Business and Personal Finance Unit
1
Business and Personal Finance Unit
2
Chapter 1
Personal Financial Planning
What You’ll Learn
 Section 1.1
 Define person...
Business and Personal Finance Unit
3
The Money Plan
• Q: I am a high school student. I do not have money for
investments o...
Business and Personal Finance Unit
4
Section 1.1
Financial Decisions and Goals
Main Idea
The steps in the financial planni...
Business and Personal Finance Unit
5
Personal Financial Decisions
Personal finance is everything in your life that
involve...
Business and Personal Finance Unit
6
The financial planning process has six steps to
help you reach your goals.
Step 1: De...
Business and Personal Finance Unit
7
Step 2: Develop Your Financial Goals
To develop clear financial goals, think about
yo...
Business and Personal Finance Unit
8
Step 3: Identify Your Options
It is impossible to make a good decision unless
you kno...
Business and Personal Finance Unit
9
Step 4: Evaluate Your Alternatives
You must consider the consequences and risks
of ea...
Business and Personal Finance Unit
10
Understanding Risks
When you make a financial decision, you also
accept certain fina...
Business and Personal Finance Unit
11
Step 5: Create and Use Your Financial
Plan of Action
A plan of action is a list of w...
Business and Personal Finance Unit
12
Step 6: Review and Revise Your Plan
As you get older, your finances and needs will
c...
Business and Personal Finance Unit
13
Developing Personal Financial Goals
Why do so many people have money problems?
The m...
Business and Personal Finance Unit
14
Pay Yourself First
When you receive your first paycheck, pay yourself first. This
me...
Business and Personal Finance Unit
15
Types of Financial Goals
Two factors will influence your planning for
financial goal...
Business and Personal Finance Unit
16
Time Frame of Goals
Goals can be defined by the time it takes to
achieve them:
 Sho...
Business and Personal Finance Unit
17
Goals for Different Needs
Services and goods are two different categories
of financi...
Business and Personal Finance Unit
18
Guidelines for Setting Goals
When setting your financial goals, follow these
guideli...
Business and Personal Finance Unit
19
Influences on Personal Financial
Planning
Many factors will influence your day-to-da...
Business and Personal Finance Unit
20
Life Situations and Personal Values
Your financial planning will be affected by
chan...
Business and Personal Finance Unit
21
Economic Factors
Economic factors across the country and
around the world play a rol...
Business and Personal Finance Unit
22
Market Forces
The forces of supply and demand determine the
prices of products, or g...
Business and Personal Finance Unit
23
Financial Institutions
Most people do business with financial
institutions, which in...
Business and Personal Finance Unit
24
The Federal Reserve System
The Federal Reserve System’s primary role in
the U.S. eco...
Business and Personal Finance Unit
25
Global Influences
You and the money you spend are part of the
global marketplace, wh...
Business and Personal Finance Unit
26
Economic Conditions
Current economic conditions also affect your
personal financial ...
Business and Personal Finance Unit
27
Consumer Prices
Over time the prices of most products inflate.
The main cause of inf...
Business and Personal Finance Unit
28
Consumer Spending
Consumer spending affects the economy by
helping to create and mai...
Business and Personal Finance Unit
29
Interest Rates
Interest rates represent the cost of money
and are also influenced by...
Business and Personal Finance Unit
30
Why do you think
you may have to
make trade-offs to
meet your
financial goals?
Secti...
Business and Personal Finance Unit
31
Personal and Financial Opportunity
Costs
Whenever you make a choice, you have to giv...
Business and Personal Finance Unit
32
Personal Opportunity Costs
Like financial resources, your personal
resources require...
Business and Personal Finance Unit
33
Financial Opportunity Costs
You also must make choices about how you
spend money.
To...
Business and Personal Finance Unit
34
Calculating Interest
You can calculate the time value of your savings
by figuring ou...
Business and Personal Finance Unit
35
Future Value of a Single Deposit
You can determine the future value of your
savings ...
