An Overview of Personal Finance The Importance of Personal Finance –Slow Growth in Personal Income The average annual growth rate in the US is from 2 - 3% per year. This makes saving and investing especially important –Labor Market Uncertainty Job Obsolescence Contract Labor Corporate Downsizing

An Overview of Personal Finance The Importance of Personal Finance –Rapid Technological Change What is a Bank in today’s financial world? Critical Thinking and Problem Solving –Seek out a professional when necessary Don’t try doing everything on your own

An Overview of Personal Finance The Personal Financial Management Model –Set a framework of realistic goals Financial Goals (independence, early retirement) Non-financial Goals (employment, education, family) Short Term (saving the down payment on a new car) Long Term (Debt Free Living)

An Overview of Personal Finance The Personal Financial Management Model –Personal Planning Areas Career Choice (Doctor or ditch digger) Cash & Credit Management –Budgeting –Debt Relief

An Overview of Personal Finance The Personal Financial Management Model –Personal Planning Areas Tax Planning (Goal - legally minimize tax liability) Effective Buying (Are you a Bargain Hunter?) Insurance – Planning for risk Investment Management – Growing Wealth Retirement and Estate Planning –Will Social Security exist when you retire? –Who needs a Will anyway?

An Overview of Personal Finance The Personal Financial Management Model –External Influences Government Policy Changes –Social Security –Tax Law Changes Inheritance Taxes Capital Gains Tax (appreciation vs. income) –Health Insurance Government Health Care

An Overview of Personal Finance The Personal Financial Management Model –External Influences Economic Conditions –Business Cycles Recessions lead to credit default and declining investment/savings Expansions lead to increased purchasing and investment Measured by changes in GDP (Gross Domestic Product) –Measures of Personal Income Disposable Income - After Tax Income Discretionary Income – Income after Living Expenses

An Overview of Personal Finance The Personal Financial Management Model –External Influences Economic Conditions –Unemployment Rates –Inflation A Change in the purchasing power of money due in general to an increase in the supply of currency Inflation manifests in the form of rising prices CPI – Consumer Price Index

An Overview of Personal Finance The Personal Financial Management Model –External Influences Economic Conditions –Interest Rates - The Cost of Borrowing Money Real Rates – Without Inflation (Lower) Nominal Rates – Inflation Adjusted (Higher) –Government Influence Fiscal Policy – Taxation & Spending Monetary Policy – Changes in the Supply of Money Federal Reserve Board Who is the Chairman of the Fed?

An Overview of Personal Finance Next Class –Time Value of Money –Bring Your Calculator