Chapter 1
Overview of a Financial Plan
True/False
1. Most Americans will never be able to understand and develop a personal financial plan.
Answer: False
Difficulty: Easy
2. The simple objective of financial planning is to make the best use of your resources to achieve your
financial goals.
Answer: True
Difficulty: Moderate
3. An understanding of personal finance is not necessary to judge the quality of advice that a financial
adviser may give.
Answer: False
Difficulty: Easy
4. An example of an opportunity cost is the cost of tuition while attending college instead of the hourly
rate you could earn from being employed.
Answer: True
Difficulty: Easy
5. If you do one thing, you usually give up the chance to do something else. This is called “opportunity
cost.”
Answer: True
Difficulty: Easy
6. Financial advisers are in demand because most people lack understanding or are not interested in
making their own financial decisions.
Answer: True
Difficulty: Moderate
7. A thorough understanding of this personal finance book qualifies you to become a financial adviser.
Answer: False
Difficulty: Moderate
8. A complete financial plan consists of budgeting, taxes, financing, and investing.
,Answer: False
Difficulty: Moderate
,9. The first step in budgeting is to evaluate your current financial position by looking at your income
and expenses.
Answer: False
Difficulty: Moderate
10. The value of what you own minus the value of what you owe is called your “net assets.”
Answer: False
Difficulty: Moderate
11. Your budget is influenced by your income, which in turn is influenced by your education and career
decisions.
Answer: True
Difficulty: Easy
12. If you do not have access to money to cover cash needs, you may have insufficient liquidity.
Answer: True
Difficulty: Easy
13. Liquidity cannot be enhanced using sound money and credit management.
Answer: False
Difficulty: Easy
14. Money management decisions include deciding how much credit to obtain to support your spending
and what sources of credit to use.
Answer: False
Difficulty: Moderate
15. Credit should be used only when necessary, since it usually involves borrowed funds that you will
need to pay back with interest.
Answer: True
Difficulty: Moderate
16. A part of your financial plan should involve a plan for protecting your assets and income through
insurance coverage.
Answer: True
Difficulty: Easy
17. One of the considerations in determining your investment choices is evaluating the level of risk you
are willing to take.
Answer: True
Difficulty: Easy
18. Determining how much money you should set aside for retirement and how those funds should be
invested should not be the concern for people under the age of 50.
Answer: False
Difficulty: Moderate
, 19. Only the wealthiest 10% of the population need to be concerned with estate planning, since the
estate tax has been almost eliminated for most people.
Answer: False
Difficulty: Moderate
Overview of a Financial Plan
True/False
1. Most Americans will never be able to understand and develop a personal financial plan.
Answer: False
Difficulty: Easy
2. The simple objective of financial planning is to make the best use of your resources to achieve your
financial goals.
Answer: True
Difficulty: Moderate
3. An understanding of personal finance is not necessary to judge the quality of advice that a financial
adviser may give.
Answer: False
Difficulty: Easy
4. An example of an opportunity cost is the cost of tuition while attending college instead of the hourly
rate you could earn from being employed.
Answer: True
Difficulty: Easy
5. If you do one thing, you usually give up the chance to do something else. This is called “opportunity
cost.”
Answer: True
Difficulty: Easy
6. Financial advisers are in demand because most people lack understanding or are not interested in
making their own financial decisions.
Answer: True
Difficulty: Moderate
7. A thorough understanding of this personal finance book qualifies you to become a financial adviser.
Answer: False
Difficulty: Moderate
8. A complete financial plan consists of budgeting, taxes, financing, and investing.
,Answer: False
Difficulty: Moderate
,9. The first step in budgeting is to evaluate your current financial position by looking at your income
and expenses.
Answer: False
Difficulty: Moderate
10. The value of what you own minus the value of what you owe is called your “net assets.”
Answer: False
Difficulty: Moderate
11. Your budget is influenced by your income, which in turn is influenced by your education and career
decisions.
Answer: True
Difficulty: Easy
12. If you do not have access to money to cover cash needs, you may have insufficient liquidity.
Answer: True
Difficulty: Easy
13. Liquidity cannot be enhanced using sound money and credit management.
Answer: False
Difficulty: Easy
14. Money management decisions include deciding how much credit to obtain to support your spending
and what sources of credit to use.
Answer: False
Difficulty: Moderate
15. Credit should be used only when necessary, since it usually involves borrowed funds that you will
need to pay back with interest.
Answer: True
Difficulty: Moderate
16. A part of your financial plan should involve a plan for protecting your assets and income through
insurance coverage.
Answer: True
Difficulty: Easy
17. One of the considerations in determining your investment choices is evaluating the level of risk you
are willing to take.
Answer: True
Difficulty: Easy
18. Determining how much money you should set aside for retirement and how those funds should be
invested should not be the concern for people under the age of 50.
Answer: False
Difficulty: Moderate
, 19. Only the wealthiest 10% of the population need to be concerned with estate planning, since the
estate tax has been almost eliminated for most people.
Answer: False
Difficulty: Moderate
