An Overview of Personal Finance Chapter 1
Meaning and Importance of Personal Finance <ul><li>Can improve your standard of living </li></ul><ul><li>Today’s environme...
Personal Financial Planning—A Lifelong Activity <ul><li>No matter how old you are, you’ll have financial goals </li></ul><...
Personal Financial Toolbox <ul><li>Once you graduate from college (and now have a ‘real’ job) </li></ul><ul><ul><li>Figure...
Personal Financial Toolbox <ul><li>Get your debts under control (if they’re not already) </li></ul><ul><ul><li>Pay off hig...
Getting Professional Help <ul><li>Many colleges & universities offer credit counseling </li></ul><ul><li>May use services ...
Web Links <ul><li>www.moneycentral.com </li></ul><ul><li>www.quicken.com </li></ul><ul><li>www.motleyfool.com </li></ul>
A Personal Financial Management Model <ul><li>Financial plan is a guide to help you reach your targeted future goals </li>...
A Personal Financial Management Model <ul><li>All financial plans revolve around: </li></ul><ul><ul><li>Maximizing income ...
A Personal Financial Management Model <ul><li>Pitfalls of Poor Financial Planning </li></ul><ul><ul><li>Missed or late pay...
Setting Personal Goals <ul><li>Your values will influence your financial goals </li></ul><ul><ul><li>What things in life a...
Your Personal Financial Decisions <ul><li>Career choice </li></ul><ul><ul><li>Most of your income comes from salaries/wage...
Your Personal Financial Decisions <ul><li>Tax Planning </li></ul><ul><ul><li>How can you reduce your taxes? </li></ul></ul...
Your Personal Financial Decisions <ul><li>Investment Management </li></ul><ul><ul><li>Invest to increase your future wealt...
Your Personal Financial Decisions <ul><li>Financial Planning for Tomorrow </li></ul><ul><ul><li>Planning for your children...
External Factors <ul><li>External Factors to consider </li></ul><ul><ul><li>Government policy </li></ul></ul><ul><ul><ul><...
External Factors <ul><li>Economic Conditions </li></ul><ul><ul><li>The Business Cycle </li></ul></ul><ul><ul><ul><li>Short...
External Factors <ul><ul><li>Unemployment rate: </li></ul></ul><ul><ul><ul><li>The percentage of workforce currently looki...
External Factors <ul><ul><li>Government Policy and Economic Activity </li></ul></ul><ul><ul><ul><li>Government influences ...
Figure 1.5:  Real GDP
Figure 1.6:  Breakdown of Personal Income
Upcoming SlideShare
Loading in …5
×

Slides by Pamela L. Hall

466 views

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
466
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
2
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Slides by Pamela L. Hall

