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Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Personal Financial Planning 10 Why is it important to learn now how to plan for your financial future? Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Personal Financial Planning 10 The financial planning process can help you reach your financial goals. Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Personal Financial Planning 10 personal financial planning goals values liquidity service good Glencoe Business and Personal Finance consumer interest time value of money principle future value annuity present value Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Personal Financial Planning 10 Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Personal Financial Planning Section 1 Financial Decisions and Goals Define personal financial planning. List the six steps of financial planning. Identify factors that affect personal financial decisions. Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Personal Financial Planning Section 1 Financial Decisions and Goals Personal Financial Decisions Benefits of Planning Increased effectiveness in managing financial resources Glencoe Business and Personal Finance Debt avoidance and reduced dependence on others Improved personal relationships A sense of freedom from financial worries Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Personal Financial Planning Section 1 Financial Decisions and Goals Personal Financial Decisions Step 1: Determine Your Current Financial Situation Savings Monthly Income Monthly Expenses Debts Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Personal Financial Planning Section 1 Financial Decisions and Goals Personal Financial Decisions Step 2: Develop your Financial Goals Values Glencoe Business and Personal Finance Needs vs. Wants Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Personal Financial Planning Section 1 Financial Decisions and Goals Personal Financial Decisions Step 3: Identify Alternative Courses of Action Continue the same course of action Expand the current situation Change the current situation Take a new course of action Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Personal Financial Planning Section 1 Financial Decisions and Goals Developing Personal Financial Goals Tips for Setting Your Financial Goals Glencoe Business and Personal Finance Be realistic Be specific Have a clear time frame Know what type of action to take Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Personal Financial Planning Section 1 Financial Decisions and Goals Developing Personal Financial Goals Short-Term Goals Intermediate Goals Long-Term Goals One year or less Two to five years More than five years Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Personal Financial Planning Section 1 Financial Decisions and Goals Influences on Personal Financial Planning Life Situations Glencoe Business and Personal Finance Personal Situations Economic Factors Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Personal Financial Planning Section 1 Financial Decisions and Goals Influences on Personal Financial Planning Economic Factors Market Forces Glencoe Business and Personal Finance Financial Institutions Global Influences Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Personal Financial Planning Section 2 Opportunity Costs and Strategies Explain the opportunity costs associated with personal financial decisions. Understand the time value of money. Identify eight strategies for achieving financial goals at different stages of life. Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Personal Financial Planning Section 2 Opportunity Costs and Strategies Personal Opportunity Cost Personal Resources Require Management Glencoe Business and Personal Finance Health Knowledge Skills Time Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Personal Financial Planning 10 Opportunity Cost An opportunity cost is what you give up to get something else. Source: www.collegeboard.com Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Personal Financial Planning Section 2 Opportunity Costs and Strategies Financial Opportunity Cost Save Spend Invest Time Value of Money Time Value of money – increase in the amount of money due to earned interest or dividends. Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Personal Financial Planning Section 2 Opportunity Costs and Strategies Future and Present Values Future Value of Single Deposit Future Value of a Series of Deposits Present Value of a Single Deposit Present Value of a Series of Deposits Time Value of money – increase in the amount of money due to earned interest or dividends. Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Future Values Future value – the amount your original deposit will be worth in the future based on earning a specific interest rate for a specific amount of time. Future values are “compounding” which means your money increases in value faster. (interest is added to principal each year) – Deposit of $1,000 at age 40 at 5% = $3,387 at 65 – Deposit of $1,000 at age 25 at 5% = $7,040 at 65 Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Present Values Present value – the amount you would need to deposit now in order to have a desired amount in the future. Principal Principal– the original amount of money on deposit. (For a loan, this is the amount you borrow) Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Personal Financial Planning Section 2 Opportunity Costs and Strategies Future and Present Values $1000 at 7% for 7 yrs = $1,606 (one deposit) $1,000 at 5% for 6 yrs = $6,802 ( 6 deposits/annuity) Want $1,000 at 5% in 5 yrs = $784 (one deposit now) Take $400 each year for 9 years at 8% = $2,498.80 (one deposit now) Tables on page 307 Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Personal Financial Planning Section 2 Opportunity Costs and Strategies Achieving Your Financial Goals Strategies 1 5 Obtain financial records. 2 Plan how you will spend your money. 3 Borrow wisely. 6 Invest to increase current income and for long-term growth 7 Spend wisely. 4 Manage risk. 8 Save on a regular basis. Glencoe Business and Personal Finance Plan for retirement. Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. End of Glencoe Business and Personal Finance Copyright © by The McGraw-Hill Companies, Inc. 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