Steps For Financial Decisions

1. Steps For Financial Decisions

2. Vocabulary • Inventory • Income • Expenses • Debt • Savings • Estimate • Need • Want

3. Six Steps for Financial Decisions • Determine Your Current Financial Situation • Develop Your Financial Goals • Identify Alternative Courses of Action • Evaluate Your Alternatives • Create and Use Your Financial Plan of Action • Review and Revise Your Plan

4. 1. Determine Your Current Financial Situation • Take an inventory of your finances • Inventory: a complete list of items such as property, goods in stock, or the contents of a building. • Determine your monthly income • Income: money received, especially on a regular basis, for work or through investments. • Determine your monthly expenses • Expenses: the cost required for something; the money spent on something.

5. Take an inventory of your finances (cont.) • Determine your total debt • something, typically money, that is owed or due. • Determine your total saving • an economy of or reduction in money, time, or another resource. • the money one has saved, especially through a bank or official scheme.

6. Take an inventory of your finances (cont.) • One needs to estimate their inventory • Estimate: an approximate calculation or judgment of the value, number, quantity, or extent of something. • How do you do that? • Look at past values and calculate based on them and changes

7. 2. Develop Your Financial Goals • How do your values about finances affect your goals? • Determine what you need verses what you want. • Need • Something that is critically essential. • Want • Something that you desire or wish for. • You might need to prioritize your goals

8. Vocabulary • Risk

9. 3. Identify Alternative Courses of Action Make a list of options to obtain a financial goal • Get ideas from other sources such as friends, bankers, “older people” • May want to increase/decrease savings • May want to lower the goal to make it more attainable • May want to sacrifice another goal to reach this one • May want to find another way that has the same effect (truck vs. trailer)

10. 4. Evaluate Your Alternatives • Use the Internet, financial institutions, magazines, specialists, and parents • Realize you will only be able to choose one plan – others need to be shelved • Calculate the Risks Risk – a chance of loss or possible gain, daring choices

11. Inflation Risk • The price of an item may be higher next year, or the item is on sale only for a short time. • Interest Rate Risk • Interest varies based upon the economy. Rates may be higher/lower in the future • Income Risk • Will your job be there in the future: health/accident/closings/job changes • Personal Risk • Does your job place you in a high risk category? • Is public transportation better than personal transportation • Is your job stressful/hated/loved • Liquidity Risk • Can you convert your assets into cash to pay off debt? • How fast can you convert your assets into cash?

12. 5. Create and Use Your Financial Plan of Action • Implement your plan and stick to it

13. 6. Review and Revise Your Plan • Remember that situations come up that you were not expecting • With unforeseen changes happening, are you going to keep the same plan or modify it? • If you get married will you keep the same plan?