Transcript Nobody plans to fail....

1-1
Focus on Personal Finance
An Active Approach to Help You Develop
Successful Financial Skills
Dr. Steven M. Hays
Bishop Kearney High School
Fall 2010
Personal Financial Planning Objectives
1-2
1.
2.
3.
4.
Identify social and
economic influences on
personal financial goals
and decisions
Develop personal financial
goals
Assess personal and
financial opportunity costs
associated with financial
decisions
Implement a plan for these
decisions
1-3
Objective 1: Identify social and economic
influences on personal financial goals
 Financial Planning: organized process of
achieving the goals
 Financial Plan: formalized report that
summarizes your current situation, future
needs and recommended actions
1-4
Financial Planning and Its Benefits
 There are several advantages of
personal financial planning.
– Increased effectiveness in
obtaining, using, and
protecting your financial
resources.
– Increased control of your
financial affairs.
– Improved personal
relationships.
– A sense of freedom from
financial worries obtained by
looking to the future.
1-5
Assets
Income
Expenses
 You can know when to retire or work where you want
1-7
Economic
Factors
Economy’s influence on
financial planning
What is the study of
economics about?
A social science that studies
how individuals,
governments, firms and
nations make choices on
allocating scarce resources to
satisfy their unlimited wants.
 Influences on Personal Financial Planning
1-8
Economics can generally be broken down into:
macroeconomics, which concentrates on the
behavior of the aggregate economy; and
microeconomics, which focuses on individual
consumers.
 Role of the Federal Reserve in directing the
economy and indirectly personal financial
planning
1-9
Changing Economic Conditions
Consumer
prices
The value of the dollar
changes in inflation.
Consumer
spending
The demand for goods and services
by individuals and households.
Interest rates
The cost of money; cost of credit
when you borrow; return on your
money when you save or invest.
http://qrc.depaul.edu/djabon/cpi.htm
1-10
Changing Economic Conditions
(continued)
GDP: Gross
Total value of goods and services
Domestic Product produced in a country.
Trade balance
Difference between a country’s
exports and imports.
Market indexes
The relative value of stocks as
represented by the index, such as
the Dow Jones Average or the
S&P 500.
1-11
Changing Economic Conditions
(continued)
Money Supply
The dollars available for
spending in our economy.
Unemployment
The number of individuals without
employment who are willing and
able to work.
Housing starts
Number of new homes being
built.
1-12
Influences on Personal Financial Planning
Global Factors
 Role of import and export on the value of the $
 Competition from foreign companies
 Investment of foreign companies in the US
1-13
Class Project
 For the major economic indicators obtain current
information and determine how current trends
might affect financial planning activities.
 Indicators: Inflation, Consumer Spending,
Interest Rates, GDP, trade balance,
Unemployment, Housing starts
1-14
Key Financial Activities
 Obtaining – financial resources. Foundation of financial planning
 Planning – spending thru budgeting to achieve goals and future
financial security
 Saving – regular savings plan for emer., unexpected, purchase
of special goods
 Borrowing- maintain control over credit buying. Overuse and
misuse can cause problems. Misuse can lead to bankruptcy
1-15
 Spending- financial plan is not designed not to
prevent life enjoyment but to help obtain things
you want. Spending less is only way to achieve
long term financial security.
 Managing Risk- adequate insurance. Some are
overlooked
 Investing – invest for current income and long
term growth. Need to diversify investments
1-16
 Retirement - need to plan for retirement to obtain
financial security. Need to think about housing
and recreational activities you plan on having
after you stop working full-time.
1-17
Objective 2: Developing Personal Financial Goals
 Types of financial goals include those...
– Influenced by the time frame in which you want to achieve
your goals.
– Influenced by the financial need that drives your goals.
 Timing of goals.
– Short-term, intermediate and long-term goals.
 Goals for different financial needs.
 Goal setting guidelines suggests goals should...
–
Be realistic, be stated in specific, measurable terms, have a
time frame, and indicate the type of action to be taken.
1-18
Homework 1B
 Kim is 25 yrs old. She graduated from college
last year and is currently working for Boeing.
 She earns $50,000 /yr, has $10,000 in student
loans, $5,000 in credit card debt, rents an
apartment, has no savings or retirement plan,
and is a compulsive shopper.
 Come up with short term, and long term goals for
her.
1-19
Objective 3: Assess personal and financial
opportunity costs of financial decisions
 Opportunity cost is what you give up by making
a choice.
– The cost, referred to as the trade-off of a decision,
cannot always be measured in dollars. Sometimes
the cost is your time.
– Consider lost opportunities that will result from
your decisions.
1-20
Time Value of Money
 Increases in an amount of money
as a result of interest earned.
– Saving today means more money tomorrow.
Spending means lost interest.
 Saving and spending decisions involve
considering the trade-offs. Current needs
can make spending worthwhile.
1-21
Objective 4: Implement a plan
 Determine your current financial situation.
 Develop your financial goals.
 Identify alternative courses of action.
 Evaluate your alternatives.
Create and implement your financial
action plan.
5. Review and revise your plan.
1-22
Every Financial Decision Involves Evaluating
Types of Risk
 Inflation risk.
– Rising prices cause lost buying power.
 Interest-rate risk.
– Effect costs of borrowing and rate of return.
 Income risk.
– The loss of a job.
 Personal risk.
– Health, safety, or costs.
 Liquidity risk.
– Higher return may mean less liquidity.
1-23
Components of Financial Planning








Obtaining (chapter ?
Planning (chapters ?
Saving (chapter ?
Borrowing (chapters ?
Spending (chapters ?
Managing risk (chapters ?
Investing (chapters ?
Retirement and estate planning
(chapters ?
1-24
Developing a Flexible Financial Plan
 A financial plan is formalized report that...
– Summarizes your current financial situation.
– Analyzes your financial needs.
– Recommends future financial activities.
 You financial plan can be created by you,
done with assistance from a financial planner, or made using a
money management software package.
1-25
Implementing Your Financial Plan
 Develop good financial habits.
Use a well conceived spending plan to help you
stay within your income, while allowing you to save
and invest for the future.
– Have appropriate insurance protection to prevent
financial disasters.
– Become informed about tax and investment
alternatives.
– Study personal finance.
–
1-26
Implementing Your Financial Plan
(continued)
 Achieving your financial objectives requires
two things.
 A willingness to learn.
 Appropriate information sources
Current periodicals.
Financial institutions.
Courses and seminars.
Personal financial software.
The World Wide Web.
Financial specialists.