Topic 5: Financial Assessment

The balance sheet, also known as a net worth statement can provide information about a clients’ financial situation _________. (in the past, today, in the future)

What is the formula to determine Net Worth?

Does a positive net worth mean that a client is not in financial distress?

When categorizing assets, your client determines that they have over $5,000 in furniture and two vehicles, what type of assets are these, and how would you determine their value?

Which type of asset do we also call a liquid asset because they can be liquidated pretty easily, give an example.

Investment assets are tangible or intangible assets that generate income, like stocks, bonds or real estate. Would the home a client lives in be considered an investment asset?

Liabilities listed on a balance sheet will include all debt a client is legally obligated to pay, this does not include monthly expenses. If your client has a credit card debt of $5,500 and pays $55 monthly which amount goes on the balance sheet?

Liabilities are categorized as short term and long term, what is the time associated with each?

A cash flow statement, AKA income and expense statement is similar to a budget in that is notes a persons income and expenses, however the time period is different, how so?

Utilizing a cash flow statement, it is determined that your client has a net loss, what is the next step?

A cash flow statement shows all income and expenses for a period of time, what does this information tell us?

Income that is accounted for in a cash flow statement will include salary, alimony and child support. Give an example of another type of income that should be included that may be overlooked.

Expenses can be categorized into 3 types, list and describe each and give an example of each type of expense.

We can utilize a cash flow statement to determine net loss or gain, what is the formula to determine net loss/gain?

After completing a balance sheet and cash flow statement, we can use this information to calculate 3 types of helpful ratios. List these ratios.

The Asset to Debt Ratio determines technical solvency by assessing if a client has more assets than debts. What is the recommended rate and what is the formula to determine this ratio?

Is it possible to be technically insolvent and still be able to repay your debt?

The Basic Liquidity Ratio can be used to determine what?

What is the formula to determine Basic Liquidity Ratio, and what is the recommended rate?

Is it possible to have a lower than recommended Basic Liquidity Ratio and still have disposable income every month?

Loan officers often use the Debt Service-to-Income Ratio to determine if a client is a good credit risk, why – what does this ratio tell them?

What is the formula to determine Debt Service-to-Income Ratio, and what is the recommended rate?

We will include any recurring debt that will not be paid off w/in a year when determining a clients’ Debt Service-to-Income Ratio. Give an example of this kind of debt.

The process of setting goals, and planning income and expenditures over a period of time in the future is called what?

What is one of the suggested control methods to determine if a client is sticking to their budget?

You help a client to devise a budget and quickly determine that their monthly expenses exceed their income, together you decide that they will need to look at reducing their expenses, what type of expense are the first to look at cutting?

Some clients like to use subordinate budgets to keep track of specific spending budgets, give one example.

When helping our clients prioritize their debt, we will consider the consequences of not paying. List one high priority, medium priority and low priority debt.

According to the 16 rules of prioritizing debt, should you move a debt up in priority because the collector threatens to sue?

A secured debt is backed by or secured by collateral, how would we typically prioritize this debt?

Your client has two collection judgments against them, but their only income is social security, so they are collection proof, how would we typically prioritize this debt?

When a person is upside down in their monthly budget, with more expenses than income, there are only two options; to increase their income or lower their expenses. List a couple ways to increase income.

Eligibility for work support and public assistance programs vary slightly, however, can a single person qualify for SNAP benefits, or do they have to have a child in the home?

Groceries are likely a clients’ biggest variable expense, give one suggestion to cut this expense.

Often clients are drawn to fly-by-night companies that promise services that seem too good to be true, we will encourage them to avoid these types of companies, give an example of one of these services.

Your client needs your assistance in setting up a workable debt repayment plan; together you prioritize their debt and determine who should get paid first, and create a plan to pay off a specific amount of debt each year. How do we determine how much money our client can comfortably put towards their debt monthly?

There are many things to consider when communicating or encouraging our clients to communicate with creditors, list two.

Potential creditors will look at a consumers’ credit report, score and application to determine credit worthiness. They look for the 3 C’s of credit, what are they?

What are the three credit reporting agencies?

Give an example of someone who cannot access your credit report.

Give an example of someone who can legally access your credit report.

Where can you access a free credit report once a year?

Who is responsible for the accuracy of a consumers’ credit report?

When dealing with bad debt, there are several options, one of which is to pay off worst accounts first. Put the following bad debts in order, worst first. Charge offs – Delinquent accounts – Bankruptcy – Judgments

What are the two biggest factors used to determine the FICO credit score?

Explain what Ratio of Debt to Available Credit means and what the recommended rate is.

What is considered an excellent credit score?

Give some suggestions to rebuild credit.

There are four types of identity theft, although most people think of someone stealing our credit card number and going shopping. List the 4 types and give an example of each.

Clients should treat their personal information like they would treat cash, and should make a mental note when they have given out this information. Name two pieces of personal identification that should be protected.

One of your clients comes to you; she recently found out that she has been a victim of identity theft. She called the police and filed a report and contacted the creditors in question and closed those accounts, what other steps should she take?