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Exam 24: Managing Personal Finances

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Question 91

Multiple Choice

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In preparing an income statement for yourself, the wages from your job would be shown as

A) your revenue.
B) an expense.
C) an asset.
D) your owner's equity.

E) B) and C)
F) A) and C)

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Question 92

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Whole life insurance premiums provide the insured with both pure insurance and a savings plan.

A) True
B) False

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Question 93

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Financial planners encourage individuals to borrow only to cover immediate expenses.

The chances of becoming disabled at an early age are much higher than your chances of dying from an accident.

The biggest advantage of the Roth IRA is that

Social Security is the term used to describe the Old Age, Survivors, and Disability Insurance Program.

Ricky wants to decrease his current taxable income and save for retirement. He should consider a traditional IRA.

Unlike whole life policies, a universal life insurance policy typically invests part of the premium in very aggressive, high-risk assets.

Mini-Case Ira Roth and Penny Weiss met and married in the early 2000s, during their days at State University. Both came from families with limited financial resources. They had to work at part-time jobs during school, and still needed student loans to help pay for their college education. Ira and Penny shared a strong work ethic and had a great desire to succeed financially and enjoy the good life. Penny and Ira quickly experienced financial success. Ira used his finance degree and extensive knowledge of computers to obtain a high-paying job in banking. Penny, who cleaned homes to earn money during college, used her experience to start her own business. Her entrepreneurial spirit surprised Ira and their friends, and she built a successful cleaning business with a growing base of residential clients and even a few commercial customers. She soon had to hire several part-time employees to keep up with demand. With money rolling in, Ira and Penny began to live the good life, buying an expensive new car, a state-of-the-art home electronics, and expensive wardrobes. As busy as they were, and as hard as they both worked, they often found it easier to dine at a nice restaurant rather than fix meals at home. When the Great Recession hit later in the decade, Ira was lucky enough to keep his job, but was forced to take a significant pay cut. The economic downturn forced some of the households and businesses that used Penny's company to cut back on professional cleanings, so her business suffered too. Soon the couple was struggling to pay the rent on their upscale apartment. They began relying on credit cards to cover expenses, but after a few months the credit limits on their cards had been reached. They fell behind in paying off their student loans and started getting some unpleasant calls from bill collectors. The stress and frustration led to arguments that began to threaten their personal relationship. With their personal finances out of control, Ira and Penny knew that they had to make changes to save not only their financial dreams, but also their marriage. However, they were at a loss as to where to start. Family members encouraged them to seek the advice of a financial planner. The couple reluctantly agreed that this was something they needed to do. -Once Ira and Penny achieved a more solid financial foundation, they began to consider the purchase of a home. From a financial standpoint, a sound strategy for them to consider would be to

From a financial viewpoint, it is best to buy a

Dani has prepared her personal balance sheet and found that her total assets are $54,000 and her total liabilities (largely college loans) are $48,000. What does this show for Dani?

The number of workers paying into Social Security for each retiree receiving Social Security benefits is

Mini-Case Ira Roth and Penny Weiss met and married in the early 2000s, during their days at State University. Both came from families with limited financial resources. They had to work at part-time jobs during school, and still needed student loans to help pay for their college education. Ira and Penny shared a strong work ethic and had a great desire to succeed financially and enjoy the good life. Penny and Ira quickly experienced financial success. Ira used his finance degree and extensive knowledge of computers to obtain a high-paying job in banking. Penny, who cleaned homes to earn money during college, used her experience to start her own business. Her entrepreneurial spirit surprised Ira and their friends, and she built a successful cleaning business with a growing base of residential clients and even a few commercial customers. She soon had to hire several part-time employees to keep up with demand. With money rolling in, Ira and Penny began to live the good life, buying an expensive new car, a state-of-the-art home electronics, and expensive wardrobes. As busy as they were, and as hard as they both worked, they often found it easier to dine at a nice restaurant rather than fix meals at home. When the Great Recession hit later in the decade, Ira was lucky enough to keep his job, but was forced to take a significant pay cut. The economic downturn forced some of the households and businesses that used Penny's company to cut back on professional cleanings, so her business suffered too. Soon the couple was struggling to pay the rent on their upscale apartment. They began relying on credit cards to cover expenses, but after a few months the credit limits on their cards had been reached. They fell behind in paying off their student loans and started getting some unpleasant calls from bill collectors. The stress and frustration led to arguments that began to threaten their personal relationship. With their personal finances out of control, Ira and Penny knew that they had to make changes to save not only their financial dreams, but also their marriage. However, they were at a loss as to where to start. Family members encouraged them to seek the advice of a financial planner. The couple reluctantly agreed that this was something they needed to do. -One of the first things the financial planner is likely to have them do would be to

People who have health insurance seldom need disability insurance.

The best way to save money is to pay yourself first.

One strategy used to lower car insurance premiums is to choose a policy with a large deductible.

The benefit of opening an IRA while you're young is the compounding of the money invested tax-free over your working lifetime.

Keogh plans are most useful for stockholders of major corporations who earn most of their income from dividends rather than wages or salaries.

A Keogh retirement plan would be used by a(n)

A traditional IRA affords workers who qualify the opportunity to deduct from their reported income the money they put into a qualified retirement account.