Business and Personal Finance Unit
36
Compounding
To calculate the interest earned for the second
year:
 Add interest ear...
Business and Personal Finance Unit
37
Deposit Values
Some savers and investors like to make regular
deposits into their sa...
Business and Personal Finance Unit
38
Business and Personal Finance Unit
39
Achieving Your Financial Goals
Throughout your life you will have many
different fin...
Business and Personal Finance Unit
40
Strategies to Achieve Your Financial
Goals
By using the following eight strategies, ...
Business and Personal Finance Unit
41
Developing and Using a Financial Plan
A good personal financial plan includes:
 Ass...
Business and Personal Finance Unit
42
Financial Planning
When developing and using a financial plan,
you can:
 Design a p...
Business and Personal Finance Unit
43
Key Term Review
 personal financial planning
 goals
 values
 opportunity cost
 ...
Business and Personal Finance Unit
44
Chapter 1
Personal Financial Planning
Reviewing Key Concepts
1. Explain personal fin...
Business and Personal Finance Unit
45
Reviewing Key Concepts
2. Describe the six strategies of financial planning.
The six...
Business and Personal Finance Unit
46
Reviewing Key Concepts
3. Describe the factors that affect personal financial decisi...
Business and Personal Finance Unit
47
Reviewing Key Concepts
4. Explain opportunity costs and how they might affect your
p...
Business and Personal Finance Unit
48
Reviewing Key Concepts
5. List eight strategies for achieving financial goals.
The f...
Business and Personal Finance Unit
49
Newsclip: Internet Planning
If your knowledge about personal finance is limited, bei...
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  • Answer:
    $670.80 ($860 x .01 = $8.60; $860 x .02 = $17.20, etc. Then add $8.60 + $17.20, etc. = $670.80)
  • Business and Personal Finance Unit 1 Chapter 1 © 2007 Glencoe ...

    1. 1. Business and Personal Finance Unit 1
    2. 2. Business and Personal Finance Unit 2 Chapter 1 Personal Financial Planning What You’ll Learn  Section 1.1  Define personal financial planning.  Name the six steps of financial planning.  Identify factors that affect personal financial decisions.  Section 1.2  Explain opportunity costs associated with personal financial decisions.  Identify eight strategies for achieving financial goals at different stages of life.
    3. 3. Business and Personal Finance Unit 3 The Money Plan • Q: I am a high school student. I do not have money for investments or buying property. So what difference does it make how I spend my money now? • A: You will not always be a student. Learning to save and use money wisely now will help you know how to achieve financial security in the future. While you are in high school, financial planning can help you decide how to spend, save, and invest your money for special purchases or activities that matter to you. You may even be able to buy stock! Go to finance07.glencoe.com to complete the Standard & Poor’s Financial Focus activity. 2Business and Personal Finance Unit 1 Chapter 1 © 2007 Glencoe/McGraw-Hill
    4. 4. Business and Personal Finance Unit 4 Section 1.1 Financial Decisions and Goals Main Idea The steps in the financial planning process can help you reach your financial goals. Video Clip: Why Have a Financial Plan? List three of your financial goals. Business and Personal Finance Unit 1 Chapter 1 © 2007 Glencoe/McGraw-Hill 3
    5. 5. Business and Personal Finance Unit 5 Personal Financial Decisions Personal finance is everything in your life that involves money. Some of the benefits of personal financial planning are:  You have more money and financial security.  You know how to use money to achieve your goals.  You have less chance of going into debt you cannot handle.  You can help your partner and support your children, if you have a family. personal financial planning arranging to spend, save, and invest money to live comfortably, have financial security, and achieve goals Section 1.1 Financial Decisions and Goals
    6. 6. Business and Personal Finance Unit 6 The financial planning process has six steps to help you reach your goals. Step 1: Determine Your Current Financial Situation To figure out your current financial situation, make a list of items that relate to your finances, such as:  Savings  Monthly income (job earnings, allowance, gifts, and interest on bank accounts)  Monthly expenses (money you spend)  Debts (money you owe to others) When you have determined your financial situation, you will be able to start planning. Section 1.1 Financial Decisions and Goals goals the things you want to accomplish