  1. 1. An Overview of Personal Finance Chapter 1
  2. 2. Meaning and Importance of Personal Finance <ul><li>Can improve your standard of living </li></ul><ul><li>Today’s environment has impacted personal finance over the years </li></ul><ul><ul><li>Sluggish growth in personal income </li></ul></ul><ul><ul><ul><li>After adjusting for inflation and taxes, personal income growth has only been about 2% a year for the last 2 decades </li></ul></ul></ul><ul><ul><li>Charges in the labor market </li></ul></ul><ul><ul><li>Most people starting jobs today will work at numerous companies during their career(s) </li></ul></ul><ul><ul><li>More options </li></ul></ul><ul><ul><ul><li>Many more options available today in investments, retirement planning, banking, etc . </li></ul></ul></ul>
  3. 3. Personal Financial Planning—A Lifelong Activity <ul><li>No matter how old you are, you’ll have financial goals </li></ul><ul><li>What works when you’re 20, won’t necessarily work when you’re 40 </li></ul><ul><ul><li>In your 20s your goals may be paying off student loans, buying your 1 st house </li></ul></ul><ul><ul><li>In your 70s your goal may be making sure your retirement funds last your lifetime </li></ul></ul>
  4. 4. Personal Financial Toolbox <ul><li>Once you graduate from college (and now have a ‘real’ job) </li></ul><ul><ul><li>Figure out your current financial standing </li></ul></ul><ul><ul><ul><li>How much do you owe? </li></ul></ul></ul><ul><ul><ul><li>What assets do you have? </li></ul></ul></ul><ul><ul><ul><ul><li>Prepare an income statement and balance sheet </li></ul></ul></ul></ul><ul><ul><li>Put yourself on a budget </li></ul></ul><ul><ul><li>Insure yourself against financial ruin </li></ul></ul><ul><ul><ul><li>Life, health, property </li></ul></ul></ul>
  5. 5. Personal Financial Toolbox <ul><li>Get your debts under control (if they’re not already) </li></ul><ul><ul><li>Pay off high-rate loans (or roll over into lower-rate loans) </li></ul></ul><ul><li>Start saving for retirement </li></ul><ul><li>Set up a regular savings program (pay yourself) </li></ul><ul><ul><li>Have money automatically transferred from checking to savings </li></ul></ul><ul><ul><li>Treat this like a fixed expense </li></ul></ul>
  6. 6. Getting Professional Help <ul><li>Many colleges & universities offer credit counseling </li></ul><ul><li>May use services of a CPA or professional investment advisor </li></ul><ul><li>Dozens of financial self-help books </li></ul><ul><li>Online financial information is available </li></ul><ul><li>If you use a financial planner make sure they are qualified </li></ul>
  7. 7. Web Links <ul><li>www.moneycentral.com </li></ul><ul><li>www.quicken.com </li></ul><ul><li>www.motleyfool.com </li></ul>
  8. 8. A Personal Financial Management Model <ul><li>Financial plan is a guide to help you reach your targeted future goals </li></ul><ul><ul><li>Step 1: Develop short and long-term goals </li></ul></ul><ul><ul><ul><li>Influenced by your personal values & current financial situation </li></ul></ul></ul><ul><ul><li>Step 2: Establish financial strategies </li></ul></ul><ul><ul><li>Step 3: Put plan in action & monitor performance </li></ul></ul>
  9. 9. A Personal Financial Management Model <ul><li>All financial plans revolve around: </li></ul><ul><ul><li>Maximizing income and wealth </li></ul></ul><ul><ul><ul><li>The amount of money you earn is a vital past of any plan </li></ul></ul></ul><ul><ul><li>Using money more effectively </li></ul></ul><ul><ul><ul><li>Spend (and save) your money wisely </li></ul></ul></ul><ul><ul><ul><ul><li>Little things add up </li></ul></ul></ul></ul><ul><ul><li>Monitoring expenditures </li></ul></ul><ul><ul><ul><li>Use a budget to help control expenditures </li></ul></ul></ul><ul><ul><ul><li>The more you know about loans, investments, etc ., the more likely you are to make a good decision </li></ul></ul></ul>
  10. 10. A Personal Financial Management Model <ul><li>Pitfalls of Poor Financial Planning </li></ul><ul><ul><li>Missed or late payments will be noticed </li></ul></ul><ul><ul><ul><li>Creditors may: </li></ul></ul></ul><ul><ul><ul><ul><li>Repossess your property </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Garnish your wages </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Force you to file for personal bankruptcy </li></ul></ul></ul></ul><ul><ul><ul><li>A bad credit record can last for years </li></ul></ul></ul>
  11. 11. Setting Personal Goals <ul><li>Your values will influence your financial goals </li></ul><ul><ul><li>What things in life are important to you? </li></ul></ul><ul><li>Your financial goals are influenced by your current financial situation </li></ul><ul><ul><li>Prepare current financial statements </li></ul></ul><ul><ul><ul><li>Review them to determine what you own, what you owe, & where you’re spending your money </li></ul></ul></ul><ul><ul><li>Prepare a budget </li></ul></ul><ul><ul><li>Prepare a list of short and long-term goals </li></ul></ul><ul><ul><ul><li>Make sure they are realistic and obtainable </li></ul></ul></ul><ul><ul><li>Write down your goals and periodically review them </li></ul></ul>
  12. 12. Your Personal Financial Decisions <ul><li>Career choice </li></ul><ul><ul><li>Most of your income comes from salaries/wages– determines your lifestyle </li></ul></ul><ul><li>Basic money management </li></ul><ul><ul><li>Prepare a budget </li></ul></ul><ul><ul><li>Select the right bank </li></ul></ul><ul><ul><li>Establish a regular savings plan </li></ul></ul><ul><li>Credit management </li></ul><ul><ul><li>Don’t bite off more than you can chew </li></ul></ul><ul><ul><li>Find a good credit card </li></ul></ul><ul><ul><li>Learn how to compute interest charges/monthly payments </li></ul></ul><ul><ul><li>Find out your credit history (report) </li></ul></ul><ul><ul><li>Learn what to do if you get into trouble </li></ul></ul>
