financial decisions and goals. what is personal finance? everything in your life that involves money...
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FINANCIAL DECISIONS AND GOALS
What is Personal Finance?
EVERYTHING IN YOUR LIFE THAT INVOLVES MONEY
SpendSaveInvestLive comfortablyFinancial securityAchieve goals
What are Goals?Things you want to accomplishCollege educationBuying a carOccupation
Benefits of Financial PlanningMore moneyFinancial securityUse moneyGoalsDebt you can handleSupport self and family
The Financial Planning Process(6 steps)Determine your Current Financial
SituationDevelop Your Financial GoalsIdentify Your OptionsEvaluate Your AlternativesCreate and Use Your Financial Plan of
ActionReview and Revise Your Plan
Step 1:Determine Your Current SituationSavingsMonthly IncomeMonthly ExpensesDebts (money owed to others)
Step 2:Develop Your Financial GoalsWhat is your “Attitude” about money?
What are your “Values”Needs vs. Wants
Step 3:Identify Your OptionsExpand Current SituationChange the Current SituationStart Something NewContinue the Same Course of Action
Step 4:Evaluate Your AlternativesSources of Financial InformationConsequences of Choices
(Opportunity Cost/Tradeoff)Understanding Risks
InflationInterest Rate RiskIncome RiskPersonal RiskLiquidity Risk
Step 5:Create/Use Your Financial Plan
Step 6:Review and Revise Your Plan
Types of Financial GoalsShort-Term
< 1 yearIntermediate
2 – 5 yearsLong-Term
> 5 years
Goals for Different NeedsHow you establish and reach your
financial goals will depend on whether a goal involves the need for:
Consumable Goods
Durable Goods
Intangible Item (See Question
2)
Guidelines for Setting GoalsRealisticSpecificClear Time FrameDecide What Actions to Take
(See Page 13, Figure 1.2: Financial Goals/Life Situations)
Influences on Personal Financial PlanningLife SituationsPersonal ValuesEconomic Factors
Economy: study of decisions that go into making, distributing, & using goods & services
Economy: Ways in which people make, distribute, & use their goods & services
Economic Conditions Affecting Global and Personal Decisions
Market ForcesFinancial InstitutionsGlobal InfluencesCurrent Economic Conditions
Market ForcesSupply
Amount of goods/services available for sale
DemandAmount of goods/services people are willing to buy
Financial InstitutionsProvide services that increase financial
activity in the economyBanksCredit unionsSavings & Loan AssociationsInsurance CompaniesInvestment CompaniesFederal Reserve System (Fed) is the
central banking organization of the United States
Federal Reserve System (Fed)Regulates the Money Supply
Determines Interest RatesBuys/Sells Government SecuritiesAffects Interest Rate you earnAffects Interest Rate you payAffects to some extent…the prices of products you buy
Global InfluencesYou and the Money You Spend are
part of global marketplaceEconomy of Every Nation is Affected
by Competition with Other NationsIf more money leaves the US than enters it< money available for spending/investing
Interest rates >
Economic ConditionsConsumer Prices
Inflation: rise in level of prices for goods/servicesCaused by increase in demand w/o
increase in supplyRates on loans > during inflation
Consumer Spending> spending = > employment< spending = < employment
Interest Rates (cost of money)Price paid for the use of another’s money
Section 1.1 Assessment1. What are the 6 steps used to create
a financial plan? Pgs. 6-10Determine current financial situationDevelop your financial goalsIdentify alternative courses of actionEvaluate your alternativesCreate/Use your financial planRevise your plan
1.1 Assessment (cont.)2. What is the relationship between the
timing of your goals and the type of good or service that you want? Pgs. 10-11
Consumable = Short term Goals: you buy often, use up quickly (gas, food), costs less
Durable = Intermediate or Long term goals: usually more expensive (i.e.car, house..takes longer to save for or pay off
Intangible = Long term goals: usually requires more planning, more expense (i.e. education, retirement)
1.1 Assessment (cont.)3. What are two economic factors that affect financial
decisions? How might these factors influence your financial planning? Pgs. 14-18
Market forces: supply/demand (high demand = higher cost, low demand = lower cost)
Financial institutions: Affects the interest rate you earn on savings and pay on borrowed money
Global influences: If other countries sell more goods to the U.S. than U.S. companies sell in those markets, less money is available for spending & investing, interest rates may rise
Economic conditions: inflation (increase in demand w/o increase in supply) consumer spending helps create jobs (less spending = fewer jobs) interest rates = cost to borrow
1.1 AssessmentWhy is it important to distinguish
between your need and your wants?
Basic needs can be satisfied through different wants, some of which may cost less than others
(where/how you live)
KNOW FOR QUIZ:InflationSteps in financial planning
processInterestOpportunity CostLiquidityConsumable Goods