    7. 7. Business and Personal Finance Unit 7 Step 2: Develop Your Financial Goals To develop clear financial goals, think about your attitude toward money and ask yourself some questions:  Is it more important to spend your money now or to save for the future?  Would you rather get a job right after high school or continue your education?  Do your personal values affect your financial decisions?  Do you know the difference between your needs and your wants? values the beliefs and principles you consider important, correct, and desirable need something you must have to survive, such as food, shelter, and clothing want something you desire or would like to have or do Section 1.1 Financial Decisions and Goals
    8. 8. Business and Personal Finance Unit 8 Step 3: Identify Your Options It is impossible to make a good decision unless you know all your options. If you are saving $50 a month, for example, you might have these options:  Expand the current situation by increasing the amount of money you save every month to $60.  Change the current situation by investing in stocks instead of putting your money into a savings account.  Start something new by using the $50 to pay off your debts.  Continue the same course of action. Section 1.1 Financial Decisions and Goals
    9. 9. Business and Personal Finance Unit 9 Step 4: Evaluate Your Alternatives You must consider the consequences and risks of each decision you make during the financial planning process. You can do this by:  Using the many available sources of financial information to keep you up-to- date with social and economic conditions that can affect your financial situation.  Understanding the opportunity cost of your decisions. opportunity cost what is given up when making one choice instead of another Section 1.1 Financial Decisions and Goals
    10. 10. Business and Personal Finance Unit 10 Understanding Risks When you make a financial decision, you also accept certain financial risks. Some types of financial risks include:  Inflation Risk  Interest Rate Risk  Income Risk  Personal Risk  Liquidity Risk liquidity the ability to easily convert financial assets into cash without loss in value Section 1.1 Financial Decisions and Goals
    11. 11. Business and Personal Finance Unit 11 Step 5: Create and Use Your Financial Plan of Action A plan of action is a list of ways to achieve your financial goals. Some examples of plans of action include:  Cutting back on spending to increase your savings.  Getting a part-time job or working more hours at your present job to increase your income. Section 1.1 Financial Decisions and Goals
    12. 12. Business and Personal Finance Unit 12 Step 6: Review and Revise Your Plan As you get older, your finances and needs will change. That means that your financial plan will have to change too. You should reevaluate and revise it every year. Section 1.1 Financial Decisions and Goals
    13. 13. Business and Personal Finance Unit 13 Developing Personal Financial Goals Why do so many people have money problems? The main reason is that they do not plan how they will use their money. You can avoid money problems by planning with some clear financial goals in mind. Section 1.1 Financial Decisions and Goals
    14. 14. Business and Personal Finance Unit 14 Pay Yourself First When you receive your first paycheck, pay yourself first. This means that before you pay bills or buy anything, you should put something into your savings account—even a small amount. Think of it as paying yourself. Try saving a percentage of your take-home pay or allowance—1 percent the first month, 2 percent the second month, and so forth. Then sit back and watch you money grow. If your take-home pay is $860 a month and you save the percentages listed above for 12 months, how much would you have? 13Business and Personal Finance Unit 1 Chapter 1 © 2007 Glencoe/McGraw-Hill
    15. 15. Business and Personal Finance Unit 15 Types of Financial Goals Two factors will influence your planning for financial goals. These factors are:  The time frame in which you would like to achieve your goals.  The type of financial need that inspires your goals. Section 1.1 Financial Decisions and Goals
    16. 16. Business and Personal Finance Unit 16 Time Frame of Goals Goals can be defined by the time it takes to achieve them:  Short-term goals take one year or less to achieve (such as saving to buy a computer).  Intermediate goals take two to five years to achieve (such as saving for a down payment on a house).  Long-term goals take more than five years to achieve (such as planning for retirement). Start with short-term goals that may lead to long-term ones. Section 1.1 Financial Decisions and Goals
