Unit 4 Money Management

Unit 4: Part A Financial Goals Making Smart Decisions

“Most people don’t plan to fail… They simply fail to plan!”

* Financial Literacy * the possession of a body of financial knowledge, a set of basic skills, and the ability to apply the knowledge and skills to making informed and responsible financial choices. YOU are the manager of your own life!

* Financial planning * An ongoing process to take you were you wish to be financially * Helps one reach their goals * Financial Security * Ability to meet your essential needs without taking on more debt than you can repay. * Balancing your money coming in and out. * Being able to afford your lifestyle with protection for emergencies * Recommended 8 months of emergency funds

© Goodheart-Willcox Co., Inc. Importance of Needs and Wants Knowing your needs and wants can help determine how you use resources

Needs & Wants Needs Necessary wants are needs. Food, Shelter, Clothing! Wants The things you wish you could have. Each person has wants. Top of the line clothes, entertainment, sports cars

* Goods Tangible- can be touched, used, purchased Food, clothing, dvds, download on iTunes * Services Intangible activities that another person performs or offers for a fee. Cleaning service, tax returns, sporting event, hair cut, movie theater.

Importance of Values Values – govern and direct your life – influence decisions, actions, and behavior – differ among people – can change over time The things you value become part of your value systemvalue system

© Goodheart-Willcox Co., Inc. Importance of Ethics Ethics conform to accepted standards of right and wrong Ethics Individuals, businesses, and governments are expected to behave ethically Unethical behavior is wrong, even illegal

Importance of Goals Goals are related to values Goals – “To be” goals relate to character and personality – “To do” goals relate to accomplishments – “To have” goals relate to possessions and purchases

Term Goals SHORT-TERM GOALSSHORT-TERM GOALS –Within three months (0-3) INTERMEDIATE-TERM GOALSINTERMEDIATE-TERM GOALS –Three months to a year (3+ to 1yr) LONG-TERM GOALSLONG-TERM GOALS –More than a year (1+)

S-M-A-R-T GOAL CRITERIA S pecific M easurable T ime-Limited R ealistic A ttainable

SMART Goals S pecific…….. M easurable… T ime- Limited.. R ealistic……. A ttainable….. “Pay for lodging, transportation, meals for a 5-day trip to Washington, D.C.” “$300 through fundraising, $50 from birthday money, save $25 a week.” “If I stick to my plan, I’ll have the money when I need it.” “I still have enough money to live on while I work toward this goal.” “I need to have all the money by 6 months from now.”

S-M-A-R-T GOAL CRITERIA Specific Measurable Time- Limited Realistic Attainable Goals should also be Single-focusedGoals should also be Single-focused –They should only concentrate on 1 goal at a time Allows the goal setter to evaluate each independentlyAllows the goal setter to evaluate each independently

© Goodheart-Willcox Co., Inc. Interdependent and Conflicting Goals I nterdependent goals—one must be achieved to reach the other C onflicting goals—one must be given up to achieve the other Y our priorities and values can help you choose between conflicting goals

© Goodheart-Willcox Co., Inc. Establishing Priorities G oals listed in priority order help you direct your time, energy, and money. Y ou make a priority judgment when you decide one thing is more important than another

© Goodheart-Willcox Co., Inc. Evaluating Goals L ist each goal and rank it according to its importance I s it realistic and possible? continued

© Goodheart-Willcox Co., Inc. Evaluating Goals C an you break it up into smaller goals? C an progress be measured? W hat will it cost in time, money, and effort? W ill you still want the goal when you reach it?

© Goodheart-Willcox Co., Inc. Standards of Quality and Excellence S tandards grow out of goals and values P eople set standards for –h–h ow they want to live –w–w hat they want to do –t–t he goods and services they want to buy

The cost of giving up one option for another is the Opportunity Cost of the decision

Delayed Gratification The ability to wait or delay satisfaction to achieve your goals.The ability to wait or delay satisfaction to achieve your goals. –Saving money over time to make a major purchase. –Waiting to buy a new product until the price goes down. –Waiting to see the latest movie until the crowds get smaller and the lines shorter 1-F

© Goodheart-Willcox Co., Inc. Managing Resources to Reach Goals M anagement involves more than making decisions and solving problems M anagement is a three-part process –P–P lanning phase –A–A ction phase –E–E valuation phase

© Goodheart-Willcox Co., Inc. Identifying Resources R esources are the tools needed to reach goals continued

© Goodheart-Willcox Co., Inc. Identifying Resources P racticing good resource management means remembering that –r–r esources are scarce –r–r esources are manageable –r–r esources are related to one another

What about you? Factors That Affect Decision Making 1-J Wants Family Values Time Money Needs Habits Motivation EducationAgeAttitudes Society Culture

Systematic Decision Making Identify Problem (Identify the goal) Establish the criteria (or alternatives) Determine Pros/Cons to choose best option Make the Decision & Act on it Evaluate Decision Risk vs. Reward- all decisions have consequences

Evaluate Results Decision-Making Process Make a Decision Identify Your Goal Weigh Pros and Cons EstablishCriteria 1-K

The Decision- Making Process EvaluateResults Make a Decision Identify Your Goal Weigh Pros and Cons EstablishCriteria Monitor & Modify the Plan Implement Set Goals Create a Plan AnalyzeInformation The Financial Planning Process Decision Making and Financial Planning 1-L NEFE High School Financial Planning Program Unit One - Your Financial Plan: Where It All begins

The Five-Step Financial Planning Process 1-B

Tips for Decision Making Weigh Consequences and Possible Outcomes Determine if Risk is worth Reward. Do not act on impulse or irrationally. Determine how your decision will affect you, your future, and all effected parties. Consider the satellite decisions that will follow.

© Goodheart-Willcox Co., Inc. Personal Side of Consumer Choices Developing management skills can help you achieve goalsmanagement Management involves – identifying resources – setting goals – making decisions – solving problems – evaluating results

A decision that will need to be made based off a larger decision Example: Decision – To attend the class trip

© Goodheart-Willcox Co., Inc. Making Financial Decisions M aking good decisions requires careful thought and planning continued

Making Financial Decisions P eople often make bad decisions by –a–a cting out of habit –a–a cting on impulse –f–f ailing to act

© Goodheart-Willcox Co., Inc. Making Financial Decisions T ools of financial decision making include –c–c ost-benefit analysis –m–m arginal analysis –c–c ommonsense rule –s–s ystematic decision making

© Goodheart-Willcox Co., Inc. Cost-Benefit Analysis E xamine the benefits and costs of a decision and act only if the benefits are at least as great as the costs T he Cost-Benefit Analysis applies to economic decisions of individuals, businesses, and governments

© Goodheart-Willcox Co., Inc. Marginal Analysis E xamine the added benefit, versus the added cost, of one more unit of an item or an experience continued

© Goodheart-Willcox Co., Inc. Marginal Analysis M arginal benefit: change in total benefit of using one additional unit M arginal cost: change in total cost of using one additional unit T he marginal benefit of using each additional unit of something tends to decrease as the quantity used increases

© Goodheart-Willcox Co., Inc. A Commonsense Rule D o not spend more than you can afford L ive within your means

In Your Opinion W hy do you think it is difficult for some people to live within their means?

© Goodheart-Willcox Co., Inc. Economic Conditions Recession & Inflation Demographics Culture Technology Government Globalization