1. FINANCIAL DECISIONS AND GOALS

2. What is Personal Finance?
EVERYTHING IN YOUR LIFE THAT INVOLVES MONEY
Spend
Save
Invest
Live comfortably
Financial security
Achieve goals

3. What are Goals? Things you want to accomplish College education
Buying a car
Occupation

4. Benefits of Financial Planning
More money
Financial security
Use moneyGoals
Debt you can handle
Support self and family

5. The Financial Planning Process (6 steps)
Determine your Current Financial Situation
Develop Your Financial Goals
Identify Your Options
Evaluate Your Alternatives
Create and Use Your Financial Plan of Action
Review and Revise Your Plan

6. Step 1: Determine Your Current Situation
Savings
Monthly Income
Monthly Expenses
Debts (money owed to others)

7. Step 2: Develop Your Financial Goals
What is your “Attitude” about money?
What are your “Values”
Needs vs. Wants

8. Step 3: Identify Your Options
Expand Current Situation
Change the Current Situation
Start Something New
Continue the Same Course of Action

9. Step 4: Evaluate Your Alternatives
Sources of Financial Information
Consequences of Choices (Opportunity Cost/Tradeoff)
Understanding Risks
Inflation
Interest Rate Risk
Income Risk
Personal Risk
Liquidity Risk

10. Step 5: Create/Use Your Financial Plan Step 6: Review and Revise Your Plan

11. Types of Financial Goals
Short-Term
< 1 year
Intermediate
2 – 5 years
Long-Term
> 5 years

12. Goals for Different Needs
How you establish and reach your financial goals will depend on whether a goal involves the need for:
Consumable Goods
Durable Goods
Intangible Item
(See Question 2)

13. Guidelines for Setting Goals
Realistic
Specific
Clear Time Frame
Decide What Actions to Take
(See Page 13, Figure 1.2: Financial Goals/Life Situations)

14. Influences on Personal Financial Planning
Life Situations
Personal Values
Economic Factors
Economy: study of decisions that go into making, distributing, & using goods & services
Economy: Ways in which people make, distribute, & use their goods & services

15. Economic Conditions Affecting Global and Personal Decisions
Market Forces
Financial Institutions
Global Influences
Current Economic Conditions

16. Market Forces Supply Amount of goods/services available for sale
Demand
Amount of goods/services people are willing to buy

17. Financial Institutions
Provide services that increase financial activity in the economy
Banks
Credit unions
Savings & Loan Associations
Insurance Companies
Investment Companies
Federal Reserve System (Fed) is the central banking organization of the United States

18. Federal Reserve System (Fed)
Regulates the Money Supply
Determines Interest Rates
Buys/Sells Government Securities
Affects Interest Rate you earn
Affects Interest Rate you pay
Affects to some extent…the prices of products you buy

19. Global Influences
You and the Money You Spend are part of global marketplace
Economy of Every Nation is Affected by Competition with Other Nations
If more money leaves the US than enters it
< money available for spending/investing
Interest rates >

20. Economic Conditions Consumer Prices
Inflation: rise in level of prices for goods/services
Caused by increase in demand w/o increase in supply
Rates on loans > during inflation
Consumer Spending
> spending = > employment
< spending = < employment
Interest Rates (cost of money)
Price paid for the use of another’s money

21. Section 1.1 Assessment
1. What are the 6 steps used to create a financial plan? Pgs. 6-10
Determine current financial situation
Develop your financial goals
Identify alternative courses of action
Evaluate your alternatives
Create/Use your financial plan
Revise your plan

22. 1.1 Assessment (cont.)
2. What is the relationship between the timing of your goals and the type of good or service that you want? Pgs
Consumable = Short term Goals: you buy often, use up quickly (gas, food), costs less
Durable = Intermediate or Long term goals: usually more expensive (i.e.car, house..takes longer to save for or pay off
Intangible = Long term goals: usually requires more planning, more expense (i.e. education, retirement)

23. 1.1 Assessment (cont.)
3. What are two economic factors that affect financial decisions? How might these factors influence your financial planning? Pgs
Market forces: supply/demand (high demand = higher cost, low demand = lower cost)
Financial institutions: Affects the interest rate you earn on savings and pay on borrowed money
Global influences: If other countries sell more goods to the U.S. than U.S. companies sell in those markets, less money is available for spending & investing, interest rates may rise
Economic conditions: inflation (increase in demand w/o increase in supply) consumer spending helps create jobs (less spending = fewer jobs) interest rates = cost to borrow

24. 1.1 Assessment
Why is it important to distinguish between your need and your wants?
Basic needs can be satisfied through different wants, some of which may cost less than others
(where/how you live)

25. KNOW FOR QUIZ: Inflation Steps in financial planning process Interest
Opportunity Cost
Liquidity
Consumable Goods