    17. 17. Business and Personal Finance Unit 17 Goals for Different Needs Services and goods are two different categories of financial needs. A haircut is an example of a service, while a new car is a good. How you establish and reach your financial goals will depend on whether a goal involves the need for:  Consumable goods (such as a soda)  Durable goods (such as a car)  Intangible items (such as an education) service a task that a person or a machine performs for you good a physical item that is produced and can be weighed or measured Section 1.1 Financial Decisions and Goals
    18. 18. Business and Personal Finance Unit 18 Guidelines for Setting Goals When setting your financial goals, follow these guidelines:  Your financial goals should be realistic.  Your financial goals should be specific.  Your financial goals should have a clear time frame.  Your financial goals should help you decide what type of action to take. Your financial goals will change as you go through life. Section 1.1 Financial Decisions and Goals
    19. 19. Business and Personal Finance Unit 19 Influences on Personal Financial Planning Many factors will influence your day-to-day decisions about finances. The three most important factors are:  Life situations  Personal values  Economic factors Section 1.1 Financial Decisions and Goals
    20. 20. Business and Personal Finance Unit 20 Life Situations and Personal Values Your financial planning will be affected by changes in your life situation, such as:  Going to college  Starting a new career  Getting married  Having children  Moving to a new city Your personal values also influence your financial decisions. Section 1.1 Financial Decisions and Goals
    21. 21. Business and Personal Finance Unit 21 Economic Factors Economic factors across the country and around the world play a role in day-to-day financial planning and decision making for most people. To understand economics and the economy, you need to be aware of:  Market forces  Financial institutions  Global influences  Economic conditions economics the study of the decisions that go into making, distributing, and using goods and services economy the ways in which people make, distribute, and use their goods and services Section 1.1 Financial Decisions and Goals
    22. 22. Business and Personal Finance Unit 22 Market Forces The forces of supply and demand determine the prices of products, or goods and services, you purchase. When there is a high demand for an item, or when a company cannot manufacture enough of a certain product to keep up with the demand, the price of the product rises. supply the amount of goods and services available for sale demand the amount of goods and services people are willing to buy Section 1.1 Financial Decisions and Goals
    23. 23. Business and Personal Finance Unit 23 Financial Institutions Most people do business with financial institutions, which include:  Banks  Credit unions  Savings and loan associations  Insurance companies  Investment companies Financial institutions provide services that increase financial activity in the economy. Section 1.1 Financial Decisions and Goals
    24. 24. Business and Personal Finance Unit 24 The Federal Reserve System The Federal Reserve System’s primary role in the U.S. economy is the regulation of the money supply. The Fed controls the money supply by:  Determining interest rates  Buying or selling government securities Its decisions affect:  The interest rate you earn on your savings  The interest rate you pay when you borrow money  The prices of the products you buy Federal Reserve System the central banking organization of the United States, also known as the Fed Section 1.1 Financial Decisions and Goals
    25. 25. Business and Personal Finance Unit 25 Global Influences You and the money you spend are part of the global marketplace, which is another economic factor that can affect financial planning. The economy of every nation is affected by competition with other nations. When more money is leaving the U.S. than entering it, for example:  Less money is available for spending and investing.  Interest rates may rise. These global influences also affect personal financial decisions. Section 1.1 Financial Decisions and Goals
    26. 26. Business and Personal Finance Unit 26 Economic Conditions Current economic conditions also affect your personal financial decisions. The three important economic conditions are:  Consumer prices  Consumer spending  Interest rates Section 1.1 Financial Decisions and Goals
    27. 27. Business and Personal Finance Unit 27 Consumer Prices Over time the prices of most products inflate. The main cause of inflation is an increase in demand without an increase in supply. For example, prices will rise if:  People have more money to spend because of pay increases or borrowing.  The same amounts of goods and services are available. The inflation rate affects consumer prices and varies from year to year. inflation a rise in the level of prices for goods and services Section 1.1 Financial Decisions and Goals
