Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved.

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 Personal Financial Planning Why is it important to learn now how to plan for your financial future?

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. It is important to begin planning now! Financial security can only be assured if you plan for it The earlier you plan, the more likely you are to reach your goals

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. personal financial planning goals values liquidity service good consumer interest time value of money principle future value annuity present value Chapter 3 Personal Financial Planning

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 Personal Financial Planning

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Section 1Financial Decisions and Goals Define personal financial planning. List the six steps of financial planning. Identify factors that affect personal financial decisions. Chapter 3 Personal Financial Planning

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Personal Financial Decisions Personal Financial Planning personal financial planning arranging to spend, save, and invest money to live comfortably, have financial security, and achieve goals Your Goals Section 1Financial Decisions and Goals Chapter 3 Personal Financial Planning goals the things one wants to accomplish

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Personal Financial Decisions Section 1Financial Decisions and Goals Chapter 3 Personal Financial Planning Benefits of Planning Increased effectiveness in managing financial resources Debt avoidance and reduced dependence on others Improved personal relationships A sense of freedom from financial worries

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Personal Financial Decisions: Step 1 Section 1Financial Decisions and Goals Chapter 3 Personal Financial Planning Determine Your Current Financial Situation SavingsMonthly Income Monthly ExpensesDebts

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Personal Financial Decisions: Step 2 Section 1Financial Decisions and Goals Chapter 3 Personal Financial Planning Develop Your Financial Goals Think about your financial goals Do your personal values affect your financial decisions? What are your needs? What are your wants? values the beliefs and principles you consider important, correct, and desirable

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Personal Financial Decisions: Step 3 Section 1Financial Decisions and Goals Chapter 3 Personal Financial Planning Identify Alternative Courses of Action Continue the same course of action Change the current situation Take a new course of action Expand the current situation

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Personal Financial Decisions: Step 4 Section 1Financial Decisions and Goals Chapter 3 Personal Financial Planning Evaluate Your Alternatives Sources of Financial Information Consequences of Choice (opportunity cost) Evaluating Risks The Internet Financial Institutions Media Sources Financial Specialists Inflation Risk SEE PAGE 66 Interest Rate Risk Income Risk Personal Risk Liquidity Risk liquidity the ability to easily convert financial assets into cash without loss in value

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Personal Financial Decisions: Step 5 and Step 6 STEP 5 –Create and Use Your Financial Plan STEP 6 –Review and Revise Your Plan

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Developing Personal Financial Goals Section 1Financial Decisions and Goals Chapter 3 Personal Financial Planning Short-Term Goals Intermediate Goals Long-Term Goals One year or less Two to five years More than five years

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Developing Personal Financial Goals Section 1Financial Decisions and Goals Chapter 3 Personal Financial Planning ServiceGood service a task that a person or machine performs for you good physical item that is produced and can be weighed or measured

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Developing Personal Financial Goals Section 1Financial Decisions and Goals Chapter 3 Personal Financial Planning Tips for Setting Your Financial Goals Be realisticBe specific Have a clear time frame Know what type of action to take

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Influences on Personal Financial Planning See Pg. 70 Values See next slide Section 1Financial Decisions and Goals Chapter 3 Personal Financial Planning Life Situations Personal Situations Economic Factors

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Influences on Personal Financial Planning Supply & Demand Banks, Credit Unions, Global Marketplace, Savings & Loan, Insurance Competition between Companies, Investment nations affects the economy Companies Federal Reserve Section 1Financial Decisions and Goals Chapter 3 Personal Financial Planning Market Forces Financial Institutions Global Influences Economic Factors: See Page 72

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Influences on Personal Financial Planning Section 1Financial Decisions and Goals Chapter 3 Personal Financial Planning Consumer Prices Consumer Spending Interest Rates Economic Conditions: Page 73 consumer a person who purchases and uses goods or services interest the price that is paid for the use of another’s money, represents the Cost of money…increased savings/investments = > money supply, More money borrowed = demand for money is > and interest rates go up

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Often people with conflicting financial values and practices experience challenges in their business or personal relationships. How could such problems be minimized or prevented using what you have learned in this chapter? Answers will vary. Sample answer: Spouses who disagree about how much to spend on certain goods or activities may have frequent arguments. To reduce arguments, they need to communicate with each other before making decisions. Section 1Financial Decisions and Goals Chapter 3 Personal Financial Planning

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. 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. Section 2Opportunity Costs and Strategies Chapter 3 Personal Financial Planning

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. What is an Opportunity Cost? Pg. 76 What is given up when making one choice instead of another Two types of Opportunity Costs –Personal –Financial

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Personal Opportunity Cost: pg. 76 Section 2Opportunity Costs and Strategies Chapter 3 Personal Financial Planning Personal Resources Require Management HealthKnowledge SkillsTime

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Financial Opportunity Cost pg. 76 Section 2Opportunity Costs and Strategies Chapter 3 Personal Financial Planning To help make choices, consider the time value of money. time value of money the increase of an amount of money due to earned interest or dividends (money could be worth more later by earning interest or dividends…your current needs determine if trading off interest earnings is worthwhile)

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Financial Opportunity Cost pg. 77 Section 2Opportunity Costs and Strategies Chapter 3 Personal Financial Planning Calculating Interest principal the original amount of money on deposit SEE “GO FIGURE”, page 77 Principal x Annual Interest Rate = Interest

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Financial Opportunity Cost pg. 77 Section 2Opportunity Costs and Strategies Chapter 3 Personal Financial Planning Calculating Future Value future value the amount an original deposit will be worth in the future based on earning a specific interest rate over a specific period of time SEE “GO FIGURE” pg. 78. Multiply the principal by the annual interest rate and then add that interest amount to the principal.

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Financial Opportunity Cost Section 2Opportunity Costs and Strategies Chapter 3 Personal Financial Planning What is an annuity? annuity series of equal regular deposits SEE “FUTURE AND PRESENT VALUE TABLE”, pg. 79

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Financial Opportunity Cost Section 2Opportunity Costs and Strategies Chapter 3 Personal Financial Planning What is present value? present value the amount of money one would need to deposit now in order to have a desired amount in the future SEE “FUTURE AND PRESENT VALUE TABLE, pg. 79

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Achieving Your Financial Goals Section 2Opportunity Costs and Strategies Chapter 3 Personal Financial Planning Strategies Obtain financial records. Plan how you will spend your money. Spend wisely. Save on a regular basis. Borrow wisely. Invest to increase current income and for long-term growth Manage risk. Plan for retirement.

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. HOMEWORK Question #2, pg. 85: DEBATE New and improved versions of electronic devices become available often. Detail arguments for and against upgrading each time a new device becomes available. For: It is fun to have the latest gadgets; the most current technology can be beneficial for organization and efficiency, and necessary for education/career goals. Against: Upgrade is not necessary if it is a want and not a need. If the device works, it is wasteful to replace it. Replaced devices may end up in a landfill. Section 2Opportunity Costs and Strategies Chapter 3 Personal Financial Planning

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. HOMEWORK Question #4, pg. 85: PREDICT What factors might play a part in the revision of your financial plan as you get older? Health Relationships– marriage, additional family members, widow/widower—can create financial changes Education—many people choose to continue their education later in life Section 2Opportunity Costs and Strategies Chapter 3 Personal Financial Planning

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Opportunity Cost Chapter 3 Personal Financial Planning An opportunity cost is what you give up to get something else. Source:

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 Personal Financial Planning

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 3 Personal Financial Planning

Glencoe Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. End of