Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
105 Cards in this Set
- Front
- Back
definition of personal financial planning
|
process of managing your money to achieve economic satisfaction
|
|
what are the 4 advantages of personal financial planning?
|
- increased effectiveness in maintaining financial resources
- increased control of finances by avoiding debt - improved personal relationships - sense of freedom from financial worries |
|
what are the 6 steps of the financial planning process?
|
1. determine your current financial situation
2. develop financial goals 3. identify alternative courses of action 4. evaluate alternatives 5. create and implement a financial action plan 6. re-evaluate and revise the financial plan |
|
Financial goals represent ______
|
what you hope to achieve with your money
|
|
Four requirements for financial goals
|
1. Realistic
2. Specific dollar terms 3. Time frames 4. priority list |
|
opportunity cost
|
what you give up by making a choice
|
|
financial opportunity costs are measured in terms of the ____ ___ of ____
|
time value of money
|
|
what is the time value of money
|
the increases in an amount of money as a result of interest earned
|
|
time, effort and health are examples of what kind of costs?
|
personal opportunity costs
|
|
interest, liquidity and safety are examples of what kind of costs?
|
financial opportunity costs
|
|
what are the 2 main reasons Canadians have money problems?
|
1. poor planning and weak money management habits
2. product availability, advertisement and selling efforts |
|
short-term goals are to be achieved within _____ or so
|
a year
|
|
intermediate goals have a time frame of ___ to ____ years
|
2 to 5 years
|
|
long term goals involve financial plans that are more than ___ years off
|
5
|
|
consumable-product goals occur on a ____ basis and involve items that are used up relatively _____
|
periodic, quickly.
|
|
what are durable products? how often are they purchased?
|
expensive items like cars, infrequently purchased
|
|
examples of intangible purchase goals
|
relationships, education
|
|
the life cycle approach is the idea that the average person goes through ___ basic stages in personal finance management
|
four
|
|
early years of the 'life cycle' goals:
|
- creating an emergency fund
- saving for down payment - purchasing life insurance |
|
middle years (30s-50s) of the life cycle goals:
|
- building wealth by paying mortgage
- increasing savings and investments |
|
middle age goals:
|
-providing adequate retirement fund
|
|
retirement years focus
|
management of previously acquired wealth
|
|
financial goal factors to be taken into account (4)
|
1. realistic
2. specific and measurable 3. time frame 4. indicate type of action to be taken |
|
economics definition
|
the study of how wealth is created and distributed
|
|
what is the role of the bank of canada?
|
maintaing an adequate money supply by influencing borrowing, interest rates and the buying or selling of government securities
|
|
what is the main cause of inflation?
|
an increase in demand without a comparable increase in supply
|
|
what is the consumer price index?
|
a measure of the average change in the prices urban consumers pay for a fixed "basket" of goods and services
|
|
compounding
|
interest earned on previously earned interest
|
|
intra-period compounding
|
compounding more than once a year
|
|
present value
|
the current value for a future amount based on certain interest rate and a certain time period AKA discounting
|
|
liquidity
|
the ability to readily convert financial resources into cash without a loss in value
|
|
bankruptcy definition
|
set of federal laws that allow you to either restructure your debts or remove certain debts
|
|
financial plan definition
|
formalized report that summarizes your current financial situation, analyzes financial needs and recommends future financial activities
|
|
three essential needs and skills to ensure financial security:
|
1. well-conceived spending plan
2. insurance protection 3. informed about tax and investment alternatives |
|
money management definition
|
day-to-day financial activities necessary to manage current personal economic resources while working toward long-term financial security
|
|
what are the 3 major money management activities?
|
1. Store and maintain documents
2. create personal financial statements (balance sheets, statements of income/outcome) 3. create a budget |
|
what is the purpose of a home file?
|
keeping records for current needs
|
|
important financial records should be kept in a more secure place like a financial institution called a
|
safety deposit box
|
|
how many keys does a safety deposit box contain? who keeps them?
|
2- one for you and one for the financial institution
|
|
how long should you keep tax returns?
|
6 years
|
|
5 main purposes of personal financial statements
|
- summarize value of items and amounts owed
- track cash inflows by source and outflows by type - identify strengths/weaknesses - measure progress towards goals - provide data for income tax return/applying for credit |
|
what is a personal balance sheet?
|
reports what you own and what you owe
|
|
liquid assets definition
|
cash and items of value that can be converted easily to cash (money in chequing/savings account)
|
|
what are 4 main categories of assets?
|
liquid assets, real estate, personal possession, investment assets
|
|
what are investment assets?
|
funds set aside for long-term financial needs
|
|
liabilities
|
amounts owed to others (generally not including items not yet due)
|
|
current liabilities
|
debts needed to be paid within a short time
|
|
long-term liabilities
|
debts not having to be paid in full until more than a year from now
|
|
insolvency
|
the inability to pay debts when they're due because liabilities exceed te value of assets
|
|
cash flow
|
actual inflow and outflow of cash during a given time period
|
|
most important cash inflow comes from
|
employment income
|
|
what is a cash flow statement?