    28. 28. Business and Personal Finance Unit 28 Consumer Spending Consumer spending affects the economy by helping to create and maintain jobs. When people buy more goods or services:  Companies have to hire extra employees to meet the demand.  The employment rate rises, making more jobs available.  More people work, and they have more money to spend. When consumers buy fewer goods and services, companies have to produce less, and unemployment rises. consumer a person who purchases and uses goods or services Section 1.1 Financial Decisions and Goals
    29. 29. Business and Personal Finance Unit 29 Interest Rates Interest rates represent the cost of money and are also influenced by supply and demand. Interest rates will affect your financial planning as you:  Save  Invest  Obtain loans Interest rates are just one facet of the economic factors that influence your personal financial planning. interest the price that is paid for the use of another’s money Section 1.1 Financial Decisions and Goals
    30. 30. Business and Personal Finance Unit 30 Why do you think you may have to make trade-offs to meet your financial goals? Section 1.2 Opportunity Costs and Strategies Main Idea By recognizing the trade-offs of financial decisions and learning to use your money wisely now, you will be able to live according to your values and meet your financial needs and goals throughout your life. 29Business and Personal Finance Unit 1 Chapter 1 © 2007 Glencoe/McGraw-Hill
    31. 31. Business and Personal Finance Unit 31 Personal and Financial Opportunity Costs Whenever you make a choice, you have to give up, or trade off, some of your other options. When making your financial decisions and plans, you will need to carefully consider:  Personal opportunity costs  Financial opportunity costs Section 1.2 Opportunity Costs and Strategies
    32. 32. Business and Personal Finance Unit 32 Personal Opportunity Costs Like financial resources, your personal resources require management. These resources include:  Health  Knowledge  Skills  Time You have to decide how to use your time to meet your needs, to achieve your goals, and to satisfy your values. Section 1.2 Opportunity Costs and Strategies
    33. 33. Business and Personal Finance Unit 33 Financial Opportunity Costs You also must make choices about how you spend money. To help make choices, consider the time value of money every time you:  Spend  Save  Invest Think about the time value of this money as an opportunity cost. time value of money the increase of an amount of money due to earned interest or dividends Section 1.2 Opportunity Costs and Strategies
    34. 34. Business and Personal Finance Unit 34 Calculating Interest You can calculate the time value of your savings by figuring out how much interest you will earn. To do this, you will need to know:  The principal  The annual interest rate  The length of time your money will be in an account By comparing interest rates at several financial institutions, you can figure out which one will make your money grow the fastest. principal the original amount of money on deposit Section 1.2 Opportunity Costs and Strategies
    35. 35. Business and Personal Finance Unit 35 Future Value of a Single Deposit You can determine the future value of your savings by:  Multiplying the principal by the annual interest rate.  Adding that interest amount to the principal. Each year, interest is earned on your principal and on previously earned interest. future value the amount your original deposit will be worth in the future based on earning a specific interest rate over a specific period of time Section 1.2 Opportunity Costs and Strategies
    36. 36. Business and Personal Finance Unit 36 Compounding To calculate the interest earned for the second year:  Add interest earned in the first year to the principal.  Take that amount and multiply it by the annual interest rate. Future value computations are also called compounding. With compounding, your money increases faster over time. Section 1.2 Opportunity Costs and Strategies
    37. 37. Business and Personal Finance Unit 37 Deposit Values Some savers and investors like to make regular deposits into their savings. A series of equal regular deposits is sometimes called an annuity. You can also:  Calculate the present value of a single deposit.  Use present value calculations to determine how much you would need to deposit so you can take a specific amount of money out of your savings account for a certain number of years. You can use these calculations to determine your retirement age. annuity a series of equal regular deposits present value the amount of money you would need to deposit now in order to have a desired amount in the future Section 1.2 Opportunity Costs and Strategies
