Basic Building Blocks of Successful Financial Management Review Questions
- What are the three primary components of the financial planning process? Why is it graphically shown as a pyramid?
- What four strategies are important to cash management?
- Explain the two financial statements that are critical to effective cash management.
- What factors affect the amount needed for an emergency fund?
- Why might it be a good idea to subdivide your emergency fund among different short- and intermediate-term savings vehicles?
- Why is planning for risk management crucial to the success of a financial plan?
- Why might an income tax refund alert you to evaluate your tax withholding?
- Changing IRS rules regarding IRAs, interest deductibility, and capital gains on a primary residence are just a few of the reasons you must continually review your financial plan. How did the change on the taxation of profits from the sale of a primary residence affect homeowners?
- List the tangible and intangible benefits of identifying financial goals, the first step in wealth accumulation.
- Name two indicators that you may be headed for a debt problem.
- Investing is a recommended step within wealth accumulation, but debt repayment should occur first. Why? How might debt repayment affect your emergency cash reserve, a component of wealth accumulation?
- Why might a home be best considered as a day-to-day necessity and not an investment for the future?
- Investments are fundamental to wealth accumulation, but should occur after a strong financial foundation has been established. What foundation strategies are necessary?
- Funding the costs of children’s education and retirement are unique components of wealth accumulation. What common financial strategies should be considered to accomplish these goals?
- Explain the three-legged stool analogy for retirement planning. Why might a fourth leg be needed for balance in the future?
- According to many estimates, most adults in the U.S. die intestate. What does this mean and how can it be avoided?
Just Do It!! Acting on What You Learned
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1.Improve your cash management strategies by calculating a net worth statement and spending plan (budget). For examples of different formats, consult the following
2.To compare rates for various accounts for your emergency reserve fund, review the following:
- To locate high yielding CDs.
- [http:www.publicdebt.treas.gov www.publicdebt.treas.gov ]
- To open a U.S. Treasury Direct account for purchasing securities.
- To compare money market mutual fund yields. Remember that initial deposits to open an account can range from $250 to $10,000, depending on the company. Shop around for the highest yielding account with features that meet your needs.
3.The Internet offers a variety of sites for learning about insurance. Check out the following to get you started learning more about alternatives for managing your risk exposures. Start by compiling a complete list of risk exposures you should consider. Are you currently self-insured, covered by a personal policy, or covered by an employer-provided policy? What future situations might impact your risk management strategies
4.Visit Saving for College at www.money.com to learn more about college savings. To learn more about tax advantaged savings alternatives learn about the Coverdell Education Savings Account (ESA) formerly known as the Education IRA (discussed in Unit 7), Series EE and I U. S. Savings Bonds (discussed in Unit 5), and Qualified State Tuition Plans, or what are sometimes called 529 plans. To learn more about 529 Plans, visit the College Savings Plans Network Website at www.collegesavings.org or visit www.savingforcollege.com for a review of the plans offered by all participating states.
5.How do you evaluate the stability of your retirement stool? Review your Personal Earnings and Benefit Estimate Statement as well as other statements regarding your funding for retirement. Depending on your situation, you may want to visit your personnel or benefits office of your employer for more information. To estimate the amount of savings needed at retirement, calculate the Ballpark E$timate on www.asec.org.
6.A will is the foundation of an estate plan. Other documents are needed to reflect your wishes regarding your finances and your health care should you unable to make decisions for yourself. To learn more about these, visit the following: