PERSONAL FINANCE EXAM STUDY GUIDE
Personal finance - Answers -the process of planning your spending, financing, and
investing activities, while taking into account uncontrollable events, such as death or
disability, in order to optimize your financial situation over time
Personal finance plan - Answers -a plan that specifies your financial goals and
describes the spending, financing, and investing activities that are intended to achieve
those goals and the risk management strategies that are required to protect against
uncontrollable events, such as death or disability
Per capita debt - Answers -the amount of debt each individual in Canada would have if
total debt (consumer debt plus mortgages) were spread equally across the population
Opportunity cost - Answers -what you give up as a result of a decision
FP Canada - Answers -a national professional body working in the public interest that is
dedicated to championing financial health for all Canadians by certifying professional
financial planners and leading the advancement of professional financial planning in
Canada
Budgeting - Answers -the process of forecasting future income, expenses, and savings
goals
Assets - Answers -what you own
Liabilities - Answers -what you owe; your debt
net worth - Answers -the value of what you own minus the value of what you owe
liquidity - Answers -access to ready cash
money management - Answers -decisions regarding how much money to retain in
liquid form and how to allocate the funds among short-term investment instruments
emergency fund - Answers -portion of savings that you have allocated to short-term
emergency needs
credit management - Answers -decisions regarding how much credit to obtain
risk - Answers -exposure to events that can cause a financial loss
risk management - Answers -decisions about whether and how to protect against risk
,insurance planning - Answers -determining the types and amount of insurance needed
to protect your assets
investment risk - Answers -uncertainty surrounding not only the potential return on an
investment but also its future potential value
risk tolerance - Answers -a person's ability to accept risk, usually defined as a potential
loss of return and/or loss of capital
retirement planning - Answers -determining how much money you should set aside
each year for retirement and how you should invest those funds
estate planning - Answers -determining how your wealth will be distributed before
and/or after your death
Goal planning - Answers -1. analyze current financial position
2. develop short-term & long-term financial goals
3. identify & evaluate plan to achieve your goals
4. implement your plan
5. feedback, monitor, and revise your plan
personal cash flow statement - Answers -a financial statement that measures a
person's income and expenses
disposable income (after-tax) - Answers -your income minus applicable incomes taxes
and other payroll deductions, such as CPP and EI contributions
budget - Answers -a cash flow statement that is based on forecasted cash flows
(income and expenses) for a future time period. Projection of inflows + outflows by
categories
personal balance sheet - Answers -a summary of your assets (what you own), your
liabilities) what you owe), and your net worth (assets minus liabilities)
liquid assets - Answers -financial assets that can be easily converted into cash without
a loss in value
household assets - Answers -items normally owned by a household, such as a car and
furniture
stocks - Answers -certificates representing partial ownership of a firm
bonds - Answers -long-term debt securities, issued by government agencies or
corporations
, mutual funds - Answers -investments companies that sell shares to individuals and
invest the proceeds in an overall portfolio of investment instruments such as bonds or
stocks
real estate - Answers -principal residence, rental property, and land
rental property - Answers -housing or commercial property that is rented out to others
current liabilities - Answers -personal debts that will be paid in the near future (within a
year)
long-term liabilities - Answers -debt that will be paid over a period longer than one year
personal income taxes - Answers -taxes imposed on income earned
excise taxes - Answers -special taxes levied on certain consumer products such as
cigarettes, alcohol, and gasoline
capital asset - Answers -any asset that is acquired and held for the purpose of
generating income
employment insurance (EI) - Answers -government benefits that are payable for
periods of time when you are away from work due to specific situations
T4 slip - Answers -a document provided to you by your employer that shows your
salary and all deductions associated with your employment with that specific employer
for the previous year. Your employer is required to provide you with a T4 slip by
February 28 each year
total income - Answers -all reportable income from any source, including employment
income, business income, property income, capital gains and losses, and other income.
Income received from sources outside Canada is also subject to Canadian income tax
capital gain - Answers -money earned when you sell an asset at a higher price than
you paid for it
capital loss - Answers -money lost when you sell an asset at a lower price than you
paid for it
interest income - Answers -interest earned from investments in various types of savings
accounts at financial institutions; from investments in debt
T5 Statement of Investment Income (slip) - Answers -A document provided to you
when you receive income other than salary income.
