1. Personal Finance Garman/Forgue Ninth Edition
Chapter 1: Understanding Personal Finance
PPT slide program prepared by Amy Forgue and Ray Forgue.

2. Learning Objectives
Use the building blocs to achieving financial success.
Understand how the economy affects your personal financial success.
Apply economic principles when making financial decisions.
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3. Learning Objectives Perform time value of money calculations.
Make smart decisions about your employee benefits.
Identify the professional qualifications of providers of financial advice.
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4. Financial Literacy Financial literacy is knowledge of:
Facts
Concepts
Principles
Technological tools
…that are fundamental to being smart about money.
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5. Financial Responsibility
Financial responsibility means
being accountable for your future financial well being.
that you strive to make good decisions in personal finance.
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6. Financial Success Spend less to save and invest! Savings Investments
Standard of Living
Level of Living
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7. Financial Success
Financial Happiness: Satisfaction about money matters.
Use the Building Blocks of financial success
Know how the economy affects your personal financial success
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8. The Economy and Business Cycles
Economy: System of managing the resources of a country, state, or community.
Economic Growth: Increasing production and consumption in the economy.
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9. The Economy and Business Cycles
The economy grows and contracts over time:
Expansion
Peak
Trough
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10. Future Direction of the Economy?
Track the Gross Domestic Product
Track the Employment Report
Track the Index of Leading Economic Indicators
Track the Consumer Confidence Index
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11. Inflation Inflation: Steady rise in the general level of prices.
How does inflation affect income and consumption?
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12. Inflation How inflation is measured: Consumer Price Index (or CPI)
Personal Inflation Rate
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13. Track the Federal Funds Rate
Rates banks charge each other
Set by the FED
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14. Think Like an Economist
Opportunity Cost: Cost of decision measured by the value of the next best alternative.
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15. Think Like an Economist
Marginal Utility/Cost: Usefulness or cost of the next increment of something.
Marginal Tax Rate: Tax rate at which your last dollar earned is taxed.
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16. FAQ in Personal Finance
What will an investment (or a series of investments) be worth after a period of time?
This question asks for a future value.
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17. FAQ in Personal Finance
How much has to be put away today (or as a series of investments) to provide some dollar amount in the future?
This question asks for a present value.
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18. Calculating Future Values
Future Value (FV): Valuation of an asset projected to the end of a particular time period in the future.
Compounding
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19. Calculating Future Values
Future value of a lump sum
Future value of an annuity
Rule of 72: Reveals number of years for principle to double
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20. Calculating Present Values
Present value of a lump sum
Present value of an annuity
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21. Smart Money Decisions at Work
Flexible benefit plans offer tax-free money
Flexible Benefit (Cafeteria) Plan
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22. Smart Money Decisions at Work
Making decisions about employer-sponsored health care plans
High-Deductible Health Care Plan
Health Savings Accounts (or HSAs)
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23. Smart Money Decisions at Work
Making decisions about employer’s Flexible Spending Accounts
Pretax Dollars: Money income that has not been taxed by the government.
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24. Smart Money Decisions at Work
Making decisions about…
Participating in employer life, disability, and long-term care insurance plans
Participating in your employer’s retirement (or tax-sheltered retirement) plan
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25. Employer Retirement Plans
First advantage: tax-deductible contributions
Second advantage: employer’s matching contributions
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26. Employer Retirement Plans
Third advantage: tax-deferred growth
Fourth advantage: starting early really pays off
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27. Professional Financial Planning Advice
A true financial planner should be able to analyze a family’s total needs in such areas as:
investments
taxes
insurance
education goals
retirement
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28. Professional Financial Planning Advice
Appropriate professional designations and credentials for planners:
Certified Financial Planner (CFP)
Chartered Financial Consultant (CFC)
Certified Public Accountant (CPA)
Accredited Financial Counselor (AFC)
Mutual Fund Chartered Counselor (MFCC)
Registered Investment Advisor (RIA)
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29. Professional Financial Planning Advice
How financial planners are compensated:
Commission-only financial planners/brokers
Fee-based financial planner/brokers
Fee-offset financial planners/brokers
Fee-only financial planners
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30. Top 3 Financial Missteps in Personal Finance
People slip up in building and maintaining good credit when they do the following:
Think only about money matters when faced with a financial problem.
Spend more than they earns.
Get financial advice from amateurs.
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31. Good Money Habits in Personal Finance
Spend significantly less than you make and save using pay-yourself-first.
Stay up-to-date with current economic conditions and the knowledge to manage your personal finances.
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32. Good Money Habits in Personal Finance
When making financial decisions, use marginal and opportunity costs and time value of money calculations.
Establish financial goals and take actions to achieve them.
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33. Good Money Habits in Personal Finance
Take advantage of tax sheltering through your employer’s benefits program.
Believe in compounding by allowing your money to earn interest on top of the principal and other accrued interest.
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34. Good Money Habits in Personal Finance
Keep debt under control.
Take responsibility for managing your own financial success.
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