FNCE 2820 EXAM LATEST UPDATE
Principles of Personal Finance - Answer 1. Knowledge of Personal Finance
2. Focus on Cash Flow (discipline, tax minimization, liquidity)
3. Value in Creating Financial Plan (financial and risk management process)
4. Healthy Behavior (taking action, avoid, self-sabotage)
Pieces of the Financial Planning Puzzle - Answer -cash management
-debt management
-planning for educational needs
-insurance and risk management
-income tax strategy
-retirement planning
-investments
-estate planning
Strategic Planning Process - Answer -understand your situation
-identify your goals and priorities
analyze current plan
-synthesize updated plan
-implement plan
-monitor and adapt
Stages of Life Cycle - Answer 1. Accumulation
2. Consolidation
3. Spending and Gifting
Net Worth - Answer Total Assets - total liabilities
Assets - Answer cash and cash equivalents, investments, use assets
Liabilities - Answer current liabilities, long-term debt
cash flows - Answer income, fixed expenses, variable-fixed expenses, taxes,
discretionary expenses, surplus
,Ratio Analysis - Answer -liquidity funds
-housing debt payment ratio
-consumer debt payment ratio
-total debt payment ratio
-savings ratio
liquidity funds ratio - Answer 3-6 months of emergency funds
short term assets / monthly non-discretionary expenses
housing debt payment ratio - Answer ≤28% of gross income (more if housing is more
expensive)
housing liabilities / gross income
consumer debt payment ratio - Answer 10-20% of take-home pay
total consumer debt PAYMENTS / net income
total debt payment ratio - Answer 36-38% of gross pay
savings ratio - Answer 5-10% of gross income
total savings / gross income
Tax Form 1040 - Answer Gross Income - "above the line" deductions = adjusted gross
income (AGI)
AGI - "below the line" deductions = taxable income
taxable income x tax rate = income liability
income liability - tax credits = TAX DUE
gross income - Answer the total amount of income from wages before any payroll
deductions, as well as capital gains
"above the line" deductions - Answer -qualified student loan interest (subject to limit)
-IRA contributions (pre-tax contribution, subject to limit)
-early withdrawal penalties (CDs)
-health savings account
-self-employed health insurance (includes self, spouse, dependents, etc.)
-self-employed retirement account (50% FICA, retirement plans)
,"below the line" deductions - Answer un-reimbursed medical expenses (subject to AGI
floor)
state and local taxes (income, property, and sales, subject to cap)
home mortgage and home equity loan interest (subject to cap)
charitable contributions (subject to cap)
progressive ordinary tax rate - Answer a combination of taxes paid on each successive
bracket you pass, minus the max income of the previous bracket
capital gain tax rate - Answer long term is better than short term--hold asset for at least
a year and one day
Tax reduction strategies - Answer -reduce reportable income
-increase above-the-line adjustments
-increase below-the-line adjustments
-utilize tax credits
Budgeting process - Answer 1. estimate income
2. set realistic surplus goal
3. evaluate expected spending needs
4. draft and fine-tune spending and savings plan
5. monitor spending
6. assess variances
7. adapt
Employer income - Answer FICA
W-2 (report of inflows to IRS)
W-4 (allowances to take out for taxes)
employee benefits (exempt from income)
take-home pay
types of liquid assets - Answer cash
depository accounts
liquid securities
, brokerage accounts
depository accounts - Answer checking account
NOW account
savings account
money market deposit account
liquid securities - Answer certificate of deposit
US treasury bills
US savings bonds
brokerage accounts - Answer asset management account
money market mutual fund
major differences between depository account types? - Answer account balance
required, interest, and number of checks allowed per month
financial intermediaries - Answer depositories
non-depositories
investment intermediaries
government agencies
depositories - Answer banks
savings banks
credit unions
savings and loans
non-depositories - Answer insurance companies
financing companies
pension plans
investment intermediaries - Answer brokerage companies
mutual fund companies
venture capital firms