|
financial statement that summarizes cash receipts and payments for a period
- provides data on spending patterns |
|
what is 'take-home pay'?
|
earnings after deductions for taxes and other items
|
|
discretionary income definition
|
money left over after paying for necessities
|
|
2 major categories for cash outflows
|
fixed expenses and variable expenses
|
|
what are fixed expenses
|
payments that don't vary from month to month (e.g. rent, tv service fees)
|
|
what are variable expenses?
|
flexible payments that change from month to month (e.g. food, utilities)
|
|
what is a deficit cash flow?
|
more cash goes out than in during a given month
|
|
debt ratio
|
liabilities divided by net worth
0.5 is the max acceptable limit |
|
current ratio
|
liquid assets divided by current liabilities
high ratio is desirable to have cash available |
|
liquidity ratio
|
liquid assets divided by monthly expenses
indicates number of months in which living expenses can be paid if emergency arises |
|
debt-payments ratio
|
monthly credit payments divided by take-home pay
indicates how much person's earning's goes for debt payments - recommend less than 20% |
|
savings ratio
|
amount saved each month divided by gross income
recommend savings of at least 10% |
|
lifestyle is influenced by what 3 factors
|
Career
Family Values |
|
what's the common budgeting period?
|
a month
|
|
what's the suggested number of months to represent in an emergency fund?
|
3-6 months
|
|
consumer price index
|
measures the general price level of consumer goods and services in Canada
|
|
budget variance
|
the difference between the amount budgeted and the actual amount received or spent
|
|
T/F Canada has a low savings rate among industrial nations. If so, why?
|
True- because many do not have an adequate amount set aside for emergencies
|
|
pooled income
|
both incomes combined, bills paid from pool
|
|
sharing the bills
|
each person responsible for paying predetermined bills
|
|
50/50
|
each person contributes equal amount of pool to cover shared expenses
|
|
proportionate contributions
|
each partner contributes a percentage of his/her income
|
|
what are the 4 major tax categories
|
property
earnings wealth purchases |
|
what is excise tax?
|
tax imposed on specific goods and services such as gas, cigarettes, alcohol, tires and air travel
|
|
what is the capital gains tax?
|
the tax put on an increase in a person's wealth
|
|
up to what percentage of monetary gains are taxable?
|
50%
|
|
taxable income
|
amount of income tax owed and comparing amount with income tax payments withheld or made during the year
|
|
employment income
|
compensation for personal effort (salaries, commissions, bonuses)
|
|
net business income
|
net income from an activity that is carried out for profit, after expenses have been deducted
|
|
investment income
|
income from property, including income in the form of interest, dividends and rents net of expenses
|
|
taxable capital gains
|
net gains from the sale of capital assets such as stocks, bonds and real estate
|
|
what is the "OAS clawback"
|
payments of old age security repaid at 15% per every dollar of net income in excess of 63,511
|
|
deductions from income + examples
|
expenses deducted from total income such as child care expenses, union dues, disability support payments, investment counseling fees and certain employment-related expenses
|
|
security options deduction
|
one half of the stock option benefit included under employment income
|
|
capital gains deduction
|
one half of the eligible capital gains exemption
|
|
net capital losses of prior years
|
used to offset capital gains reported under total income that are not eligible for the capital gains deduction
|
|
marginal tax rate
|
rate of tax paid on next dollar of taxable income
|
|
alternative minimum tax
|
makes sure those who receive tax breaks still pay fair share of taxes
|
|
tax credit
|
an amount subtracted directly from amount of taxes owing
|
|
non-refundable tax credits
|
subtracted from amount of taxes owed but don't reduce net federal tax below zero
|
|
T/F each province and territory has its own refundable and non-refundable tax credits
|
true
|
|
when does source withholding occur?
|
when employers are require d to withhold tax at source and remit it to the CRA
|
|
what form shows the amount withheld and the tax owed is either the amount you must pay or the amount you will receive
|
T4 form
|
|
what day are tax returns due to be filed by? what if you or your spouse has business income?
|
April 30
June 15 |
|
what happens if you do not submit your tax returns on time?
|
adding an additional 5% penalty on any balance owing plus adding 1% of the unpaid balance for each full month the return is late to a max of 12 months
|
|
T/F filing returns without paying the balance owing avoids you paying the 5% penalty
|
true
|
|
tax evasion
|
the use of illegal actions to reduce one's taxes
|
|
T/F CRA never modifies the tax return and filing procedures
|
false- modified yearly
|
|
what is a tax audit?
|
detailed examination of your tax return from the CRA
|
|
what's a desk audit?
|
Inquiry mailed asking you to clarify or document
|
|
what's a Field Audit?
|
visits you at home/business/accountant's office to have access to records
|
|
T/F auditor has access to all your information
|
False- only to specific information
|
|
T/F the reassessment cannot be issued more than 3 years from the last assessment
|
true- except in cases of fraud or signing a waiver about an issue
|
|
what is the highest possible level of appear within the CRA?
|
appeals officer
|