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Business and Personal Finance. Chapter 1 Section 1 Personal Financial Planning. Decisions and Goals in Personal Finance. Decisions and Goals in Personal Finance. In This Section. What is personal financial planning ?

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business and personal finance

Business and Personal Finance

Chapter 1 Section 1

Personal Financial Planning

Decisions and Goals

in Personal Finance

slide2

Decisions and Goals in Personal Finance

In This Section . . .

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:

  • Making Personal Financial Decisions
  • Developing Personal Financial Goals
  • Influences on Personal Financial Planning
slide3

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
slide4

Decisions and Goals in Personal Finance

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.

slide5

Decisions and Goals in Personal Finance

Why Plan?

Some of the benefits of planning are:

  • 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.
slide6

Decisions and Goals in Personal Finance

Create a Financial Plan

The financial planning process has six steps:

Step 1 Determine your current financial situation

Step 2 Develop your financial goals

Step 3 Identify alternative courses of action

Step 4 Evaluate your alternatives

Step 5 Create and use your financial plan of action

Step 6 Review and revise your plan

slide7

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.

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Decisions and Goals in Personal Finance

Types of Goals

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 (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).
slide9

Decisions and Goals in Personal Finance

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
slide10

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.

slide11

Decisions and Goals in Personal Finance

Influences on Personal Financial Planning

Many influences affect your day-to-day decisions. The three most important are:

  • Life situations
  • Personal values
  • Economic factors
slide12

Decisions and Goals in Personal Finance

Financial Goals and Activities for Various Life Situations

slide13

Decisions and Goals in Personal Finance

Economic Conditions and Financial Planning

slide14

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?

slide15

Decisions and Goals in Personal Finance

Thinking Critically / Assignment ( 1 page Paper)

Why is it important to distinguish between your needs and your wants?

business and personal finance1

Business and Personal Finance

Chapter 1 Section 2

Personal Financial Planning

Opportunity Costs

and Financial Strategies

slide17

Opportunity Costs and Financial Strategies

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
slide18

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.

slide19

Opportunity Costs and Financial Strategies

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 Moneyis the increase of an amount of money as a result of interest or dividends earned.

slide20

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.

slide21

Opportunity Costs and Financial Strategies

Go Figure . . . Annual Interest

slide22

Opportunity Costs and Financial Strategies

Go Figure . . . The Future Value of a Single Deposit

slide23

Opportunity Costs and Financial Strategies

Future Value Tables

Future value tables simplify the process of figuring out the effect of compounding.

slide24

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.

slide25

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.

  • Obtainfinancial resources.
  • Planhow you’ll spend your money.
  • Spendless than you earn.
  • Save for long-term financial security.
slide26

Opportunity Costs and Financial Strategies

Achieving Your Financial Goals (2 of 2)

  • Borrowwisely and only when necessary.
  • Invest to increase current income and for long-term growth.
  • Manage riskto protect your resources.
  • Consider the age at which you hope to retire when planning your future.
slide27

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?