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Business and
Personal Finance
Chapter 1
Personal Finance Planning
Section 1.2
Opportunity Costs
and Financial Strategies
Opportunity Costs and
Financial Strategies
In This Section . . .
Whenever you make a choice, you have to
give up some of your other options. When
making financial decisions, consider both
the personal and financial opportunity
costs carefully. This section discusses:
 Making Personal Financial Decisions
 Developing Personal Financial Goals
 Influences on Personal Financial Planning
Opportunity Costs and
Financial Strategies
What You’ll Learn
 How to determine the opportunity costs
associated with each of your financial
decisions
 How to identify strategies for achieving
your financial goals for the different
stages of your life
Opportunity Costs and
Financial Strategies
Why It’s Important
By recognizing the trade-offs of financial
decisions and learning to use your money
wisely now, you’ll be able to satisfy your
values and meet your financial needs and
goals throughout your life.
Opportunity Costs and
Financial Strategies
Financial Opportunity Costs (1 of 2)
Opportunity Cost, also known as trade-off,
is what you give up when you make one
choice instead of another.
Time Value of Money is the increase of an
amount of money as a result of interest
or dividends earned.
Opportunity Costs and
Financial Strategies
Financial Opportunity Costs (2 of 2)
Every time you spend, save, or invest
money, try to think about the time value
of that money as an opportunity cost.
Money spent cannot be used to
save and earn interest.
Opportunity Costs and
Financial Strategies
Go Figure . . . Annual Interest
Opportunity Costs and
Financial Strategies
Go Figure . . .
The Future Value of a Single Deposit
Opportunity Costs and
Financial Strategies
Future Value Tables
Future value tables simplify the process of
figuring out the effect of compounding.
Opportunity Costs and
Financial Strategies
Present Value Tables
Present value tables show the amount of money
you would need to deposit now in order to
attain a desired amount in the future.
Opportunity Costs and
Financial Strategies
How Much?
Over the course of a lifetime, the average
person makes and spends between
$1 million and $2 million.
Opportunity Costs and
Financial Strategies
Achieving Your Financial Goals (1 of 2)
By using the following eight strategies, you
can plan a more successful financial
future.




Obtain financial resources.
Plan how you’ll spend your money.
Spend less than you earn.
Save for long-term financial security.
Opportunity Costs and
Financial Strategies
Achieving Your Financial Goals (1 of 2)
 Borrow wisely and only when necessary.
 Invest to increase current income and for
long-term growth.
 Manage risk to protect your resources.
 Consider the age at which you hope to retire
when planning your future.
Opportunity Costs and
Financial Strategies
Savvy Saver
Financial Tips
That Work
Which of these
tips do you
think will be
most useful to
you? Why?
Opportunity Costs and
Financial Strategies
Check Your Understanding
1) What are the opportunity costs
associated with financial decisions?
2) Name the eight strategies you can apply
to achieve your financial goals.
3) How can investing your money help you
achieve your financial goals?
Opportunity Costs and
Financial Strategies
Think Critically
Use the concept of time value of money,
write an argument in favor of shopping
for a good interest rate.
Opportunity Costs and
Financial Strategies
End of Section 1.2