UNIVERSITY OF DAR ES SALAAM
BUSINESS SCHOOL
Department of Finance
FN207: Personal Finance
Review Questions Topic 3 Budgeting and Measuring Your Financial Wealth
1. Why is it necessary to understand financial statements? Why is it necessary to create your
own personal financial statements?
2. What two personal financial statements are most important to personal financial
planning?
3. What is a budget? What is the purpose of a budget? How can a budget help when you are
anticipating cash shortages or a cash surplus?
4. What is the process of creating an effective budget?
5. Name the four types of assets. Briefly define and give examples.
6. What is the main difference between the “old way” and the “new way” of budgeting?
Why is this so important to the success of your financial plan?
7. Why is it important to calculate your net worth? What does your net worth say about your
financial position? What is a “good” net worth?
8. Ryan and Nicole would like to trade in one of their cars with a fair market value of
TZS7,000,000 for a new one with a fair market value of TZS21,500,000. The dealer will
take their car and provide a TZS15,000,000 loan for a new car. If they make this deal,
what will be the effect on their net worth?
9. Jarrod is a college student. All of Jarrod’s disposable income is to pay his college-related
expenses. While he has no liabilities (Jarrod is on scholarship), he does have a credit card
that he typically uses for emergencies. He and his friend went on a shopping at Mlimani
City in Dar es salaam costing TZS200,000, which Jarrod charged to his credit card. Jarrod
has TZS20,000 in his wallet, but his bank accounts are empty. What is Jarrod’s current
ratio? What does this ratio indicate about Jarrod’s financial Position?
10. Steve and Mary Mponda, both 35 years old, own a house worth TZS150,000,000 and
have a yearly income of TZS50,000,000 monetary assets of TZS5,000,000 two cars worth
TZS20,000,000 and furniture worth TZS10,000,000. The house has a TZS100,000,000
mortgage, they have college loans of TZS10,000,000 outstanding, and the cars have
outstanding loans of TZS10,000,000 each. Bills totaling TZS1,150,000 for this month
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have not been paid (TZS1,000,000 is to pay off their credit card that they use for bills).
They are requesting your help.
Calculations
a. Using the data above, create a balance sheet to calculate Steve and Mary
Mponda’s net worth.
b. How are they doing?
11. Steve and Mary Mponda, who make TZS50,000,000 per year, calculated their average tax
rate at 15 percent. They contribute 12 percent of their income to charity and pay
themselves 10 percent of their income. They have 25 years and TZS100,000,000
remaining on their 6-percent mortgage (TZS7,730,000 per year), three years and
TZS20,000,000 remaining on their 7-percent auto loan (TZS7,410,000), and 10 years and
TZS10,000,000 remaining on their 3-percent college loan (TZS1,160,000). In addition,
utilities and property taxes were TZS2,270,000 per year, food was TZS6,000,000
insurance was TZS1,500,000 and other expenses were TZS5,430,000.
Calculations
a. Calculate their income statement using the “better” method, and round values to
the nearest TZS10,000.
b. How are they doing?
12. Steve and Mary Mponda would like you to help them understand where they are
financially. You have Steve and Mary Mponda’s balance sheet and income statements,
which were prepared earlier (Questions 10 & 11).
Calculations
a. They ask for help to calculate each of the six key liquidity, debt, and savings
ratios.
b. Using the data and calculations, comment on how well they are doing. What can
and should they be doing to improve?
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