Entrepreneurship Mr. Bernstein Opportunity Costs, PV and FV, and Lifelong Financial Strategies June 2016

Opportunity Costs The cost of not taking an action You cannot both save and spend the same dollar If you spend, you will not earn interest on savings If you save, you will not gain satisfaction consuming …make your choices on satisfaction purchased with knowledge of financial consequences 2 Entrepreneurship Mr. Bernstein

Future Value The amount $1 today will be worth at some point in the future Interest earned compounds FV = $$ x (1+interest rate) number of years Example: $1 in ten years at 5% interest rate $1 X = $ Entrepreneurship Mr. Bernstein

Present Value The amount needed today to be worth $1 at some point in the future $1 is discounted at a given interest rate PV = $$ / (1+interest rate) number of years Example: $1 in ten years at 5% discount rate $1 / = 61.4 cents 4 Entrepreneurship Mr. Bernstein

Basic Financial Planning Strategies Obtain (Income) Plan (s/t, intermediate and l/t budget) Spend (Realistically) Save (Regularly) Borrow Wisely Invest (Growth Wealth) Manage Risk Plan for Retirement Small changes compound into big numbers over time! 5 Entrepreneurship Mr. Bernstein