investment banks
Principles of Personal Finance - Answer 1. Knowledge of Personal Finance
2. Focus on Cash Flow (discipline, tax minimization, liquidity)
3. Value in Creating Financial Plan (financial and risk management process)
4. Healthy Behavior (taking action, avoid, self-sabotage)
Pieces of the Financial Planning Puzzle - Answer -cash management
-debt management
-planning for educational needs
-insurance and risk management
-income tax strategy
-retirement planning
-investments
-estate planning
Strategic Planning Process - Answer -understand your situation
-identify your goals and priorities
analyze current plan
-synthesize updated plan
-implement plan
-monitor and adapt
Stages of Life Cycle - Answer 1. Accumulation
2. Consolidation
3. Spending and Gifting
Net Worth - Answer Total Assets - total liabilities
Assets - Answer cash and cash equivalents, investments, use assets
Liabilities - Answer current liabilities, long-term debt
cash flows - Answer income, fixed expenses, variable-fixed expenses, taxes,
discretionary expenses, surplus
,Ratio Analysis - Answer -liquidity funds
-housing debt payment ratio
-consumer debt payment ratio
-total debt payment ratio
-savings ratio
liquidity funds ratio - Answer 3-6 months of emergency funds
short term assets / monthly non-discretionary expenses
housing debt payment ratio - Answer ≤28% of gross income (more if housing is more
expensive)
housing liabilities / gross income
consumer debt payment ratio - Answer 10-20% of take-home pay
total consumer debt PAYMENTS / net income
total debt payment ratio - Answer 36-38% of gross pay
savings ratio - Answer 5-10% of gross income
total savings / gross income
Tax Form 1040 - Answer Gross Income - "above the line" deductions = adjusted gross
income (AGI)
AGI - "below the line" deductions = taxable income
taxable income x tax rate = income liability
income liability - tax credits = TAX DUE
gross income - Answer the total amount of income from wages before any payroll
deductions, as well as capital gains
"above the line" deductions - Answer -qualified student loan interest (subject to limit)
-IRA contributions (pre-tax contribution, subject to limit)
-early withdrawal penalties (CDs)
-health savings account
-self-employed health insurance (includes self, spouse, dependents, etc.)
-self-employed retirement account (50% FICA, retirement plans)
,"below the line" deductions - Answer un-reimbursed medical expenses (subject to AGI
floor)
state and local taxes (income, property, and sales, subject to cap)
home mortgage and home equity loan interest (subject to cap)
charitable contributions (subject to cap)
progressive ordinary tax rate - Answer a combination of taxes paid on each successive
bracket you pass, minus the max income of the previous bracket
capital gain tax rate - Answer long term is better than short term--hold asset for at least
a year and one day
Tax reduction strategies - Answer -reduce reportable income
-increase above-the-line adjustments
-increase below-the-line adjustments
-utilize tax credits
Budgeting process - Answer 1. estimate income
2. set realistic surplus goal
3. evaluate expected spending needs
4. draft and fine-tune spending and savings plan
5. monitor spending
6. assess variances
7. adapt
Employer income - Answer FICA
W-2 (report of inflows to IRS)
W-4 (allowances to take out for taxes)
employee benefits (exempt from income)
take-home pay
types of liquid assets - Answer cash
depository accounts
liquid securities
, brokerage accounts
depository accounts - Answer checking account
NOW account
savings account
money market deposit account
liquid securities - Answer certificate of deposit
US treasury bills
US savings bonds
brokerage accounts - Answer asset management account
money market mutual fund
major differences between depository account types? - Answer account balance
required, interest, and number of checks allowed per month
financial intermediaries - Answer depositories
non-depositories
investment intermediaries
government agencies
depositories - Answer banks
savings banks
credit unions
savings and loans
non-depositories - Answer insurance companies
financing companies
pension plans
investment intermediaries - Answer brokerage companies
mutual fund companies
venture capital firms
investment banks
