WGU D363 PERSONAL FINANCE | 2025/2026 UPDATE | QUESTIONS AND ANSWERS | WITH
COMPLETE SOLUTION
When learning how to create goals, what are the 3 things that should be included?
Spending, risk management, capital accumulation
define Financial Planning:
process of developing and implementing a coordinated series of financial strategies to achieve
personal and financial goals
What is an emergency fund and how much should it be?
An account used to set aside money for unexpected expenses or emergencies (job loss, medical
bills, repairs).
recommended 3-6 months of living expenses
What is considered the most useful measure of wealth?
net worth (assets - liabilities)
What is the difference between a balance sheet and cash flow statement?
Balance Sheet: Snapshot of assets, liabilities, and net worth at a specific date.
Cash Flow Statement: Summary of all income and expenses over a period of time.
What are the 3 components of a balance sheet?
assets, liabilities, net worth
Provide an example of a monetary asset, tangible asset, and investment asset.
Monetary Asset: Cash, checking, savings accounts
Tangible Asset: Car, home, jewelry
Investment Asset: Stocks, bonds, mutual funds
What is the difference between a fixed expense and a variable expense and provide an
example of each.
Fixed Expense: Regular, unchanging payments (rent, mortgage, insurance).
Variable Expense: Fluctuates monthly based on usage or choices (utilities, food, entertainment).
What question does the liquidity ratio answer?
Measures the ability to meet short-term obligations.
liquidity ratio formula
, 2
Monetary Assets ÷ Monthly Expenses
What question does the debt to income ratio answer?
Compares monthly debt payments to gross monthly income — measures ability to manage debt.
The debt payment to disposable income should not exceed ______ %.
36
What is the formula for investment assets to total assets ratio formula?
Investment Assets ÷ Total Assets
What is a credit bureau?
An organization that collects and maintains credit information on individuals and businesses.
Examples: Equifax, Experian, TransUnion
What is a promissory note?
A written promise to repay a specified sum of money at a certain time.
If a borrower has a credit score below 620, what are they considered?
Considered a subprime borrower (high credit risk).
Name 5 steps of building a foundation for a good credit history:
Pay bills on time.
Keep credit card balances low.
Maintain a long credit history.
Limit new credit applications.
Monitor your credit report regularly
What is a FICO score?
A credit score model (range 300-850) used to measure creditworthiness.
Name the 5 factors used in the FICO calculation and which is the most important.
Payment history (35%)
Amounts owed (30%)
Length of credit history (15%)
New credit inquiries (10%)
Credit mix (10%)
, 3
What are 3 examples of revolving lines of credit?
Credit cards
Home equity line of credit (HELOC)
Retail store charge accounts
Name two types of high cost credit providers and describe some drawbacks of each.
Payday lenders: Very high fees and short repayment terms.
Pawnshops: Require collateral and charge high interest.
What is the risk of taking out a 6 year (or longer) vehicle loan?
Owing more than the car's value (negative equity).
Paying more total interest.
Longer debt obligation.
Money management is a by-product of __________________________.
Goal setting and financial planning
What is a bump-up scam?
A scam where a lender or dealer increases the interest rate or adds fees after a borrower agrees to
terms.
What is a variance?
The difference between your budgeted amount and actual spending.
What are the 3 steps to the budget?
Determine income.
Estimate expenses.
Monitor and adjust.
What are the 3 areas of setting goals? Savings, investing, debt management.
Savings
Investing
Debt management
Which statement reflects where you have been? Which statement reflects where you are?
Which reflects where you want to go?
Where you have been: Income and expense statement
Where you are: Balance sheet
, 4
Where you want to go: Financial plan (goals)
Write a short-term goal, an intermediate goal, and a long-term goal.
Short-term: Save $1,000 in 3 months.
Intermediate: Pay off credit card in 2 years.
Long-term: Buy a home in 10 years.
What is the difference between disposable income and discretionary income?
Disposable Income: Income after taxes.
Discretionary Income: Income left after taxes and necessities (used for wants/savings).
What are budget controls?
Methods to help manage and track spending (alerts, limits, software).
How should credit card changes be handled in a personal budget?
Adjust your budget if interest rates or minimum payments change.
Why should you close redundant bank accounts?
To simplify finances, reduce fees, and avoid fraud exposure.
What is a subordinate budget?
A smaller, specific budget within a master budget (e.g., travel or food budget).
What is a cash-flow calendar and what is it used for?
A schedule showing income and expenses by date to help prevent overdrafts
What resources should you have available before creating a personal budget?
Income records, bills, bank statements, receipts.
What should the first step be when creating a personal budget?
Set financial goals.
What is the envelope system?
Cash budgeting method where cash is divided into labeled envelopes for specific expenses.
If you exclude mortgage payments, your monthly debt payments should be no more than
___% of monthly discretionary income.
Without mortgage: Debt ≤ 15-20% of monthly discretionary income.