Personal finance - Answers -the process of planning your spending, financing, and
investing activities, while taking into account uncontrollable events, such as death or
disability, in order to optimize your financial situation over time
Personal finance plan - Answers -a plan that specifies your financial goals and
describes the spending, financing, and investing activities that are intended to achieve
those goals and the risk management strategies that are required to protect against
uncontrollable events, such as death or disability
Per capita debt - Answers -the amount of debt each individual in Canada would have if
total debt (consumer debt plus mortgages) were spread equally across the population
Opportunity cost - Answers -what you give up as a result of a decision
FP Canada - Answers -a national professional body working in the public interest that is
dedicated to championing financial health for all Canadians by certifying professional
financial planners and leading the advancement of professional financial planning in
Canada
Budgeting - Answers -the process of forecasting future income, expenses, and savings
goals
Assets - Answers -what you own
Liabilities - Answers -what you owe; your debt
net worth - Answers -the value of what you own minus the value of what you owe
liquidity - Answers -access to ready cash
money management - Answers -decisions regarding how much money to retain in
liquid form and how to allocate the funds among short-term investment instruments
emergency fund - Answers -portion of savings that you have allocated to short-term
emergency needs
credit management - Answers -decisions regarding how much credit to obtain
risk - Answers -exposure to events that can cause a financial loss
risk management - Answers -decisions about whether and how to protect against risk
,insurance planning - Answers -determining the types and amount of insurance needed
to protect your assets
investment risk - Answers -uncertainty surrounding not only the potential return on an
investment but also its future potential value
risk tolerance - Answers -a person's ability to accept risk, usually defined as a potential
loss of return and/or loss of capital
retirement planning - Answers -determining how much money you should set aside
each year for retirement and how you should invest those funds
estate planning - Answers -determining how your wealth will be distributed before
and/or after your death
Goal planning - Answers -1. analyze current financial position
2. develop short-term & long-term financial goals
3. identify & evaluate plan to achieve your goals
4. implement your plan
5. feedback, monitor, and revise your plan
personal cash flow statement - Answers -a financial statement that measures a
person's income and expenses
disposable income (after-tax) - Answers -your income minus applicable incomes taxes
and other payroll deductions, such as CPP and EI contributions
budget - Answers -a cash flow statement that is based on forecasted cash flows
(income and expenses) for a future time period. Projection of inflows + outflows by
categories
personal balance sheet - Answers -a summary of your assets (what you own), your
liabilities) what you owe), and your net worth (assets minus liabilities)
liquid assets - Answers -financial assets that can be easily converted into cash without
a loss in value
household assets - Answers -items normally owned by a household, such as a car and
furniture
stocks - Answers -certificates representing partial ownership of a firm
bonds - Answers -long-term debt securities, issued by government agencies or
corporations
, mutual funds - Answers -investments companies that sell shares to individuals and
invest the proceeds in an overall portfolio of investment instruments such as bonds or
stocks
real estate - Answers -principal residence, rental property, and land
rental property - Answers -housing or commercial property that is rented out to others
current liabilities - Answers -personal debts that will be paid in the near future (within a
year)
long-term liabilities - Answers -debt that will be paid over a period longer than one year
personal income taxes - Answers -taxes imposed on income earned
excise taxes - Answers -special taxes levied on certain consumer products such as
cigarettes, alcohol, and gasoline
capital asset - Answers -any asset that is acquired and held for the purpose of
generating income
employment insurance (EI) - Answers -government benefits that are payable for
periods of time when you are away from work due to specific situations
T4 slip - Answers -a document provided to you by your employer that shows your
salary and all deductions associated with your employment with that specific employer
for the previous year. Your employer is required to provide you with a T4 slip by
February 28 each year
total income - Answers -all reportable income from any source, including employment
income, business income, property income, capital gains and losses, and other income.
Income received from sources outside Canada is also subject to Canadian income tax
capital gain - Answers -money earned when you sell an asset at a higher price than
you paid for it
capital loss - Answers -money lost when you sell an asset at a lower price than you
paid for it
interest income - Answers -interest earned from investments in various types of savings
accounts at financial institutions; from investments in debt
T5 Statement of Investment Income (slip) - Answers -A document provided to you
when you receive income other than salary income.
