An Overview of Personal Finance

1. An Overview of Personal Finance • The Importance of Personal Finance • Slow Growth in Personal Income • The average annual growth rate in the US is from 2 - 3% per year. • This makes saving and investing especially important • Labor Market Uncertainty • Job Obsolescence • Contract Labor • Corporate Downsizing

2. An Overview of Personal Finance • The Importance of Personal Finance • Rapid Technological Change • What is a Bank in today’s financial world? • Critical Thinking and Problem Solving • Seek out a professional when necessary • Don’t try doing everything on your own

3. An Overview of Personal Finance • The Personal Financial Management Model • Set a framework of realistic goals • Financial Goals (independence, early retirement) • Non-financial Goals (employment, education, family) • Short Term (saving the down payment on a new car) • Long Term (Debt Free Living)

4. An Overview of Personal Finance • The Personal Financial Management Model • Personal Planning Areas • Career Choice (Doctor or ditch digger) • Cash & Credit Management • Budgeting • Debt Relief

5. An Overview of Personal Finance • The Personal Financial Management Model • Personal Planning Areas • Tax Planning (Goal - legally minimize tax liability) • Effective Buying (Are you a Bargain Hunter?) • Insurance – Planning for risk • Investment Management – Growing Wealth • Retirement and Estate Planning • Will Social Security exist when you retire? • Who needs a Will anyway?

6. An Overview of Personal Finance • The Personal Financial Management Model • External Influences • Government Policy Changes • Social Security • Tax Law Changes • Inheritance Taxes • Capital Gains Tax (appreciation vs. income) • Health Insurance • Government Health Care

7. An Overview of Personal Finance • The Personal Financial Management Model • External Influences • Economic Conditions • Business Cycles • Recessions lead to credit default and declining investment/savings • Expansions lead to increased purchasing and investment • Measured by changes in GDP (Gross Domestic Product) • Measures of Personal Income • Disposable Income - After Tax Income • Discretionary Income – Income after Living Expenses

8. An Overview of Personal Finance • The Personal Financial Management Model • External Influences • Economic Conditions • Unemployment Rates • Inflation • A Change in the purchasing power of money due in general to an increase in the supply of currency • Inflation manifests in the form of rising prices • CPI – Consumer Price Index

9. An Overview of Personal Finance • The Personal Financial Management Model • External Influences • Economic Conditions • Interest Rates - The Cost of Borrowing Money • Real Rates – Without Inflation (Lower) • Nominal Rates – Inflation Adjusted (Higher) • Government Influence • Fiscal Policy – Taxation & Spending • Monetary Policy – Changes in the Supply of Money • Federal Reserve Board • Who is the Chairman of the Fed?

10. An Overview of Personal Finance • Next Class • Time Value of Money • Bring Your Calculator