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Related Flashcards
Cards In This Set
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List and explain four common concerns that should guide all financial plans.
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Flexibility (must be flexible to respond to changes in life/unexpected events), liquidity (access to cold, hard cash is important for unplanned events), protection (insurance offers to prevent financial ruin for unforeseen events), minimization of taxes (maximize the cash that is available to you AFTER taxes have been paid)
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Define career planning. How is it related to financial planning?
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Career planning is the process of identifying a job you feel is important and will lead to the lifestyle you want. Consider interests, skills, values, traits, desired lifestyle. Personal financial planning allows you to be realistic about your finances (act your wage)
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Define "diversification" and give an example to illustrate each concept.
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Diversification is the acquisition of a variety of different investments instead of just one to reduce risk (don't put all your eggs in one basket). That way if one investment goes bust, another will hopefully make up for the loss.
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Define liquidity and give an example to illustrate each concept.
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Liquidity is the relative ease/speed you can convert noncash assets into cash. You want enough liquid funds to cover 3-6 months.
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Estate planning
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Planning for your eventual death and the passage of your wealth to your heirs
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Inflation
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An economic condition in which rising prices reduce the purchasing power of money
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Compound interest
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Interest paid on interest. This occurs when interest paid on an investment is reinvested and added to the principal, thus allowing you to earn interest on the interest, as well as on the principal
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