financial studies topic 5- unit 2

how is net balance calculated?
by adding all deposits to the initial deposit and deducting all payments made
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what is meant by "long term objectives can be determined by what happens in the short term"?
for example someone who has already taken out a mortgage has already agreed to make monthly repayments and these can affcet the monthly budget
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what are 3 examples of planned events in the long term?
going to university, buying a house or having a big wedding or civil ceremony
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what is an example of a positive unplanned event and a negative unplanned event?
positive- ones which bring in more money such as winning the lottery or getting a promotion or a happy event such as having children. negative- events that involve spending money or ones that involve a loss of income such as redundancy
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why is having a plan good for someone who isn't good at saving?
having a plan to show how their chosen wants and aspirations can be achieved puts a certain amount of discipline into someone's financial affairs
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what is a risk assessment and why is it important?
assessing whether there's a likelihood of an event happening. it is important as it can show positive or negative effects it might have on people
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what are the features of a good financial plan?
realistic, clear, timely, flexible and documented
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why is it important to compare the budget with the actual outcome?
to ensure that the person has an accurate idea of how much they'll spend and recieve every month
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how does monitoring inflows and outflows ensure better control?
it allows people to know in advance what their balance is likely to be at the end of the period- whether it's a surplus or deficit
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ehat are external factors which impact on how realistic a person's aspirations are?
someone may have a history of health problems and thsi may lower their risk appetite and make their aspirations less ambitious. a period of high unemployment is an external factor which could make people take a more cautious approach
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what does an audit of current resources include?
the balance on their current account and any savings accounts, their current income and expenditure, their current assets, any liabilities, their net worth and any provision for unplanned events
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what is the purpose of establishing priorities?
allows people to focus on the goals that are most important to them and helps people to be clearer about their wider aspirations
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what is opportunity cost?
the cost of something in terms of what has to be given up to achieve it
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what is meant by the consequences of slippage are more serious when repaying a loan than when saving?
the person won't have the same flexibility when repaying a debt than when they were saving
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what are the 4 main consequences of slippage
missing 1 or more repayments means they're double later, the interest owing will accumulate making the debt bigger, the lender may add penalty charges and the borrower can get an adverse credit report
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how can savings help people meet their long term financial goals?
thsi involves putting away money each month for a particular amount of time until the amount has been reached. interest can be earned which will contribute to the cost of long term aspiration
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how can borrowing help people achieve their long term financial goals?
thsi involves getting into debt in order to get the aspiration now but means a certain amount of future income is earmarked to make the repayments
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how can insurance help people to achieve their long term financial goals?
life assurance and pension funds are ways that people can save to achieve their long term aspirations, in addition there are a number of policies that allow people to cover the risk of not being able to pay back their debts
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what are the consequences for people who fail to draw up any kind of budget?
less likely to achive their wants and aspirations esp long term, they aren't in control of their finances and may not know how much they're spending, failing to make a plan can have serious consequences when people become old
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why do people need to build flexibility into plans?
because not all events are predictable
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what could someone do to restore balance in the forecast if they're behind in saving or repaying debt?
they could increase income or cut expenditure over a few months in order to make up the debt arrears
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Card 2

Front

what is meant by "long term objectives can be determined by what happens in the short term"?

Back

for example someone who has already taken out a mortgage has already agreed to make monthly repayments and these can affcet the monthly budget

Card 3

Front

what are 3 examples of planned events in the long term?

Back

Preview of the front of card 3

Card 4

Front

what is an example of a positive unplanned event and a negative unplanned event?

Back

Preview of the front of card 4

Card 5

Front

why is having a plan good for someone who isn't good at saving?

Back

Preview of the front of card 5
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