Decisions and Goals in Personal Finance Chapter 1 Section 1 Personal Financial Planning

In This Section...  Making Personal Financial Decisions  Developing Personal Financial Goals  Influences on Personal Financial Planning What is personal financial planning? It means spending, saving, and investing your money so you can have the kind of life you want as well as financial security. This section discusses: Decisions and Goals in Personal Finance

What You’ll Learn  How to create a financial plan  How to develop your financial goals  How to evaluate the economic factors that will affect your financial decisions Decisions and Goals in Personal Finance

Learning the steps in the financial planning process will give you a solid foundation for making all your financial decisions, big and small, now and in the future. Why It’s Important Decisions and Goals in Personal Finance

Why Plan?  You have more money, know how to use money to achieve your goals, and are financially secure;  You have less chance of going into debt you can’t handle;  You can help your partner and support your children. Some of the benefits of planning are: Decisions and Goals in Personal Finance

Create a Financial Plan Step 1 Step 1Determine your current financial situation Step 2 Step 2Develop your financial goals Step 3 Step 3Identify alternative courses of action Step 4 Step 4Evaluate your alternatives Step 5 Step 5Create and use your financial plan of action Step 6 Step 6Review and revise your plan The financial planning process has six steps: Decisions and Goals in Personal Finance

Common Cents Pay Yourself First List your income (from your allowance or a part-time job). Set an amount to put aside every month and calculate how much you will save up in a year.

Types of Goals  Short-term goals are those that you’ll reach in one year or less (saving to buy a computer).  Intermediate goals take two to five years to reach (saving for a down payment on a house).  Long-term goals take more than five years to reach (planning for retirement). Goals can be defined by the time it takes to achieve them: Decisions and Goals in Personal Finance

Guidelines for Setting Goals  be realistic  be specific  have a clear time frame  help you decide what type of action to take Your financial goals should: Decisions and Goals in Personal Finance

Write it Down Studies show that people who write down their goals are three times more likely to achieve them. Decisions and Goals in Personal Finance

Influences on Personal Financial Planning  Life situations  Personal values  Economic factors Many influences affect your day-to-day decisions. The three most important are: Decisions and Goals in Personal Finance

Financial Goals and Activities for Various Life Situations Decisions and Goals in Personal Finance

Economic Conditions and Financial Planning Decisions and Goals in Personal Finance

Check Your Understanding / Quiz 1) Name the six steps used to create a financial plan. 2) What is the relationship between the timing of your goals and the type of good or service that you seek? 3) Describe two economic factors that affect financial decisions. How might these factors influence your financial planning? Decisions and Goals in Personal Finance

Thinking Critically / Assignment ( 1 page Paper) Why is it important to distinguish between your needs and your wants? Decisions and Goals in Personal Finance

Opportunity Costs and Financial Strategies Chapter 1 Section 2 Personal Financial Planning

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:  Opportunity Costs and the Time Value of Money  Achieving Your Financial Goals Opportunity Costs and Financial Strategies

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

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. Financial Opportunity Costs (1 of 2) Opportunity Costs and Financial Strategies

Financial Opportunity Costs (2 of 2) Opportunity Costs and Financial Strategies 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

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

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

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

Check Your Understanding / Assignment 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