Fundamentals of personal_finance


Published on

  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Fundamentals of personal_finance

  1. 1. Fundamentals of Personal Finance<br />Participants - Team CTS<br />
  2. 2. Learning Objectives<br />List the benefits of studying personal finance.<br />Summarize the key steps in successful personal financial engineering.<br />Understand the basic terms in personal finance <br />Assets Vs Liabilities<br />Savings Vs Investments <br />Understanding time value of money <br />Applying time value of money concept to <br />Wealth Creation<br />Retirement<br />Insurance <br />
  3. 3. Financial Literacy<br />Financial literacy is knowledge of...<br />Facts<br />Concepts<br />Principles<br />Technological tools <br />...fundamental to being smart about money.<br />
  4. 4. Financial Responsibility<br />Financial responsibility is being accountable for:<br />Your financial decisions and<br />Your own financial well-being.<br />“If it is to be, it is up to me”<br />
  5. 5. Personal Financial Engineering<br />What is it?<br />Personal Financial Engineering is the development and implementation and monitoring of long-term plans to achieve Financial Freedom.<br />
  6. 6. Financial Planning Benefits<br />Financial planning helps you achieve:<br />Financial Success– achievement of financial aspirations.<br />Financial Security– being able to fulfill any needs and most wants.<br />Wealth – an abundance of money and other financial resources.<br />Financial Freedom – the state where work is an option, you choose. Not compelled to opt. <br />
  7. 7. The Building Blocks ofFinancial Freedom<br />Image credit: Dr. Thomas Garman<br />
  8. 8. Important Personal Finance Terms<br />Asset – is one that gives a positive cash flow<br />Liability – is one that gives a negative cash flow<br />Examples?<br />
  9. 9. …Important Personal Finance Terms…<br />Inflation–Steady rise in the general level of prices (reduces purchasing power) <br />Deflation–Falling prices. <br />Examples?<br />
  10. 10. …Important Personal Finance Terms<br />Savings Vs Investment<br />
  11. 11. Opportunity Costs and Trade-offs in Decision Making<br />Opportunity Cost – Value of the next best alternative that must be foregone.<br />Opportunity cost reflects the best alternative of what one could have done instead of choosing to spend, save, or invest money. Examples?<br />Trade-offs occur when you give up one thing for another. <br />
  12. 12. The Time Value of Money in Financial Decision Making<br />The Time Value of Money compares:<br />value in the future of a Rupee received today (FV)<br />value today of a Rupee amount to be received in the future (PV)<br />Key factors: Time, Interest, Principal<br />Annuity - a series ofpayments/deposits<br />
  13. 13. Compound Interest<br />Compound Interest – interest earned on interest.<br />Compounding – the process of earning compound interest – is the best way to to build wealth over time.<br />
  14. 14. Calculating Future Values<br />Future Value (FV) – Value of an asset at the end of a particular time period. <br />Example:Wealth Creation<br />
  15. 15. Easy Thumb Rule - The Rule of 72<br />Calculates the number of years it takes for principal to double<br />Years = 72 divided by interest rate.<br />Example: 72 divided by 8% = 9 years<br />Calculates the interest rate it takes for principal to double<br />Interest rate = 72 divided by number of years<br />Example: 72 divided by 10 years = 7.2%<br />
  16. 16. Illustration: The Rule of 72<br />
  17. 17. Future Value of an Annuity <br />What lump sum will be got over time if a series of deposits are made (assuming same amount is deposited each time)<br />Example: Power of Compounding: <br />
  18. 18. Present Value of a Lump Sum <br />Present Value (PV) - Today’s valueof an amount to be received at a future date.<br />Example: How much should I deposit?<br />
  19. 19. Present Value of an Annuity <br />Present value of a stream of payments to be received in the future.<br />Example:Retirement Planning<br />
  20. 20. Risk Management <br />Insurance helps to transfer risk at low cost<br />How much insurance do I need?<br />Milestone Planning<br />Income Replacement Method<br />
  21. 21. Golden Rules of Personal Finance<br />“Pay yourself first” by spending less than you earn<br />Stay up-to-date about current economic conditions<br />Map your financial future by establishing goals and making realistic plans to achieve them<br />Insure your risks<br />Take advantage of tax benefits on investments<br />Develop expertise in financial matters <br />Remember that you are responsible for your own financial success.<br />