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Questions and Answers
The financial planning process involves identification of personal goals as its first step.
False
Building an emergency fund that can cover at least six months of living expenses is a recommended short-term goal.
False
Saving at least 5% of gross salary every year for retirement is a recommended longer-term goal.
False
Decreasing essential expenses is a step in setting initial financial goals.
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The financial planning process includes re-evaluation of financial plans and revising them when necessary.
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Monitoring budget involves tracking expenses daily.
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Buying in bulk is a recommended cost-savings measure.
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An emergency fund should be equivalent to at least 1-2 months of expenses.
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Setting up separate savings accounts for short-term needs is not recommended.
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Retirement savings is an example of a short-term need.
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Study Notes
The Personal Finance Planning Process
- The financial planning process consists of six main components: assessing financial health, identifying personal goals, developing investment objectives, creating financial plans, developing investment strategies, and monitoring performance.
- The process also involves re-evaluating and revising financial plans as necessary.
Goal Setting
- Setting both short-term and long-term goals is essential in building financial security.
- Short-term goals should be achievable within a year, while long-term goals may take decades to achieve.
- Creating a master list of goals helps in plotting a course of action and achieving financial stability.
Examples of Goals
- Short-term goals:
- Building an emergency fund to cover at least three months of living expenses.
- Limiting new credit card charges to what can be paid off in full each month.
- Long-term goals:
- Saving at least 10% of gross salary every year for retirement.
- Saving for a home down payment.
- Saving for a child's or grandchild's education.
Setting Initial Financial Goals
- Maximize positive cash flows by increasing active and passive income.
- Decrease expenses by identifying and deferring non-essential expenditures.
- Prepare a budget or spending plan and monitor it regularly.
Cost-Saving Measures
- Find cheaper accommodations to save on housing rent or reduce interest on mortgage payments.
- Negotiate with suppliers to reduce utility bills.
- Shop with a list to avoid impulse purchases and buy in bulk to take advantage of discounts.
Savings Goals
- Set up an emergency fund equivalent to at least 3-6 months of expenses.
- Establish separate savings or investment accounts for each of the short-, medium-, and long-term needs, such as purchasing a new car or funding further studies.
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Description
This quiz covers the major components of the personal finance planning process, including assessing financial health, setting goals, and developing investment strategies. Learn how to create a personalized financial plan and achieve your financial objectives.
