Page 577 - Introduction to Business

CHAPTER 15 Personal Financial Planning 551

Can two live as cheaply as one? No, but most families grow old gracefully. When many people reach
that want to live on one wage earner’s income can retirement age, they are financially unprepared; yet they
probably do so. Many people erroneously believe that may live 20 to 30 percent of their entire life span after
two incomes are essential to afford the basic needs of a retirement.
modern family. The fact is that the financial benefits of
a second income are often exaggerated. LEARNING OBJECTIVE 7
Identify the goals of tax planning.
LEARNING OBJECTIVE 5
Most Americans must file a tax return each year and
Describe how to make wise investments, including
an evaluation of risk and return. must maintain accounting records to supply data for
the tax return. Accounting records include the
Setting aside money on a monthly basis is the best way taxpayer’s customary financial records, as well as
to accumulate wealth. Saving money and investing it specialized records and data as may be necessary to
should become a habit. When you consider any support entries on a tax return.
investment, remember that risk and return are a trade-
off. As a rule, higher rewards are earned only by riskier LEARNING OBJECTIVE 8
investments. State the ethical issues associated with personal
financial planning.
LEARNING OBJECTIVE 6
Virtually everyone knows that money does not bring
List retirement and estate planning considerations.
lasting happiness. Attaining wealth for no reason but to
The earlier you start to plan for retirement, the better be rich would be utter folly, but managing money to
you can solidify your financial position. You’ll need a achieve appropriate goals and objectives is true
solid nest egg of retirement investments to allow you to wisdom.

Chapter Questions 8. Describe some of the Web resources that can assist
you with financial planning.
1. What is the purpose of personal financial 9. What are some basic types of insurance?
planning? 10. Define investment risk.
2. Describe the components of a personal balance 11. What is asset allocation? Why is diversification
sheet and how to calculate net worth. important?
3. Define liquidity. 12. Describe the two purchasing strategies for making
4. Describe the five stages in life and how they affect equity investments: dollar cost averaging and
your financial needs. market timing. Which method do you recommend
5. Prepare your cash flow budget (use the worksheet and why?
provided in Exhibit 15.4). Do you have a net cash 13. Why should you have a will?
inflow or net cash outflow? 14. What are the five ethical uses of money?
6. What is an envelope budget? 15. Use the information about Jacob Lawrence’s
7. How can computer software help you gain control checkbook below and prepare a bank
of your finances? reconciliation for him.

Check
Date No. Item Check Deposit Balance
9/1 $ 525
4 622 Abe’s Country Grocery $ 19 506
9 Dividends received $ 116 622
13 623 Dependable Tire Co. 43 579
14 624 ExxonMobil Oil Co. 58 521
18 625 Cash 50 471
26 626 Grace Bible Church 25 446
28 627 Bent Tree Apartments 275 171
30 Paycheck 1800 1971
(continued)

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