1. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved.

2. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Personal Financial Planning Why is it important to learn now how to plan for your financial future?

3. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. The financial planning process can help you reach your financial goals. Chapter 10 Personal Financial Planning

4. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. personal financial planning goals values liquidity service good consumer interest time value of money principle future value annuity present value Chapter 10 Personal Financial Planning

5. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 10 Personal Financial Planning

6. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Section 1Financial Decisions and Goals Define personal financial planning. List the six steps of financial planning. Identify factors that affect personal financial decisions. Chapter 10 Personal Financial Planning

7. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Personal Financial Decisions Section 1Financial Decisions and Goals Chapter 10 Personal Financial Planning Benefits of Planning Increased effectiveness in managing financial resources Debt avoidance and reduced dependence on others Improved personal relationships A sense of freedom from financial worries

8. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Personal Financial Decisions Section 1Financial Decisions and Goals Chapter 10 Personal Financial Planning Step 1: Determine Your Current Financial Situation SavingsMonthly Income Monthly ExpensesDebts

9. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Personal Financial Decisions Section 1Financial Decisions and Goals Chapter 10 Personal Financial Planning Step 2: Develop your Financial Goals ValuesNeeds vs. Wants

10. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Personal Financial Decisions Section 1Financial Decisions and Goals Chapter 10 Personal Financial Planning Step 3: Identify Alternative Courses of Action Continue the same course of action Change the current situation Take a new course of action Expand the current situation

11. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Developing Personal Financial Goals Section 1Financial Decisions and Goals Chapter 10 Personal Financial Planning Tips for Setting Your Financial Goals Be realisticBe specific Have a clear time frame Know what type of action to take

12. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Developing Personal Financial Goals Section 1Financial Decisions and Goals Chapter 10 Personal Financial Planning Short-Term Goals Intermediate Goals Long-Term Goals One year or less Two to five years More than five years

13. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Influences on Personal Financial Planning Section 1Financial Decisions and Goals Chapter 10 Personal Financial Planning Life Situations Personal Situations Economic Factors

14. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Influences on Personal Financial Planning Section 1Financial Decisions and Goals Chapter 10 Personal Financial Planning Market Forces Financial Institutions Global Influences Economic Factors

15. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Explain the opportunity costs associated with personal financial decisions. Understand the time value of money. Identify eight strategies for achieving financial goals at different stages of life. Section 2Opportunity Costs and Strategies Chapter 10 Personal Financial Planning

16. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Personal Opportunity Cost Section 2Opportunity Costs and Strategies Chapter 10 Personal Financial Planning Personal Resources Require Management HealthKnowledge SkillsTime

17. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Opportunity Cost Chapter 10 Personal Financial Planning An opportunity cost is what you give up to get something else. Source: www.collegeboard.com

18. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Financial Opportunity Cost Section 2Opportunity Costs and Strategies Chapter 10 Personal Financial Planning SaveSpend InvestTime Value of Money Time Value of money – increase in the amount of money due to earned interest or dividends.

19. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Future and Present Values Section 2Opportunity Costs and Strategies Chapter 10 Personal Financial Planning Future Value of Single Deposit Future Value of a Series of Deposits Present Value of a Single Deposit Present Value of a Series of Deposits Time Value of money – increase in the amount of money due to earned interest or dividends.

20. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Future Values Future value – the amount your original deposit will be worth in the future based on earning a specific interest rate for a specific amount of time. Future values are “compounding” which means your money increases in value faster. (interest is added to principal each year) –Deposit of $1,000 at age 40 at 5% = $3,387 at 65 –Deposit of $1,000 at age 25 at 5% = $7,040 at 65

21. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Present Values Present value – the amount you would need to deposit now in order to have a desired amount in the future. Principal Principal– the original amount of money on deposit. (For a loan, this is the amount you borrow)

22. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Future and Present Values Section 2Opportunity Costs and Strategies Chapter 10 Personal Financial Planning $1000 at 7% for 7 yrs = $1,606 (one deposit) $1,000 at 5% for 6 yrs = $6,802 ( 6 deposits/annuity) Want $1,000 at 5% in 5 yrs = $784 (one deposit now) Take $400 each year for 9 years at 8% = $2,498.80 (one deposit now) Tables on page 307

23. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. Achieving Your Financial Goals Section 2Opportunity Costs and Strategies Chapter 10 Personal Financial Planning Strategies 1 2 3 4 5 6 7 8 Obtain financial records. Plan how you will spend your money. Spend wisely. Save on a regular basis. Borrow wisely. Invest to increase current income and for long-term growth Manage risk. Plan for retirement.

24. Glencoe Business and Personal FinanceCopyright © by The McGraw-Hill Companies, Inc. All rights reserved. End of