a want?While a need is something that you absolutely must have, a want is something that you would like to have.2. What are the four subparts of creating and activating action plans for financial planning?The four subparts include staying on course, expanding, cutting back, and embarking on a new course. 3. How often should you evaluate your financial plan? Is there any circumstance that it should be checked more?It is advised to evaluate your financial plan at least once a year. If there is a substantial change, such as a big move or occupation change, then it should be checked more often than once a year.4. Who is considered “the nation’s bank of banks”?The Federal Reserve System (the Fed) is the bank of all banks. 5. Who is the 14th chairman of the Fed?Ben Bernanke is the 14th chairman of the Fed. 6. List the indicators of the direction of the economy.The indicators include inflation, index of leading economic indicators, interest rates, and gross domestic product. 7. What is the current unemployment rate?Current unemployment is at 78%.8. What are the five most populous states in the U.S.?In order, California, Texas, New York, Florida, and Pennsylvania are the five states. 9. Explain cafeteria style benefits.Cafeteria style benefits is where the company you work for will allow you to choose what kind of insurance you want. 10. What age group has the highest median income?Ages 45-54 has the highest median income. Lecture 2Things to review:- Keeping good financial records is a necessity to see where your money is going and see what you are spending it on - Ways to organize records can be in a safety deposit box or home storage of records - Budgets trace the flow of income and expenses over a period of time and focuses on eliminating debt - Financial statements include fixed expenses, variable expenses, and flexible expenses- To get ahead financially, spend less than you earn and own things that increase in value - Making a budget involves 4 steps: (1) setting goals, (2) planning, (3) implementing, and (4) evaluating - Decide what kind of financial advisor best suits you- fee-only, commission only, or fee and commission based and credentials1. How long should you keep your tax records?It is advised to keep your records for 3 years, unless you have been audited, you recentlymoved from out of the country, or something weird or strange that may look suspicious happened to you. 2. What kind of items should be kept long term?Long-term financial records to keep would include birth certificates, wills, marriage certificates, divorce certificates, and military records. 3. What percent of Americans do not regularly balance their checkbooks?About 50% of Americans don’t balance their checkbooks. 4. What’s the difference between being in the black and in the red?If you’re in the black, that means there is a good cash flow statement, it is a good time tosave, and overall a good thing. If you are in the red that means you are in trouble financially, expenditures need to be reviewed, spending needs to be reduced, and it is not a good thing. 5. Where does the majority of income come from? The majority of income comes from wages and salaries. 6. Explain the differences between fixed, variable, and flexible expenses.While fixed expenses are the same every month (such as a car, tuition, and rent), variable expenses are discretionary spending that changes month from month (such as utilities, groceries, and entertainment), and flexible expenses are when some things are more flexible or different in price than others (such as different dorms are different prices). 7. What items generally go up in value and which items go down in value over time?Things that go up include stocks, real estate, antiques, vintage cars, and sometimes-designer items. Things that go down in value are clothes, computers, cell phones, laptops, and cars. 8. What is net worth?Net worth is assets minus liabilities. 9. Describe the difference between solvent and insolvent.Being solvent means that you are able to pay off your debts, but if you are insolvent thatmeans you owe more than you own and are in debt. 10. What kind of credentials should you look for when selecting a financial advisor?The credentials that are the best are CFP, CPA, RA, and RFP. Lecture 3Things to review:-Taxes are filed once every year-Taxes are used to provide public goods and services and failure to pay them can lead to various penalties -Know where the largest sum of federal income comes from -Understand the different types of taxing philosophies and the different kinds of taxes -Know what a 1040 and 1040A is -Understand audits 1. How much does the average American’s earnings come form taxes?The average American pays between 20-40% of earnings in taxes.2. Define taxes.Taxes are a payment of money to local, state, or federal governments. 3. Where does the biggest chunk of federal income and outlays come from?The biggest chunk from federal income comes from individual income and the biggest outcome of outlays comes from Social Security, Medicare, and other retirement. 4. What is benefits-received philosophy and ability to pay philosophy?The benefits-received philosophy is where those who receive the benefits of particular public expenditure should pay for it. For example, if a bridge is built then every time you go over the bridge, you would have to pay a fee. The ability to pay philosophy is where those with higher incomes should pay proportionally more taxes than those with lower incomes. 5. What’s the difference between progressive and regressive taxes?Progressive taxes
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