Fundamentals of Financial Planning
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Questions and Answers

What is financial planning?

Financial planning is the process of taking a comprehensive look at your financial situation and building a specific financial plan to reach your goals.

What is the first objective of financial planning?

Preparing a budget that fits your financial plan, enabling you to track your income and expenditures and minimize your expenses.

What is savings?

Savings refers to the money that a person has left over after they subtract out their consumer spending from their disposable income over a given time period.

What is the difference between investment and expenditure?

<p>Investment is the purchase of goods that are not consumed today but are used in the future to generate wealth, while an expenditure represents a payment with either cash or credit to purchase goods or services.</p> Signup and view all the answers

The time value of money (TVM) surmises that money is worth more now than at a future date based on its earning potential.

<p>True (A)</p> Signup and view all the answers

What are the two factors that determine the exact time value of money?

<p>Opportunity Cost and Interest Rates</p> Signup and view all the answers

What is the first step in achieving financial discipline?

<p>Set a realistic budget.</p> Signup and view all the answers

Which of the following are examples of digital payment methods?

<p>NFC (Near Field Communication) Technology (A), QR Code Payments (B), RTGS (Real-Time Gross Settlement) (C), Debit/Credit Cards (D), NEFT (National Electronic Funds Transfer) (E), Apple Pay (F)</p> Signup and view all the answers

What is the role of the Unified Payments Interface (UPI) in India?

<p>It allows for real-time inter-bank transactions.</p> Signup and view all the answers

What are three benefits of using NFC (Near Field Communication) technology?

<p>Contactless and Fast, Security, Widely Accepted</p> Signup and view all the answers

What are two challenges faced by Indian retailers?

<p>Infrastructure and Supply Chain Constraints, Rural and Urban Divide</p> Signup and view all the answers

What is the main challenge faced by Indian retailers in terms of supply chain?

<p>Fragmented Supply Chain</p> Signup and view all the answers

What is the main challenge faced by Indian retailers in terms of rural and urban divide?

<p>Diverse Consumer Demographics</p> Signup and view all the answers

Which of the following are examples of key challenges faced by the Indian retail sector?

<p>Rising Costs and Inflation (A), Changing Consumer Preferences (B), Cultural and Regional Diversity (C), Consumer Protection and Counterfeit Products (D), Technology Adoption and Digital Transformation (E), Cash Flow Management and Access to Credit (F), Labor Force Challenges (G)</p> Signup and view all the answers

What is the main challenge faced by Indian retailers in terms of consumer preferences?

<p>Shift to Experience and Personalization</p> Signup and view all the answers

What is the main challenge faced by Indian retailers in terms of technology?

<p>Slow Digital Transformation</p> Signup and view all the answers

What is the main challenge faced by Indian retailers in terms of labor?

<p>Skill Gap</p> Signup and view all the answers

What is the main challenge faced by Indian retailers in terms of credit?

<p>Credit Constraints</p> Signup and view all the answers

What is the main challenge faced by Indian retailers in terms of counterfeit products?

<p>Counterfeit Goods</p> Signup and view all the answers

What is the main challenge faced by Indian retailers in terms of cultural and regional diversity?

<p>Adapting to Regional Preferences</p> Signup and view all the answers

The Indian retail sector is one of the largest and fastest-growing in the world, and faces many challenges as it strives to modernize and adapt to changing consumer behavior.

<p>True (A)</p> Signup and view all the answers

Flashcards

Financial Planning

A process of creating a plan to manage finances and achieve goals.

Objectives of Financial Planning

The key goals of financial planning, including budgeting and setting financial goals.

Budgeting

Creating a plan for income and expenditure to track finances.

Financial Position Analysis

Evaluating current financial situation, including income, expenses, and liabilities.

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Financial Goals

Specific targets for your finances, like retirement savings or homeownership.

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Investment Strategies

Methods chosen to grow your money over time.

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Portfolio Monitoring

Regularly checking the performance of your investments.

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Emergency Fund

Savings set aside for unexpected events or financial emergencies.

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Insurance Cover

Protecting against potential financial losses due to accidents or illnesses.

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Tax Planning

Strategies to reduce tax liabilities while staying compliant with rules.

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Saving

Money left over after spending, representing a surplus of funds.

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Investment

Purchasing goods or assets to generate wealth in the future.

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Expenditure

A payment for goods or services at a specific point in time.

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Time Value of Money (TVM)

The principle that money is worth more now than in the future due to its earning potential.

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Present Value

The current worth of a future cash flow.

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Future Value

The future worth of a present amount of money.

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Net Present Value (NPV)

The difference between the present value of cash inflows and outflows in a project.

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Internal Rate of Return (IRR)

The rate of return where the present value of cash flows equals zero.

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Annuity

A series of constant payments occurring at regular intervals.

