Business and Personal Finance Chapter 1 Personal Finance Planning Section 1.2 Opportunity Costs and Financial Strategies

Opportunity Costs and Financial Strategies 1.2 In This Section . . . Whenever you make a choice, you have to give up some of your other options. When making financial decisions, consider both the personal and financial opportunity costs carefully. This section discusses: Making Personal Financial Decisions Developing Personal Financial Goals Influences on Personal Financial Planning

Opportunity Costs and Financial Strategies 1.2 What You’ll Learn How to determine the opportunity costs associated with each of your financial decisions How to identify strategies for achieving your financial goals for the different stages of your life

Opportunity Costs and Financial Strategies 1.2 Why It’s Important By recognizing the trade-offs of financial decisions and learning to use your money wisely now, you’ll be able to satisfy your values and meet your financial needs and goals throughout your life.

Opportunity Costs and Financial Strategies 1.2 Financial Opportunity Costs (1 of 2) Opportunity Cost, also known as trade-off, is what you give up when you make one choice instead of another. Time Value of Money is the increase of an amount of money as a result of interest or dividends earned.

Opportunity Costs and Financial Strategies Financial Opportunity Costs (2 of 2) Every time you spend, save, or invest money, try to think about the time value of that money as an opportunity cost. Money spent cannot be used to save and earn interest.

Opportunity Costs and Financial Strategies Go Figure . . . Annual Interest

Opportunity Costs and Financial Strategies Go Figure . . . The Future Value of a Single Deposit

Opportunity Costs and Financial Strategies Future Value Tables Future value tables simplify the process of figuring out the effect of compounding.

Opportunity Costs and Financial Strategies Present Value Tables Present value tables show the amount of money you would need to deposit now in order to attain a desired amount in the future.

Opportunity Costs and Financial Strategies How Much? Over the course of a lifetime, the average person makes and spends between $1 million and $2 million.

Opportunity Costs and Financial Strategies 1.2 Achieving Your Financial Goals (1 of 2) By using the following eight strategies, you can plan a more successful financial future. Obtain financial resources. Plan how you’ll spend your money. Spend less than you earn. Save for long-term financial security.

Opportunity Costs and Financial Strategies 1.2 Achieving Your Financial Goals (1 of 2) Borrow wisely and only when necessary. Invest to increase current income and for long-term growth. Manage risk to protect your resources. Consider the age at which you hope to retire when planning your future.

Opportunity Costs and Financial Strategies 1.2 Savvy Saver Financial Tips That Work Which of these tips do you think will be most useful to you? Why?

Opportunity Costs and Financial Strategies 1.2 Check Your Understanding 1) What are the opportunity costs associated with financial decisions? 2) Name the eight strategies you can apply to achieve your financial goals. 3) How can investing your money help you achieve your financial goals?

Opportunity Costs and Financial Strategies Think Critically Use the concept of time value of money, write an argument in favor of shopping for a good interest rate.

Opportunity Costs and Financial Strategies 1.2 End of Section 1.2