COMPLETE SOLUTION
When learning how to create goals, what are the 3 things that should be included?
Spending, risk management, capital accumulation
define Financial Planning:
process of developing and implementing a coordinated series of financial strategies to achieve
personal and financial goals
What is an emergency fund and how much should it be?
An account used to set aside money for unexpected expenses or emergencies (job loss, medical
bills, repairs).
recommended 3-6 months of living expenses
What is considered the most useful measure of wealth?
net worth (assets - liabilities)
What is the difference between a balance sheet and cash flow statement?
Balance Sheet: Snapshot of assets, liabilities, and net worth at a specific date.
Cash Flow Statement: Summary of all income and expenses over a period of time.
What are the 3 components of a balance sheet?
assets, liabilities, net worth
Provide an example of a monetary asset, tangible asset, and investment asset.
Monetary Asset: Cash, checking, savings accounts
Tangible Asset: Car, home, jewelry
Investment Asset: Stocks, bonds, mutual funds
What is the difference between a fixed expense and a variable expense and provide an
example of each.
Fixed Expense: Regular, unchanging payments (rent, mortgage, insurance).
Variable Expense: Fluctuates monthly based on usage or choices (utilities, food, entertainment).
What question does the liquidity ratio answer?
Measures the ability to meet short-term obligations.
liquidity ratio formula
, 2
Monetary Assets ÷ Monthly Expenses
What question does the debt to income ratio answer?
Compares monthly debt payments to gross monthly income — measures ability to manage debt.
The debt payment to disposable income should not exceed ______ %.
36
What is the formula for investment assets to total assets ratio formula?
Investment Assets ÷ Total Assets
What is a credit bureau?
An organization that collects and maintains credit information on individuals and businesses.
Examples: Equifax, Experian, TransUnion
What is a promissory note?
A written promise to repay a specified sum of money at a certain time.
If a borrower has a credit score below 620, what are they considered?
Considered a subprime borrower (high credit risk).
Name 5 steps of building a foundation for a good credit history:
Pay bills on time.
Keep credit card balances low.
Maintain a long credit history.
Limit new credit applications.
Monitor your credit report regularly
What is a FICO score?
A credit score model (range 300-850) used to measure creditworthiness.
Name the 5 factors used in the FICO calculation and which is the most important.
Payment history (35%)
Amounts owed (30%)
Length of credit history (15%)
New credit inquiries (10%)
Credit mix (10%)
, 3
What are 3 examples of revolving lines of credit?
Credit cards
Home equity line of credit (HELOC)
Retail store charge accounts
Name two types of high cost credit providers and describe some drawbacks of each.
Payday lenders: Very high fees and short repayment terms.
Pawnshops: Require collateral and charge high interest.
What is the risk of taking out a 6 year (or longer) vehicle loan?
Owing more than the car's value (negative equity).
Paying more total interest.
Longer debt obligation.
Money management is a by-product of __________________________.
Goal setting and financial planning
What is a bump-up scam?
A scam where a lender or dealer increases the interest rate or adds fees after a borrower agrees to
terms.
What is a variance?
The difference between your budgeted amount and actual spending.
What are the 3 steps to the budget?
Determine income.
Estimate expenses.
Monitor and adjust.
What are the 3 areas of setting goals? Savings, investing, debt management.
Savings
Investing
Debt management
Which statement reflects where you have been? Which statement reflects where you are?
Which reflects where you want to go?
Where you have been: Income and expense statement
Where you are: Balance sheet
, 4
Where you want to go: Financial plan (goals)
Write a short-term goal, an intermediate goal, and a long-term goal.
Short-term: Save $1,000 in 3 months.
Intermediate: Pay off credit card in 2 years.
Long-term: Buy a home in 10 years.
What is the difference between disposable income and discretionary income?
Disposable Income: Income after taxes.
Discretionary Income: Income left after taxes and necessities (used for wants/savings).
What are budget controls?
Methods to help manage and track spending (alerts, limits, software).
How should credit card changes be handled in a personal budget?
Adjust your budget if interest rates or minimum payments change.
Why should you close redundant bank accounts?
To simplify finances, reduce fees, and avoid fraud exposure.
What is a subordinate budget?
A smaller, specific budget within a master budget (e.g., travel or food budget).
What is a cash-flow calendar and what is it used for?
A schedule showing income and expenses by date to help prevent overdrafts
What resources should you have available before creating a personal budget?
Income records, bills, bank statements, receipts.
What should the first step be when creating a personal budget?
Set financial goals.
What is the envelope system?
Cash budgeting method where cash is divided into labeled envelopes for specific expenses.
If you exclude mortgage payments, your monthly debt payments should be no more than
___% of monthly discretionary income.
Without mortgage: Debt ≤ 15-20% of monthly discretionary income.