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Perpetuity

An infinite series of constant payments occurring at regular intervals.

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Spend Management

Consolidating spending processes improving efficiency and reducing costs.

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Financial Discipline

Developing rules for spending and saving to achieve financial goals.

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Digital Payments

Electronic transactions using the internet or devices instead of physical cash.

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Debit/Credit Cards

Plastic cards for electronic payment linked to bank accounts (debit) or credit facilities (credit).

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QR Code Payments

Using QR codes to make payments via mobile apps.

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NEFT

Electronic fund transfer system with deferred settlement (not real-time).

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Study Notes

Financial Planning and Digital Payments

  • Financial planning is a process of developing a comprehensive financial plan to achieve specific goals. It often considers investing, taxes, savings, retirement, estate planning, insurance, and more.
  • This practice encompasses creating a plan to manage finances and prepare for future costs and issues. The process involves evaluation of the current financial situation, defining goals, and generating relevant recommendations.
  • Financial planning is a holistic approach focusing on a variety of financial services. It views people as individuals with complex goals and responsibilities, and considers numerous financial situations for effective financial management.
  • Key objectives of financial planning include preparing a budget, determining current financial position and setting up financial goals (e.g., retirement; savings, home purchase, etc.).

Importance and Benefits of Financial Planning

  • Preparing for future financial needs includes saving for major purchases, children's education, and retirement.
  • Understanding financial priorities helps to determine the most important spending and provides a framework for making financial decisions.
  • Planning for different life stages is crucial. It helps adjust finances based on life changes such as marital status, parenthood, and retirement.
  • An emergency fund is suggested for unexpected expenses, acting as security and stability.
  • Calculating suitable insurance coverage is an important part of planning for potential future emergencies.

Time Value of Money (TVM)

  • Time Value of Money (TVM) suggests that money available today is worth more than the same amount in the future due to its potential earning capacity.
  • Present Value (PV) is the value today of a future cash flow.
  • Future Value (FV) is the value a present cash flow will be worth in the future.
  • Factors such as interest rate and time period significantly impact the time value of money calculations.
  • Methods for analyzing TVM include present value calculations, future value calculations, net present value analysis, internal rate of return determination, and annuity evaluations.

Spending Management

  • Spending management is about digitally transforming sourcing, contracts, purchases and processes for managing suppliers and payments.
  • A centralised intelligent process helps gather and analyze spending data on a global basis, understanding spending patterns, and frequency.
  • It helps improve process efficiency, lower supply costs, and improves teamwork and cross-functional collaborations, directing efforts to strategic activities.

Financial Discipline

  • Financial discipline is creating a set of rules to achieve specific financial goals that involve informed decisions on spending and saving. It's a crucial skill for gaining control over finances for a stable and secure future.
  • Taking steps such as setting a budget, listing debts for settlement, creating an emergency fund, cutting costs and making a future plan helps achieve a more stable financial situation.

Modern Digital Payments

  • Digital payment systems facilitate transactions online, on mobile devices, and through platforms
  • Payment methods like UPI (Unified Payments Interface), BHIM (Bharat Interface for Money) or QR codes and others are used in India.
  • Modern digital payments offer faster, secure and efficient transactions, impacting various sectors and streamlining procedures for individuals and businesses alike.

Specific Digital Payment Systems

  • Debit/Credit Cards: allow for electronic payments, linked to bank accounts or as borrowing at the holder's limit. They provide convenience, security and reward points; potential challenges however include credit card debt, fraud and fees.
  • QR Codes: are used for contactless payments using smartphones and do not require physical cards. Their benefits are ease of use, no need for POS terminals, lower transaction costs, and financial inclusion for small businesses. A challenge is device dependency and security concerns related to fake codes.
  • NEFT (National Electronic Funds Transfer): a deferred settlement system for transferring money between accounts using bank platforms which is a cost-effective but not real-time method.
  • RTGS (Real-Time Gross Settlement): a real-time system for high value transactions. It enables immediate interbank transactions, supporting business or institutional transactions. While its benefits include immediate settlement and high transaction limits, access to larger amounts is required, and it depends on banking hours.
  • Apple Pay: a mobile digital payment service using Apple devices for storing credit, debit, or prepaid cards. It offers convenience, security, and wide acceptance but has limitations in availability and reliance on Apple devices.
  • NFC Technology: a short-range wireless technology that allows for secure and quick payments using compatible devices (smartphones, and cards) at POS terminals. It's contactless, fast, secure, and widely accepted; however, privacy concerns may exist.

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Chapter 2 Financial Planning and Digital Payments PDF

Description

This quiz covers essential concepts of financial planning, including savings, investments, and the time value of money. Explore the objectives and challenges related to financial discipline and digital payment methods in India. Test your knowledge on how these factors play a role in successful financial management.

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