FIN 1100- Midterm Exam Guide - Comprehensive Notes for the exam ( 42 pages long!)

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FIN 1100
MIDTERM EXAM
STUDY GUIDE
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PFIN CHAPTER 1- UNDERSTANDING THE FINANCIAL PLANNING PROCESS
SUMMARY AND KEY TERMS
L01- IDENTIFY THE BENEFITS OF USING PERSONAL FINANCIAL PLANNING TECHNIQUES TO MANAGE
YOUR FINANCE.
Personal financial planning helps you marshal and control your financial resources. It should allow you
to improve your standard of living, get more enjoyment from your money by spending it wisely, and
accumulate wealth. By setting short- and long-term financial goals, you’ll enhance your quality of life
both now and in the future.
L02- DESCRIBE THE PERSONAL FINANCIAL PLANNING PROCESS AND DEFINE YOUR GOALS.
Personal financial planning is a six-step process that helps you achieve your financial goals: (1) define
financial goals; (2) develop financial plans and strategies to achieve goals; (3) implement financial plans
and strategies; (4) periodically develop and implement budgets to monitor and control progress toward
goals; (5) use financial statements to evaluate results of plans and budgets, taking corrective action as
required; and (6) redefine goals and revise plans and strategies as personal circumstances change. It is
critically important to realistically spell out your short-term, intermediate, and long-term financial goals.
Your goals, which reflect your values and circumstances, may change due to personal circumstances.
Exhibit 1.3- The Six-Step Financial Planning Process
The financial planning process translates personal financial goals into specific financial plans and
strategies, implements them, and then uses budgets and financial statements to monitor, evaluate, and
revise plans and strategies as needed. This process typically involves the six steps shown in sequence
here.
1. Define financial goals.
2. Develop financial plans and strategies to achieve goals.
3. Implement financial plans and strategies.
4. Periodically develop and implement budgets to monitor and control progress toward goals.
5. Use financial statements to evaluate results of plans and budgets, taking corrective action as
required.
6. Redefine goals and revise plans and strategies as personal circumstances change.
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L03- EXPLAIN THE LIFE CYCLE OF FINANCIAL PLANS, THE ROLE THEY PLAY IN ACHIEVING YOUR
FINANCIAL GOALS, HOW TO DEAL WITH SPECIAL PLANNING CONCERNS, AND THE USE OF
PROFESSIONAL FINANCIAL PLANNERS.
In moving through various life-cycle stages, you must revise your financial plans to include goals and
strategies appropriate to each stage. Income and expense patterns change with age. Changes in your life
due to marriage, children, divorce, remarriage, and job status also necessitate adapting financial plans to
meet current needs. Although these plans change over time, they are the roadmap that you’ll follow to
achieve your financial goals. After defining your goals, you can develop and implement an appropriate
financial plan. A complete set of financial plans covers asset acquisition, liability and insurance, savings
and investments, employee benefits, taxes, and retirement and estate planning. Review these plans
regularly and revise them accordingly. Situations that require special attention include managing two
incomes, managing employee benefits, and adapting to changes in your personal situation, such as
marital status or taking responsibility for elderly relatives’ care. Professional financial planners can help
you with the planning process.
L04- EXAMINE THE ECONOMIC ENVIRONMENT’S INFLUENCE ON PERSONAL FINANCIAL PLANNING.
Financial planning occurs in an environment where the government, business, and consumers are all
influential participants. Personal financial decisions are affected by economic cycles (expansion,
recession, depression, and recovery) and the impact of inflation on prices (purchasing power and
personal income).
L05- EVALUATE THE IMPACT OF AGE, EDUCATION, AND GEOGRAPHIC LOCATION ON PERSONAL
INCOME.
Demographics, education, and career are all important factors affecting your income level. As a rule,
people between 45 and 64 years old tend to earn more than others, as do those who are married.
Equally important, that income generally increases with the level of education. Where you live is an
additional consideration- salaries and living costs are higher in some areas than in others. Career choices
also affect your level of income- those in professional and managerial positions tend to earn the highest
salaries.
L06- UNDERSTAND THE IMPORTANCE OF CAREER CHOICES AND THEIR RELATIONSHIP TO PERSONAL
FINANCIAL PLANNING.
KEY TERMS
1. STANDARD OF LIVING
2. AVERAGE PROPENSITY TO CONSUME
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