Unit
1
1. What are the three primary components of the financial planning process? Why is it graphically shown as a pyramid? (See page 1-1)
2. What four strategies are important to cash management? (See page 1-2)
3. Explain the two financial statements that are critical to effective cash management. (See page 1-2)
4. What factors affect the amount needed for an emergency fund? (See pages 1-2 and 1-3)
5. Why might it be a good idea to subdivide your emergency fund among different short- and intermediate-term savings vehicles? (See page 1-3)
6. Why is planning for risk management crucial to the success of a financial plan? (See page 1-3)
7. Why might an income tax refund alert you to evaluate your tax withholding? (See page
1-4)
8. 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? (See pages 1-4 and 1-5)
9. List the tangible and intangible benefits of identifying financial goals, the first step in wealth accumulation. (See page 1-5)
10. Name two indicators that you may be headed for a debt problem. (See page 1-6)
11. 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? (See page 1-6)
12. Why might a home be best considered as a day-to-day necessity and not an investment for the future? (See page 1-6)
13. Investments are fundamental to wealth accumulation, but should occur after a strong financial foundation has been established. What foundation strategies are necessary? (See page 1-7)
14. 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? (See page 1-7)
15. Explain the three-legged stool analogy for retirement planning. Why might a fourth leg be needed for balance in the future? (See page 1-8)
16. According to many estimates, most adults in the U.S. die intestate. What does this mean and how can it be avoided? (See page 1-8)
Just Do It!! Acting on What You
Learned
Because Internet sites change frequently, the uniform resource locator (URL) for the specific tool or page is not given below. Instead, the URL for the site, and instructions for navigating within the site are provided. It is our hope that this method will encourage you to explore and learn from the site, and more importantly, avoid the message: “Error: Site Not Found.”
Disclaimer: References to commercial sites are not an endorsement of the company or the financial products or services offered. These sites are included only because of their educational value; sites provided by competing companies may offer similar benefit. We encourage you to explore other sites of your choice.
1.
Improve your cash management strategies by calculating a net
worth statement and spending plan (budget).
For examples of different formats, consult the following
www.money.com [See Money 101]
www.kiplinger.com
www.rcre.rutgers.edu/money2000
or a personal finance book.
2. To compare rates for various accounts for your emergency reserve fund, review the following:
www.bankrate.com to locate high yielding CDs.
www.publicdebt.treas.gov to open a U.S. Treasury Direct account for purchasing securities.
www.ibcdata.com 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 M in $MART goals reminds us that goals must be measurable, motivating, and mutual. Talking with other members of the team is a critical first step. To learn more about money and relationships, as well as communication strategies, visit www.FamilyMoney.com.
4. 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
www.prudential.com/index.html see Online Tools and the Insurance page for more
information
www.money.com see Money 101 to learn about your life insurance
needs
www.northwesternmutual.com/ see Calculators to estimate your chance of disability
www.metlife.com/index.html see the Life Advice Center for information on various types of insurance.
www.statefarm.com/ see the Insurance page for information on various types of insurance.
5. 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.
6. 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/.
7. 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:
www.money.com See Estate Planning on the Money 101 page.
www.fidelity.com See Estate Planning on the Planning and Retirement page.
Notes