Personal Finance Section 1-1

Warmup Write a paragraph on why should you know how to plan your personal finances even if you can hire a financial planner?

Chapter 1 Personal financial planning Goals Values Opportunity costs Key Terms Personal financial planning Goals Values Opportunity costs Liquidity Service Good economics Economy Supply Demand Federal reserve System Inflation Consumer interest

Section 1-1 Personal Financial planning: Is arranging to spend, save, and invest money to live comfortably, have financial security, and achieve goals Goals—the things you want to accomplish

Financial Process There are six steps to financial planning to help you achieve your goals.

Step 1—Determine your Current Financial Situation Make a list of items that relate to your current financial situation such as: Savings Monthly job income Monthly expense Debts(money you owe)

Step 2—Develop your Financial Goals Values are the beliefs and principles you consider important For this step evaluate Needs vs. Wants Needs are something you must have to survive. Wants are something you desire or would like to have.

Step 3—Identify your Options Think about all of the options of your goal Also consider all of the outcomes Considering both will help you make a good financial decision.

Step 4—Evaluate your Alternatives Look at sources of Financial Information to keep up to date with economic and social conditions Consequences of Choices are choosing one option and eliminating the rest of the options. Opportunity costs– also called a trade off, is what is given up when making one choice instead of another.

Step 4 continued Understanding risks—When you make a decision you also accept a certain risk Inflation risk—if you wait to buy something it could cost more next year Interest Rate Risk—interest rates go up and down and you risk paying the higher cost if you wait Income risk—You might lose your job due to health problems, accidents, etc. Personal risk—Having your friend help work on your house instead of a trained carpenter may save you money now but if it isn’t done right may cost more in the future Liquidity risk is the ability to easily convert financial assests to cash without loss of value.

Group Activity Divide students into groups of 3 or 4. Assign each group a financial goal. Have each group takes its goal through Steps 3 and 4 of the goal process devise a chart to illustrate their thinking.

Step 5—Create and use your financial plan of action This will lists ways to help you achieve your goals. Sticking to it will help guide you to reaching your goals

Step 6—Review and Revise your plan As things change in your life so will your financial plan Therefore you will need to change your plan to meet changing goals

Types of Financial Goals Time Frame of Goals Goals for Different Needs

Time Frame Goals Short-Term goals—take one year or less to achieve Intermediate goals—take one to five years to achieve Long Term goals—take more than five years to achieve

Student Activity Students will create a powerpoint of their financial goals. Slide 1 will be their title slide Slide 2 will include a short-term goal and the plan for them to reach that goal Slide 3 will include an intermediate goal and the plan for them to reach that goal Slide 4 will include a long-term goal and the plan for them to reach that goal All slides should include clip art

Goals for Different Needs Service—task that a person or machine performs for you Good—a physical item that is produced and can be weighed or measured.

Guidelines for Setting Goals Be realistic Be specific Have a clear time frame Decide what type of action to take

Activity What do you think your goals will be?

Influences on Personal Financial Planning Life situations Personal Values Economic factors

Life Situations As you experience new things in life your financial decisions will change

Economic Factors Economics is the study of the decisions that go into making, distributing and using goods and services Economy is the ways in which people make, distribute, and use their goods and services.

Economic Factors Market Forces— Supply—amount of goods and services available for sale Demand—the amount of goods and services people are willing to buy

Economic Factors Financial Institutions— Include banks, credit unions, and investment companies Federal Reserve System—central banking organization of the United States

Research On the Internet look up and record the following: Interest rates Inflation rates Consumer spending rates U.S. Gross domestic product

Economic Factors Economic Conditions are affected by three things Consumer Prices Consumer Spending Interest Rates

Consumer Pricing Over time most prices of products go up. Inflation is the rise in level of prices for goods and services.

Consumer Spending Consumer spending helps the economy by helping to create and maintain jobs A consumer is a person purchase or uses goods and services.

Interest Rates The price of money is called interest Interest is the price that is paid to use another’s money.

Journal In a Word document or Journal answer the following: What are the six steps used to create a financial plan? What is the relationship between the timing of your goals and the type of good or service that you want? What are two economic factors that affect financial decisions? How might these factors influence your financial planning? Why is it important to distinguish between your needs and your wants?