    38. 38. Business and Personal Finance Unit 38
    39. 39. Business and Personal Finance Unit 39 Achieving Your Financial Goals Throughout your life you will have many different financial needs and goals. By learning to use your money wisely now, you will be able to achieve many of those goals. Financial planning involves:  Choosing a career  Learning how to protect and manage the money you earn Section 1.2 Opportunity Costs and Strategies
    40. 40. Business and Personal Finance Unit 40 Strategies to Achieve Your Financial Goals By using the following eight strategies, you can avoid many common money mistakes:  Obtain  Plan  Spend Wisely  Save  Borrow Wisely  Invest  Manage Risk  Plan for Retirement Section 1.2 Opportunity Costs and Strategies
    41. 41. Business and Personal Finance Unit 41 Developing and Using a Financial Plan A good personal financial plan includes:  Assessing your present financial situation  Making a list of your current needs  Deciding how to plan for future needs You can design a plan on your own, hire a financial planner, or use a good money- management software program. Making your financial plan work takes time, effort, and patience, but you will develop habits that will give you a lifetime of satisfaction and security. Section 1.2 Opportunity Costs and Strategies
    42. 42. Business and Personal Finance Unit 42 Financial Planning When developing and using a financial plan, you can:  Design a plan on your own.  Hire a financial planner.  Use a good money-management software program. Making your financial plan work takes time, effort, and patience, but you will develop habits that will give you a lifetime of satisfaction and security. Section 1.2 Opportunity Costs and Strategies
    43. 43. Business and Personal Finance Unit 43 Key Term Review  personal financial planning  goals  values  opportunity cost  liquidity  service  good  economics  economy  supply  demand Chapter 1 Personal Financial Planning  Federal Reserve System  inflation  consumer  interest  time value of money  principal  future value  annuity  present value
    44. 44. Business and Personal Finance Unit 44 Chapter 1 Personal Financial Planning Reviewing Key Concepts 1. Explain personal financial planning and its importance.  You have more money and financial security.  You know how to use money to achieve your goals.  You have less chance of going into debt you cannot handle.  You can help your partner and support your children, if you have a family. Personal financial planning is arranging to spend, save, and invest money to live comfortably, have financial security, and achieve goals. Planning your personal finances is important because it will help you to reach your goals, no matter what they are. Some of the benefits of planning are:
    45. 45. Business and Personal Finance Unit 45 Reviewing Key Concepts 2. Describe the six strategies of financial planning. The six steps of financial planning are  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 Chapter 1 Personal Financial Planning
    46. 46. Business and Personal Finance Unit 46 Reviewing Key Concepts 3. Describe the factors that affect personal financial decisions.  Life situations  Personal values  Economic factors Chapter 1 Personal Financial Planning The three most important factors that influence your day-to-day decisions about finances are:
    47. 47. Business and Personal Finance Unit 47 Reviewing Key Concepts 4. Explain opportunity costs and how they might affect your personal financial decisions. Chapter 1 Personal Financial Planning An opportunity cost is what is given up when making one choice instead of another. Whenever you make a choice, you have to give up, or trade off, some of your other options. You should consider both personal and financial opportunity costs before making your financial decisions and plans.
    48. 48. Business and Personal Finance Unit 48 Reviewing Key Concepts 5. List eight strategies for achieving financial goals. The following are eight strategies for achieving financial goals:  Obtain  Plan  Spend Wisely  Save  Borrow Wisely  Invest  Manage Risk  Plan for Retirement Chapter 1 Personal Financial Planning
    49. 49. Business and Personal Finance Unit 49 Newsclip: Internet Planning If your knowledge about personal finance is limited, being Web and tech savvy will help you learn more. Finance is a frequent topic on the news and is easy to research. Log On Go to finance07.glencoe.com and open Chapter 1. Learn more about financial decisions and strategies. Write ways you can learn more about finance.
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