2. Decisions & Goals in Personal Finance
Financial Planning
Decisions & Goals in Personal Finance

3. What does personal financial planning mean?
It means spending, saving, and investing your money so you can have the kind of life you want as well as financial security.
Everyone has different financial goals (things you want to accomplish).

4. Why Plan? Some of the benefits:
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.

5. Why It’s Important
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.

6. Personal Financial Planning in 6 Steps

8. Step 1: Determine your current financial situation
Make a list of monthly income, expenses, and debts. Keep a record!!!

9. Step 2: Develop your financial goals
What is your attitude toward money? Need vs. Want Think Critically…. Why is it important to distinguish between your needs and your wants?

11. Step 3: Identify alternative courses of action
What are your options?
Expand current situation
Change the current situation
Start something new
Continue the same course of action

12. Step 4: Evaluate your alternatives
Sources of financial information
social and economic conditions
Consequences of choices
opportunity costs
Understanding risks
Inflation, interest rate, income, personal, and liquidity

13. Step 5: Create and use your financial plan of action
A list of way to achieve your financial goals

14. Step 6: Review & Revise your plan
Should be looked at at minimum every year

15. Developing Personal Financial Goals

16. WRITE IT DOWN!!!! Studies show that people who write down their goals are 3 times more likely to achieve them.

18. Types of Goals Can be defined by the time it takes to achieve them:
Short-term goals are those that you’ll reach in one year or less (save for computer)
Intermediate goals take two to five years to reach (house down payment)
Long-term goals take more than five years to reach (retirement)

19. Can also be defined depending on the need..
Service vs Good Consumable (soda) Durable (car….expensive, not purchased often) Intangible (education)

20. Guidelines for setting goals
Your financial goals should:
Be realistic
Be specific
Have a clear time frame
Help you decide what type of action to take

21. SMART goals
Specific “I want to go to Panama City for Spring Break” vs. “I want to go somewhere fun over Spring Break”
Measurable
“I’ll need $150 for my share of the hotel room for the week” vs. “ I want to save a bunch of money for the trip”
Attainable
“I’ll split the driving with my friends and take $200 more for gas, food, and other spending” vs. “I want $500 to fly there and $700 for spending money”
Realistic
“I’ll save $60 a month from my paycheck for the next six months” vs. “I’ll buy lottery tickets every week”
Time bound
“I want to save all the money by March 1st vs. “I want to save all the money by spring”

24. Influences on Personal Financial Planning
Life situations Personal values Economic factors

25. Financial Goals and Activities for Various Life Situation
Financial Goals & Activities
Young single adult
Become financially independent
Obtain career training
Develop a savings plan
Carefully manage your use of credit
Young couple with no children
Create an effective financial record-keeping system
Implement a budget
Develop a savings and investment program
Couple with young children
Purchase a home
Obtain adequate health and life insurance
Start a college fund
Make a will and name a guardian for your children
Single parent with young children
Obtain adequate health, life, and disability insurance
Establish an emergency fund
Middle-aged, single adult
Contribute to a tax-deferred retirement plan
Evaluate and select appropriate investments
Accumulate an adequate emergency fund
Review will and estate plans
Older couple with no children at home
Plan retirement houseing, living expenses, and activities
Obtain health insurance for retirement

26. Economic Factors
Market Forces Supply/Demand Financial Institutions Federal Reserve System Global Influences Where were they made? Economic Conditions Inflation, Consumer, Interest

27. Economic Conditions and Financial Planning
What It Measures
Consumer prices
The value of a dollar; changes in inflation
Consumer spending
Demand for goods and services by individuals and households
Interest rates
Cost of money, cost of credit when you borrow, and the return on your money when you save or invest
Money supply
The dollars available for spending in our economy
Unemployment
The number of people without jobs who are willing and able to work
Gross domestic product (GDP)
Total dollar value of all the goods and services produced in a country in one year

29. Opportunity Costs & Financial Strategies
Personal Opportunity Costs
Time, health, skills, etc
Financial Opportunity Costs
Time value of money---future value?

30. Calculating Interest Need the following 3 numbers: Principal
Annual Interest Rate
Length of time investing
Principal x Annual Interest Rate = Interest Earned for 1 Year
P x R = I
$1,000 x 5% = $50

31. Future Value Future Value of a Single Deposit
$1000 deposit, 5% interest rate=$50 1st yr
($1000+$50) x 5%= $ nd yr = $
Future Value of a Series of Deposits
$1000 a %5 6 yrs. = $1000 x 6.802=$6802
Present Value of a Single Deposit
Amt to deposit now to have a desired amt.
Want $1000…1000 x .784=$784 now
Present Value Series of Deposits
-how much you need to take so much out later on
Ex. Want $400 each year for 9 yrs, how much need in acct right now?

32. Achieving Your Financial Goals
Obtain – making money
Plan – how to spend
Spend – less than earn!
Save – bills, emergencies, long-term
Borrow – when necessary
Invest – income & long-term growth
Manage Risk – protect if sick, injured, die
Retire – enjoy life