PERSONAL FINANCE GETTING YOUR PERSONAL FINANCES IN ORDER

PERSONAL FINANCE GETTING YOUR PERSONAL FINANCES IN ORDER

PERSONAL FINANCIAL PLANNING • Personal Finance • Is everything in your life that involves money • Personal Financial Planning • Is arranging to spend, save, and invest money to live comfortably, have financial security and achieve goals.

GOALS • These are things that you wish to accomplish • Personal Goals • Professional Goals • Financial Goals

FINANCIAL PLANNING PROCESS • 4 steps to the process 1. Determine your current financial situation 1. Make a list of your finances 1. Savings 2. Monthly Income (Job earnings, allowance, gifts) 3. Monthly Expense (money you spend) 4. Debts (money you owe other people)

STEP 2 2. Develop your Financial Goals 1. 2. 3. 4. How do you spend money? Is it more important to spend money now or save for the future Would you rather get a job or continue your education What are your VALUES 1. The beliefs and principles you consider important, correct, and desirable.

NEEDS VS. WANTS • Need • Is something you must have to survive, such as food, shelter and clothing. • Want • Is something you desire or would like to have or do.

STEP 3 3. Identify Your Options 1. 2. 3. 4. Expand your current situation Change the current situation Start something new Continue the same course of action.

STEP 4 • Step 4 – Evaluate Your Alternatives • Sources of Financial Information • Consequences of Choices • Opportunity Cost • In making a choice a trade-off is what is given up when making one choice instead of another. • Understanding Risk • • Inflation – Price may increase on a car Interest Rate – Interest rates may go up on car loans Income – Lose your job- may decrease Personal – Is the risk of you buying this product worth the overall situation. • Liquidity – How quickly can it be converted to Cash

YOUR SPENDING PROFILE • With a partner discuss the possibilities of spending a found $500

TYPES OF FINANCIAL GOALS • Time Frame of Goals • Short-Term Goals • Take one year of less to achieve • Intermediate Goals • Takes two to five years to achieve • Long-Term Goals • Takes more than 5 years to complete

GOALS FOR DIFFERENT NEEDS • 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. • Consumable goods – soda pop • Durable goods – car • Intangible goods - education

INFLUENCES ON PERSONAL FINANCIAL PLANNING • Three things that influence personal planning • Life Situations • Personal Values • Economic Factors

LIFE SITUATIONS • • • Going to College instead of work Starting a new career Getting Married Having Children Moving to a new city

ECONOMIC FACTORS • Economics • Is the study of the decisions that go into making, distributing, and using goods and services. • ECONOMY • Consists of the ways in which people make, distribute, and use their goods and services. • Market Forces • Financial institutions • Global influences • Economic Conditions

• Supply • The amount of goods and services available for sale • Demand • Is the amount of goods and services people are willing to buy.

SUPPLY V DEMAND

FINANCIAL INSTITUTIONS • • Banks Credit Unions Savings Insurance companies Investment companies These institutions guide the market The Federal Reserve

THE FEDERAL RESERVE • Is the Central banking organization of the United States. Its primary role in the U. S. economy is the regulation of the money supply. • Controls interest rates

ECONOMIC CONDITIONS • Consumer Prices • Consumer Spending • Interest Rates

CONSUMER PRICES • Over time prices of items increase. This rise in price for goods and services is called INFLATION

CONSUMER SPENDING • A person who purchases and uses goods and services. • Affects the economy by helping create and maintain jobs. • Higher Rate of employment • People have more money to spend • Vica Versa when employment is low

INTEREST RATES • Like everything else, money has a price. That price is called interest. • The price that is paid for using some else's money. • When consumers increase their saving and investments, the supply of money that is available for others to borrow grows, and interest rates go down. When consumers borrow ore money, the demand for money increases and interest rates go up. • We will discuss this more in upcoming chapters