Business and Personal Finance

Business and Personal Finance Chapter 1 Section 1 Personal Financial Planning Decisions and Goals in Personal Finance

Decisions and Goals in Personal Finance In This Section . . . What is personal financial planning? It means spending, saving, and investing your money so you can have the kind of life you want as well as financial security. This section discusses: • Making Personal Financial Decisions • Developing Personal Financial Goals • Influences on Personal Financial Planning

Decisions and Goals in Personal Finance What You’ll Learn • How to create a financial plan • How to develop your financial goals • How to evaluate the economic factors that will affect your financial decisions

Decisions and Goals in Personal Finance Why It’s Important Learning the steps in the financial planning process will give you a solid foundation for making all your financial decisions, big and small, now and in the future.

Decisions and Goals in Personal Finance Why Plan? Some of the benefits of planning are: • You have more money, know how to use money to achieve your goals, and are financially secure; • You have less chance of going into debt you can’t handle; • You can help your partner and support your children.

Decisions and Goals in Personal Finance Create a Financial Plan The financial planning process has six steps: Step 1 Determine your current financial situation Step 2 Develop your financial goals Step 3 Identify alternative courses of action Step 4 Evaluate your alternatives Step 5 Create and use your financial plan of action Step 6 Review and revise your plan

Decisions and Goals in Personal Finance Common Cents Pay Yourself First List your income (from your allowance or a part-time job). Set an amount to put aside every month and calculate how much you will save up in a year.

Decisions and Goals in Personal Finance Types of Goals Goals can be defined by the time it takes to achieve them: • Short-term goals are those that you’ll reach in one year or less (saving to buy a computer). • Intermediate goals take two to five years to reach (saving for a down payment on a house). • Long-term goals take more than five years to reach (planning for retirement).

Decisions and Goals in Personal Finance Guidelines for Setting Goals Your financial goals should: • be realistic • be specific • have a clear time frame • help you decide what type of action to take

Decisions and Goals in Personal Finance Write it Down Studies show that people who write down their goals are three times more likely to achieve them.

Decisions and Goals in Personal Finance Influences on Personal Financial Planning Many influences affect your day-to-day decisions. The three most important are: • Life situations • Personal values • Economic factors

Decisions and Goals in Personal Finance Financial Goals and Activities for Various Life Situations

Decisions and Goals in Personal Finance Economic Conditions and Financial Planning

Decisions and Goals in Personal Finance Check Your Understanding / Quiz 1) Name the six steps used to create a financial plan. 2) What is the relationship between the timing of your goals and the type of good or service that you seek? 3) Describe two economic factors that affect financial decisions. How might these factors influence your financial planning?

Decisions and Goals in Personal Finance Thinking Critically / Assignment ( 1 page Paper) Why is it important to distinguish between your needs and your wants?

Business and Personal Finance Chapter 1 Section 2 Personal Financial Planning Opportunity Costs and Financial Strategies

Opportunity Costs and Financial Strategies 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: • Opportunity Costs and the Time Value of Money • Achieving Your Financial Goals

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 Moneyis 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 Achieving Your Financial Goals (1 of 2) By using the following eight strategies, you can plan a more successful financial future. • Obtainfinancial resources. • Planhow you’ll spend your money. • Spendless than you earn. • Save for long-term financial security.

Opportunity Costs and Financial Strategies Achieving Your Financial Goals (2 of 2) • Borrowwisely and only when necessary. • Invest to increase current income and for long-term growth. • Manage riskto protect your resources. • Consider the age at which you hope to retire when planning your future.

Opportunity Costs and Financial Strategies Check Your Understanding / Assignment 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?

Business and Personal Finance