Chapter 1 Personal Finance in Action

Focus on Personal Finance
Personal Financial Planningin Action
Chapter 1

Objectives
Identify social and economic influences on personal financial goals and decisions
Develop personal financial goals.
Assess personal and financial opportunity costs associated with financial decisions
Implement a plan for making personal financial and career decisions

Lesson 1:
Making Financial Decisions

Advantages of Personal Financial Planning
Increased effectiveness in obtaining, using and protecting financial resources
Increased control of your financial affairs
Improved personal relationships
A sense of freedom from financial worries

Factors in Financial Planning Decision Making
Life situation
Economy
Financial Planning Activities

Life Situation
Adult lifecycle stage
Age
Marital status
Number and Age of household members
Employment Situation
Major events
Graduation, marriage, children, retirement etc.
Values or what is important to you

Economy
The economic environment
Institutions, principally business, labor and government that work together to satisfy our needs and wants.
Federal Reserve Bank (The Fed)-
Is our nation‘s central bank and very important in our economy
Is concerned with maintaining an adequate money supply by influencing:
Borrowing
Interest rates
Buying and selling government securities

Economy cont’d
Global Influences
Imports vs Exports
Inflation- the rise in the general level of prices
Buying power of the dollar decreases
Interest rates
represent the cost of money

Financial Planning Activities
Obtaining-receipt of income and other financial resources
Planning-actions to determine future directions
Saving- set aside funds for expected and unexpected expenses
Borrowing-appropriate use of short-and long-term credit plans

Financial Planning Activities cont’d
Spending- analysis of purchasing decisions for wise money use
Managing Risk-insurance and other methods to reduce financial uncertainty
Investing-accumulation of funds for long-term financial security
Retirement and Estate Planning-efforts to provide for post-career years and transfer of assets

Lesson 2:
Developing and Achieving Financial Goals

Type of Financial Goals
Short-term- achieved in next year or so
Intermediate goals- achieved in 2-5 years
Long-term goals-plans more than 5 years off

Goal Setting Guidelines
Goals should be realistic
Goals should be stated in specific terms
Goals should have a time frame
Goals should indicate the action to be taken
Discuss some of your goals

Lesson 3:
Opportunity Costs and the Time Value of Money

Personal Opportunity Cost
Opportunity Costs- what a person gives up to make a choice
Personal Costs
time used for one activity cannot be used for another
Financial Costs
Saving or investing a dollar instead of spending results in a future amount greater than a dollar.
Current needs can make spending worthwhile but future interest earned is foregone.

Time Value of Money
TVM- The increases in an amount of money as a result of interest earned.

Simple Interest
Amount in savings x annual interest rate x time period equals the interest.$100 x 5% x 1 (1 year) 100 x .05 x 1 = $5.00In one year you have $100 in principle plus $5.00 in interest for a total of $105 at the end of the year.

Future Value
Future value is the amount to which current savings will increase based on a certain interest rate and a certain time period.
Future value is also call compounding - earning interest on previously earned interest.
Future value can be computed for a single amount or for a series of deposits.

Present Value
The current value for a future amount based on a certain interest rate and a certain time period.
Present value calculations are also called discounting.
The present value of the amount you want in the future will always be less than the future value.
Present value can be computed for a single amount or for a series of deposits.

Lesson 4:
A Plan for Personal Financial Planning

A Plan for Personal Financial Planning

Determine your current financial situation.
Develop your financial goals.
Identify alternative courses of action.
Evaluate your alternatives.
Create and implement your financial action plan.
Review and revise your plan

Lesson 5:
Career Choice and Financial Planning

Career Planning Process
Personal assessment
Employment market analysis
Application process
Interview process
Employment acceptance
Career Development and Advancement

Identify Career Trends
Print and other media sources such as the Occupational Outlook Handbook
Online sources are available of all aspects of career planning
Informational interviews- A planning discussions with a person in a field of interest

Obtain Employment Experience
Part-time employment
Volunteer work
Internships
Campus projects

Identifying Job Opportunities
Job advertisements
Career fairs
Employment agencies
Business contacts
Job creation
Other job search sources

Resumes
Present in a professional manner
Limit to one page (use more pages only if you have enough valid information)
Use action words to demonstrate accomplishments
Foreign language skills, computer experience, research experience, overseas study, team projects, flexible, achievement

Cover Letters
Introductory paragraph gets readers attention.
The development paragraphs highlights aspects of your background that qualify you for position.
The concluding paragraph should request action.
Close by summarizing your benefits to the organization.