  13. 13. Your Personal Financial Decisions <ul><li>Tax Planning </li></ul><ul><ul><li>How can you reduce your taxes? </li></ul></ul><ul><li>Effective Buying </li></ul><ul><ul><li>Real estate, cars, etc . </li></ul></ul><ul><ul><ul><li>Renting vs. owning </li></ul></ul></ul><ul><li>Insurance </li></ul><ul><ul><li>How much insurance should you have (if any)? </li></ul></ul><ul><ul><ul><li>Life </li></ul></ul></ul><ul><ul><ul><li>Health </li></ul></ul></ul><ul><ul><ul><li>Property </li></ul></ul></ul><ul><ul><ul><li>Disability </li></ul></ul></ul><ul><ul><ul><li>Liability </li></ul></ul></ul>
  14. 14. Your Personal Financial Decisions <ul><li>Investment Management </li></ul><ul><ul><li>Invest to increase your future wealth </li></ul></ul><ul><ul><ul><li>Difficult to substantially increase future wealth without investing </li></ul></ul></ul><ul><ul><li>Investments are risky, choices include: </li></ul></ul><ul><ul><ul><li>Mutual funds </li></ul></ul></ul><ul><ul><ul><li>Stocks </li></ul></ul></ul><ul><ul><ul><li>Bonds </li></ul></ul></ul><ul><ul><ul><li>Options and futures </li></ul></ul></ul><ul><ul><ul><li>Real estate </li></ul></ul></ul><ul><ul><ul><li>Art </li></ul></ul></ul><ul><ul><ul><li>Coins </li></ul></ul></ul><ul><ul><ul><li>Metals (gold, silver , etc.) </li></ul></ul></ul>
  15. 15. Your Personal Financial Decisions <ul><li>Financial Planning for Tomorrow </li></ul><ul><ul><li>Planning for your children’s college education </li></ul></ul><ul><ul><ul><li>Becoming more and more expensive </li></ul></ul></ul><ul><li>Retirement Planning </li></ul><ul><ul><li>How do you want to live your retirement? </li></ul></ul><ul><ul><li>How much (if any) do you want to pass along to your heirs? </li></ul></ul><ul><ul><li>How long remains until you retire? </li></ul></ul><ul><ul><li>Will Social Security be enough? </li></ul></ul>
  16. 16. External Factors <ul><li>External Factors to consider </li></ul><ul><ul><li>Government policy </li></ul></ul><ul><ul><ul><li>Tax rates, credits, deductions, etc . </li></ul></ul></ul><ul><ul><ul><ul><li>Will the capital gains rate increase? </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Interest on student loans </li></ul></ul></ul></ul><ul><ul><ul><li>Changes to Social Security </li></ul></ul></ul><ul><ul><ul><ul><li>Will the retirement age be increased? </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Will payroll taxes increase? </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Will benefits to ‘wealthy’ retirees be reduced? </li></ul></ul></ul></ul><ul><ul><ul><li>Health insurance reform </li></ul></ul></ul><ul><ul><ul><ul><li>The cost of health insurance will probably rise over the years </li></ul></ul></ul></ul>
  17. 17. External Factors <ul><li>Economic Conditions </li></ul><ul><ul><li>The Business Cycle </li></ul></ul><ul><ul><ul><li>Shorter-term sequences of expansions and contractions (recession) </li></ul></ul></ul><ul><ul><ul><ul><li>Typical business cycle has four stages: prosperity, decline, recession, and recovery </li></ul></ul></ul></ul><ul><ul><li>Gross Domestic Product </li></ul></ul><ul><ul><ul><li>Represents the total value of goods and services produced by a nation’s economy </li></ul></ul></ul><ul><ul><ul><ul><li>Important determinant of personal income </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Disposable personal income—what remains after income taxes </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Discretionary personal income—what remains after all necessary living expenses have been paid </li></ul></ul></ul></ul></ul>
  18. 18. External Factors <ul><ul><li>Unemployment rate: </li></ul></ul><ul><ul><ul><li>The percentage of workforce currently looking for a job </li></ul></ul></ul><ul><ul><ul><ul><li>Inversely related to economic activity </li></ul></ul></ul></ul><ul><ul><li>Inflation </li></ul></ul><ul><ul><ul><li>Inflation decreases the purchasing power of the dollar </li></ul></ul></ul><ul><ul><ul><li>Inflation has been about 3% in recent years </li></ul></ul></ul><ul><ul><ul><li>Income sources with cost-of-living increases are tied to inflation </li></ul></ul></ul><ul><ul><li>Interest Rates </li></ul></ul><ul><ul><ul><li>If you think interest rates are going to rise sharply, buy that house/car now instead of waiting </li></ul></ul></ul><ul><ul><ul><li>Interest Rates are tied to inflation </li></ul></ul></ul><ul><ul><ul><li>Nominal interest rates are those that you pay or receive where as real interest rates are nominal rates less the rate of inflation </li></ul></ul></ul><ul><ul><ul><ul><li>For instance, if a six month CD pays a 5% nominal rate, but inflation is 2%, then you are earning a real rate of 3% </li></ul></ul></ul></ul>
  19. 19. External Factors <ul><ul><li>Government Policy and Economic Activity </li></ul></ul><ul><ul><ul><li>Government influences economy </li></ul></ul></ul><ul><ul><ul><ul><li>If taxes increase and government spending remains unchanged, economic growth will slow </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Federal Reserve Board can increase or decrease the supply of money </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Impacts interest rates, inflation, and economic growth </li></ul></ul></ul></ul></ul><ul><ul><li>Recession/Expansion </li></ul></ul><ul><ul><ul><li>If you think a recession is in the near future, save more now (in case you get laid off) </li></ul></ul></ul>
  20. 20. Figure 1.5: Real GDP
  21. 21. Figure 1.6: Breakdown of Personal Income

×