Financial Planning Essential Questions How can one achieve financial security? Why is it important to have a financial plan? What is the most important factor when choosing a career? Goals, values, opportunity cost, liquidity, interest, inflation, career, job networking, standard of living

Objectives Create a financial plan Set SMART goals Analyze economic factors & market forces Evaluate decisions and opportunity costs

Financial Planning Arranging to spend, save, and invest money to live comfortably, have financial security, and achieve goals.

Need or Want?? Hold up a… 2 for Want 1 for Need Steak Cell Phone Pants Need: basic things we need to survive Want: can live without, but make life fun Hold up a… 1 for Need 2 for Want Steak Cell Phone Pants Food Car 1-C

Values & Goals Value: Fundamental belief or practice about what is desirable and important to an individual (Education, charity, social status & money) Goal: Something you aim for Provide direction Focus on the important things Keep the end result in mind B&PF: p.7

Goals Goal – the end result of something a person intends to acquire, achieve, do, reach, or accomplish sometime in the near or distant future Financial goals – specific objectives to be accomplished through financial planning Education goals - enable individuals to prepare for future success in the workplace B&PF: p.6 SHORT-TERM GOALS: 1 year or less INTERMEDIATE-TERM GOALS: 1-5 years LONG-TERM GOALS: Over 5 years B&PF: p.10

SMART Goals SMART Goals Specific State exactly what is to be done Measurable Include how the goal can be measured Attainable Determine steps to reach the goal Realistic Do not set goals for something unrealistic Time Bound State when the goal will be met

Making Decisions Routine vs. Major Decisions Opportunity Cost: The value of what is given up when you choose 1 option over another. The next best alternative Why is it important to have a plan? What influences your values? What is your opportunity cost of taking personal finance?

Goods and Services Good: A physical item that is produced and can be weighed or measured. Consumable Goods: Buy often & use up quickly -(Milk/bread) Durable Goods: Long lasting, bought on occasion -(Car ) Service: A task done by a person/machine -(Haircut) B&PF: p. 11 1-C

Market Forces Supply: availability of a good/service Demand: desire to have a good/service Great demand & low supply = price increase Limited demand & high supply = price decrease

Economic Factors Interest: Cost of borrowing money Inflation: Increase in price of goods & services http://www.investopedia.com/video/play/what-is-inflation#axzz1cCDFWuQy Liquidity: The ability to convert a financial resource to cash while maintaining value

Risks of Financial Planning 1. Income Risk: Risk of losing your source of income (job) 2. Personal Risk: Not wearing your seatbelt 3. Liquidity Risk: The chance that an investor will have difficulty converting a financial resource to cash.

Risks of Financial Planning 4. Inflation Risk: Inflation may exceed return on investment or increase cost of goods/services more than earnings 5. Interest Rate Risk: The risk of interest rates changing which affect the cost of borrowing

Time Value of Money How much money we have in the future depends on: 1. how much we have right now (present value / principal) 2. how much we are making (interest rate, R.O.R) 3. how much time we are saving/investing for (years) Time Value of Money Video http://www.investopedia.com/video/play/understanding-time-value-of-money#axzz1cCDFWuQy 1-C

Achieving Your Financial Goals 1. Obtain : (Resources by working & investing) 2. Plan: (Set financial goals to achieve security) 3. Spend: (Less than you earn) 4. Save: (P.Y.F & save for emergencies) 5. Borrow: (Wisely, credit cards & loans) 6. Invest: (to increase wealth) 7. Manage Risk: (Protect resources) 8. Retire: (Collect retirement)