Transcript Personal Finance

Personal Finance
Chapter 1
Section 1.1
Personal Financial Planning
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Personal Finance
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Is everything in your life that involves
money
Personal Financial Planning
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Is arranging to spend, save, and invest
money to live comfortably, have financial
security and achieve goals.
Goals
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These are things that you wish to
accomplish
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Personal Goals
Professional Goals
Financial Goals
Financial Planning Process
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6 steps to the process
1.
Determine your current financial situation
1.
Make a list of your finances
1.
2.
3.
4.
Savings
Monthly Income (Job earnings, allowance, gifts)
Monthly Expense (money you spend)
Debts (money you owe other people)
Step 2
2.
Develop your Financial Goals
1.
2.
3.
4.
How do you spend money?
Is it more important to spend money now
or save for the future
Would you rather get a job or continue
your education
What are your VALUES
1.
The beliefs and principles you consider
important, correct, and desirable.
Needs Vs. Wants
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Need
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Is something you must have to survive,
such as food, shelter and clothing.
Want
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Is something you desire or would like to
have or do.
Step 3
3.
Identify Your Options
1.
2.
3.
4.
Expand your current situation
Change the current situation
Start something new
Continue the same course of action.
Classroom Cash Incentive
Plan
Step 4
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Step 4 – Evaluate Your Alternatives
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Sources of Financial Information
Consequences of Choices
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Opportunity Cost
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In making a choice a trade-off is what is given up when
making one choice instead of another.
Understanding Risk
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Inflation – Price may increase on a car
Interest Rate – Interest rates may go up on car loans
Income – Lose your job- may decrease
Personal – Is the risk of you buying this product worth
the overall situation.
Liquidity – How quickly can it be converted to Cash
Your spending Profile
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On a sheet of paper list these in order
of importance if someone gave you
$200
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Take my friends out
to eat and to the
movies
Spend $50 on fun
items
Put the money
towards your next
car payment
Buy new clothes for
school
Hit the nearest
record store and
buy several CD’s
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Buy a CD player
Get a Cell phone
Buy a savings bond
Put it in a savings
account for future
education
Buy the hottest
new concert tickets
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Take my friends out
to eat and to the
movies (5pts)
Spend $50 on fun
items (3pts)
Put the money
towards your next
car payment (1 pt)
Buy new clothes for
school (3pts)
Hit the nearest
record store and
buy several CD’s (5
pts)
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Buy a CD player (3
pts)
Get a Cell phone
(5pts)
Buy a savings bond
(1pt)
Put it in a savings
account for future
education (1pt)
Buy the hottest
new concert tickets
(5pts)
Count up your results
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Big Saver
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Middle of the roader
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3-5 points
7-11
Big Spender
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13-15
Step 5
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Create and Use Your Financial Plan of
Action
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A list of ways to achieve your financial
goals.
Step 6
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Review and Revise your Plan
Types of Financial Goals
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Time Frame of Goals
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Short-Term Goals
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Intermediate Goals
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Take one year of less to achieve
Takes two to five years to achieve
Long-Term Goals
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Takes more than 5 years to complete
Goals for different needs
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Service
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A task that a person or a machine
performs for you.
Good
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A physical item that is produced and can
be weighed or measured.
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Consumable goods – soda pop
Durable goods – car
Intangible goods - education
Influences on Personal
Financial Planning
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Three things that influence personal
planning
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Life Situations
Personal Values
Economic Factors
Life Situations
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Going to College instead of work
Starting a new career
Getting Married
Having Children
Moving to a new city
Economic Factors
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Economics
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Is the study of the decisions that go into making,
distributing, and using goods and services.
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ECONOMY
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Consists of the ways in which people make, distribute,
and use their goods and services.
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Market Forces
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Financial institutions
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Global influences
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Economic Conditions
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Supply
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The amount of goods and services
available for sale
Demand
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Is the amount of goods and services
people are willing to buy.
Supply V Demand
$250.00
$200.00
$150.00
Supply
Demand
$100.00
$50.00
$0.00
10 Cases
20 Cases
30 Cases
40 Cases
Financial Institutions
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Banks
Credit Unions
Savings
Insurance companies
Investment companies
These institutions guide the market
The Federal Reserve
The Federal Reserve
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Is the Central banking organization of
the United States. Its primary role in
the U.S. economy is the regulation of
the money supply.
Controls interest rates
Economic Conditions
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Consumer Prices
Consumer Spending
Interest Rates
Consumer Prices
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Over time prices of items increase.
This rise in price for goods and
services is called INFLATION
Consumer Spending
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A person who purchases and uses
goods and services.
Affects the economy by helping create
and maintain jobs.
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Higher Rate of employment
People have more money to spend
Vica Versa when employment is low
Interest Rates
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Like everything else, money has a price. That price
is called interest.
The price that is paid for using some else's money.
When consumers increase their saving and
investments, the supply of money that is available
for others to borrow grows, and interest rates go
down. When consumers borrow ore money, the
demand for money increases and interest rates go
up.
We will discuss this more in upcoming chapters