DSST Personal Finance Study Guide
- DTP Success Team
- Feb 19, 2022
- 5 min read
Updated: Feb 14, 2024
DSST Personal Finance Exam Outline
Are you preparing to tackle the DSST Personal Finance exam?
Get ready for a rewarding journey into personal finance concepts and practices.
Our comprehensive study guide is designed to equip you with the essential knowledge to ace the exam.
We'll cover everything, from budgeting and saving to investments and retirement planning.
Join us as we delve into personal finance and prepare you for success on exam day!
Table of Contents
1. Foundations
Foundations of Personal Finance
Financial goals are essential for guiding your financial decisions.
For instance, if you aim to retire early, you might prioritize saving and investing over spending on non-essential items.
Budgeting is the cornerstone of financial planning.
Creating and following a budget ensures you live within your means and work toward your financial goals.
Understanding financial statements, such as income and balance sheets, can help you assess your health and make informed financial decisions.
Effective cash management involves managing your income and expenses to ensure you have enough cash for your needs while maximizing savings and investments.
Budgeting Basics
Budgeting is crucial for tracking your income and expenses.
For example, if you budget $500 for groceries each month but consistently spend $600, you may need to adjust your budget or find ways to reduce your grocery costs.
Economic Terminology
Understanding economic terms like recession, depression, inflation, and deflation can help you interpret economic news and make informed financial decisions.
For example, during a recession, you might prioritize saving and reduce your spending on non-essential items.
Institutional Influence on Financial Planning
Financial institutions like banks play a significant role in financial planning.
For example, choosing a bank with low fees and competitive interest rates can help you maximize your savings and investments.
Time Value of Money
The concept of the time value of money is fundamental in finance.
For example, investing $1,000 today at an annual interest rate of 5% will be worth $1,050 in one year.
Understanding this concept can help you make strategic investment decisions.
DSST Personal Finance Trivia Question # 932
2. Credit and Debt
Consumer Credit
Consumer credit allows individuals to purchase goods or services and pay for them over time, typically in installments.
It enables people to make purchases they might not be able to afford upfront, such as buying a car or furniture.
Bankruptcy
Bankruptcy is a legal process that individuals or businesses can use to manage overwhelming debt.
It involves either liquidating assets to repay debts or creating a repayment plan.
It provides a fresh start for individuals struggling with debt but can have long-term financial consequences.
3. Major Purchases
Auto
When deciding whether to rent or buy a vehicle, individuals must consider various factors, such as the initial cost, ongoing maintenance expenses, insurance costs, and potential savings associated with each option.
For example, while buying a car may involve higher upfront costs, owning the vehicle outright can lead to long-term savings compared to leasing.
Housing
Whether to rent or buy a home involves evaluating factors such as the initial cost, yearly expenses (including mortgage payments, property taxes, and maintenance), opportunity costs (the potential return on investment if the money used for a down payment were invested elsewhere), and selling costs (such as real estate agent commissions and closing costs).
Other Significant Purchases
For items like jewelry, boats, or high-cost furniture, individuals should consider the item's value, potential resale value, ongoing maintenance costs, and whether it is insurable.
These factors can help determine whether the purchase is financially sound in the long run.
4. Taxes
Payroll Deductions
Payroll taxes are mandatory deductions from an employee's paycheck, including federal and state income taxes, Social Security taxes, and Medicare taxes.
These deductions are required by law and are used to fund government programs.
Income Tax
Income tax is a tax imposed by governments on the financial income generated by individuals and entities within their jurisdiction.
It is calculated based on the income earned and funds government operations and services.
Tax Planning
Tax planning involves strategies to minimize tax liability by legally reducing taxable income or taking advantage of deductions and credits.
Examples include deferring income to the following year, accelerating deductions into the current year, and utilizing expiring tax provisions to reduce taxes owed.
5. Insurances
Life Policies
Term life insurance offers the most coverage for the least amount of money and is the appropriate choice for most people.
It provides coverage for a specified term, typically 10, 20, or 30 years, and pays a death benefit if the insured dies during the policy term.
Property and Liability Policies
Property and liability insurance policies protect against financial losses due to damage to property or legal liabilities.
Examples include personal and family insurance, auto insurance, homeowners insurance, and umbrella coverage, which provides additional liability coverage beyond the limits of other policies.
Health, Disability, and Long-Term Policies
Primary Medical insurance covers the expenses of severe illness or hospitalization.
Disability insurance provides income protection if you become disabled and cannot work.
Long-term care insurance covers the costs of long-term care services, such as nursing home care or in-home care, not typically covered by health insurance.
6. Investments
Savings Accounts and Money Markets
Savings and money market accounts allow you to keep your money safe while earning monthly interest.
They are low-risk options for storing your money and are typically offered by banks and credit unions.
Stocks, Bonds, and Mutual Funds
Stocks represent ownership in a company and can potentially offer higher returns but also come with higher risks.
Bonds are debt securities issued by governments or corporations to raise capital, offering fixed interest payments over a specified period.
Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities.
Sources of Information
Moody's, Morningstar, Barron's Confidence Index, Standard & Poor's (S&P), and other financial research firms provide valuable information and analysis on stocks, bonds, and mutual funds.
They offer ratings, reports, and indexes that investors use to make informed decisions.
DSST Personal Finance Trivia Question # 727
7. Retirement and Estate Planning
Funding Retirement
Individual Retirement Accounts (IRAs), including Roth IRAs and Conduit IRAs, are popular retirement savings vehicles.
They offer tax advantages and allow individuals to save for retirement.
Social Security
Social Security benefits are based on prior earned income and the years the retiree paid into the Social Security system.
It provides a financial safety net for retirees, disabled individuals, and survivors of deceased workers.
Estate Planning
Estate planning involves arranging for the conservation and transfer of property from one person to another person or entity.
It includes creating wills, trusts, and other legal documents to ensure that assets are distributed according to the individual's wishes after death.
8. Conclusion
DSST Personal Finance
To succeed on the DSST Personal Finance exam, mastering budgeting, setting financial goals, and comprehending the time value of money is crucial.
This guide provides a solid foundation for your studies, covering key concepts and strategies.
Consider enrolling in our Personal Finance prep course to enhance your preparation.
Start your journey to exam success today!
9. Student Resources
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