1-1-11 Focus on Personal Finance

An Active Approach to Help You Develop Successful Financial Skills

Dr. Steven M. HaysBishop Kearney High School

Fall 2010

1-1-22 Personal Financial Planning Objectives

1. Identify social and economic influences on personal financial goals and decisions

2. Develop personal financial goals

3. Assess personal and financial opportunity costs associated with financial decisions

4. Implement a plan for these decisions

1-1-33Objective 1: Identify social and economic influences on personal financial goals

Financial Planning: organized process of achieving the goals

Financial Plan: formalized report that summarizes your current situation, future needs and recommended actions

1-1-44 Financial Planning and Its Benefits

There are several advantages of personal financial planning.

– Increased effectiveness in obtaining, using, and protecting your financial resources.

– Increased control of your financial affairs.

– Improved personal relationships.– A sense of freedom from

financial worries obtained by looking to the future.

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You can know when to retire or work where you want

Income

Assets

Expenses

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Economic Factors

Influences on Personal Financial Planning

Economy’s influence on financial planning

What is the study of economics about?A social science that studies how individuals, governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants.

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Economics can generally be broken down into: macroeconomics, which concentrates on the behavior of the aggregate economy; and microeconomics, which focuses on individual consumers.

Role of the Federal Reserve in directing the economy and indirectly personal financial planning

1-1-99 Changing Economic Conditions

Consumer The value of the dollarprices changes in inflation.

Consumer The demand for goods and services spending by individuals and households.

Interest rates The cost of money; cost of credit when you borrow; return on your money when you save or invest.

http://qrc.depaul.edu/djabon/cpi.htm

1-1-1010 Changing Economic Conditions

GDP: Gross Total value of goods and services Domestic Product produced in a country.

Trade balance Difference between a country’s exports and imports.

Market indexes The relative value of stocks as represented by the index, such as the Dow Jones Average or theS&P 500.

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1-1-1111 Changing Economic Conditions

Money Supply The dollars available for spending in our economy.

Unemployment The number of individuals withoutemployment who are willing and able to work.

Housing starts Number of new homes being built.

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1-1-1212 Influences on Personal Financial PlanningGlobal Factors

Role of import and export on the value of the $

Competition from foreign companies

Investment of foreign companies in the US

1-1-1313 Class Project

For the major economic indicators obtain current information and determine how current trends might affect financial planning activities.

Indicators: Inflation, Consumer Spending, Interest Rates, GDP, trade balance, Unemployment, Housing starts

1-1-1414 Key Financial Activities

Obtaining – financial resources. Foundation of financial planning Planning – spending thru budgeting to achieve goals and future

financial security Saving – regular savings plan for emer., unexpected, purchase of

special goods Borrowing- maintain control over credit buying. Overuse and

misuse can cause problems. Misuse can lead to bankruptcy

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Spending- financial plan is not designed not to prevent life enjoyment but to help obtain things you want. Spending less is only way to achieve long term financial security.

Managing Risk- adequate insurance. Some are overlooked

Investing – invest for current income and long term growth. Need to diversify investments

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Retirement - need to plan for retirement to obtain financial security. Need to think about housing and recreational activities you plan on having after you stop working full-time.

1-1-1717 Objective 2: Developing Personal Financial Goals

Types of financial goals include those...– Influenced by the time frame in which you want to achieve

your goals.– Influenced by the financial need that drives your goals.

Timing of goals.– Short-term, intermediate and long-term goals.

Goals for different financial needs. Goal setting guidelines suggests goals should...

– Be realistic, be stated in specific, measurable terms, have a time frame, and indicate the type of action to be taken.

1-1-1818 Homework 1B

Kim is 25 yrs old. She graduated from college last year and is currently working for Boeing.

She earns $50,000 /yr, has $10,000 in student loans, $5,000 in credit card debt, rents an apartment, has no savings or retirement plan, and is a compulsive shopper.

Come up with short term, and long term goals for her.

1-1-1919Objective 3: Assess personal and financial opportunity costs of financial decisions

Opportunity cost is what you give up by making a choice.

– The cost, referred to as the trade-off of a decision, cannot always be measured in dollars. Sometimes the cost is your time.

– Consider lost opportunities that will result from your decisions.

1-1-2020 Time Value of Money

Increases in an amount of money as a result of interest earned.– Saving today means more money tomorrow.

Spending means lost interest. Saving and spending decisions involve

considering the trade-offs. Current needs can make spending worthwhile.

1-1-2121 Objective 4: Implement a plan

Determine your current financial situation. Develop your financial goals. Identify alternative courses of action. Evaluate your alternatives.

Create and implement your financial action plan.

5. Review and revise your plan.

1-1-2222 Every Financial Decision Involves Evaluating Types of Risk

Inflation risk.– Rising prices cause lost buying power.

Interest-rate risk.– Effect costs of borrowing and rate of return.

Income risk.– The loss of a job.

Personal risk.– Health, safety, or costs.

Liquidity risk.– Higher return may mean less liquidity.

1-1-2323 Components of Financial Planning

Obtaining (chapter ? Planning (chapters ? Saving (chapter ? Borrowing (chapters ? Spending (chapters ? Managing risk (chapters ? Investing (chapters ? Retirement and estate planning

(chapters ?

1-1-2424 Developing a Flexible Financial Plan

A financial plan is formalized report that...– Summarizes your current financial situation.– Analyzes your financial needs.– Recommends future financial activities.

You financial plan can be created by you, done with assistance from a financial planner, or made using a money management software package.

1-1-2525 Implementing Your Financial Plan

Develop good financial habits.– Use a well conceived spending plan to help you

stay within your income, while allowing you to save and invest for the future.

– Have appropriate insurance protection to prevent financial disasters.

– Become informed about tax and investment alternatives.

– Study personal finance.

1-1-2626 Implementing Your Financial Plan

Achieving your financial objectives requires two things. A willingness to learn. Appropriate information sources

Current periodicals.Financial institutions.Courses and seminars.Personal financial software.The World Wide Web.Financial specialists.

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