Financial Planning in Action
Jordan earns $2,800 per month. He sets a goal to “be rich someday.” He does not track spending and has no written plan.
This is the missing component preventing effective financial progress.
What is a specific, measurable financial goal (or a written financial plan)?
Luis earns $4,000 monthly gross. Taxes and deductions total $1,050.
This is his net monthly income.
What is $2,950?
A family’s rent is $1,200. Their electric bill fluctuates monthly.
Rent is this type of expense, while electricity is this type.
What are fixed and variable expenses?
A customer wants lower fees and member ownership structure.
This institution best fits that preference.
What is a credit union?
A $1,000 loan at 10% simple interest for one-year results in this interest amount.
What is $100?
Maria keeps $15,000 in cash at home for five years while inflation averages 4%. She earns no interest.
This financial principle explains why her money loses real value.
What is loss of purchasing power due to inflation?
Tasha spends $20,000 on a certification expected to increase her salary by $8,000 annually.
This is the concept that justifies the investment if returns exceed costs over time.
What is investing in human capital?
Andre earns $3,200 per month. Expenses total $3,450. He uses a credit card to cover the difference.
This financial condition is occurring.
What is a budget deficit leading to increased debt?
Monica has $100 in her checking account and makes a $140 debit purchase. The bank approves it and charges a $35 fee.
This banking action has occurred.
What is an overdraft?
Card A: 18% APR
Card B: 22% APR with rewards
If balances are carried monthly, this is the financially wiser choice.
What is the lower APR card (Card A)?
Eli wants to buy a car in 8 months, start investing for retirement, and pay off $3,000 in credit card debt at 21% APR.
Based on sound financial planning principles, this should be his first priority.
What is paying off the high-interest credit card debt?
Devon works as an independent contractor without employer-provided health insurance or retirement benefits.
This financial planning step becomes especially critical for him.
What is budgeting for self-funded benefits and tax planning (or building an emergency fund)?
Assets: $8,000 savings, $12,000 car
Liabilities: $5,000 student loan, $3,000 credit card
This is Andre’s net worth.
What is $12,000?
(Assets $20,000 – Liabilities $8,000)
Marcus shares his debit PIN with a friend who withdraws funds without permission.
This financial risk category is illustrated.
What is identity theft or fraud risk due to poor security practices?
Emma misses two credit card payments.
This major factor in her credit score is negatively affected.
What is payment history?
Nina chooses a job paying $50,000 with no benefits over one paying $47,000 with health insurance and retirement matching worth $6,000 annually.
This concept must be evaluated to determine the better total compensation.
What is opportunity cost (or total compensation analysis)?
A worker notices FICA, federal income tax, and state income tax deducted from her paycheck.
These deductions represent this broader financial category.
What are mandatory payroll withholdings (or statutory deductions)?
Priya has $500 saved and $2,500 in credit card debt at 19% APR.
This balanced approach reflects best practice.
What is building a small starter emergency fund while aggressively paying high-interest debt?
Sophia keeps all savings in a certificate of deposit (CD) but needs immediate emergency cash.
This financial principle explains her problem.
What is lack of liquidity?
Jamal has:
• $800 at 24% APR
• $4,000 at 18% APR
• $6,000 at 6% APR
From a purely mathematical standpoint, this repayment method minimizes total interest.
What is the debt avalanche method?