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Chapter 10

Personal Financial Planning. Chapter 10. Why is it important to learn now how to plan for your financial future?. Personal Financial Planning. Chapter 10. The financial planning process can help you reach your financial goals. Personal Financial Planning. Chapter 10.

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Chapter 10

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  1. Personal Financial Planning Chapter 10 Why is it important to learn now how to plan for your financial future?

  2. Personal Financial Planning Chapter 10 The financial planning process can help you reach your financial goals.

  3. Personal Financial Planning Chapter 10 • personal financial planning • goals • values • liquidity • service • good • consumer • interest • time value of money • principle • future value • annuity • present value

  4. Personal Financial Planning Chapter 10

  5. Personal Financial Planning Chapter 10 Section 1 Financial Decisions and Goals • Define personal financial planning. • List the six steps of financial planning. • Identify factors that affect personal financial decisions.

  6. Personal Financial Planning Chapter 10 Section 1 Financial Decisions and Goals Personal Financial Decisions Benefits of Planning Increased effectiveness in managing financial resources Debt avoidance and reduced dependence on others Improved personal relationships A sense of freedom from financial worries

  7. Personal Financial Planning Chapter 10 Section 1 Financial Decisions and Goals Personal Financial Decisions Step 1: Determine Your Current Financial Situation Savings Monthly Income Monthly Expenses Debts

  8. Personal Financial Planning Chapter 10 Section 1 Financial Decisions and Goals Personal Financial Decisions Step 2: Develop your Financial Goals Values Needs vs. Wants

  9. Personal Financial Planning Chapter 10 Section 1 Financial Decisions and Goals Personal Financial Decisions Step 3: Identify Alternative Courses of Action Continue the same course of action Expand the current situation Change the current situation Take a new course of action

  10. Personal Financial Planning Chapter 10 Section 1 Financial Decisions and Goals Developing Personal Financial Goals Tips for Setting Your Financial Goals Be realistic Be specific Have a cleartime frame Know what type of action to take

  11. Personal Financial Planning Chapter 10 Section 1 Financial Decisions and Goals Developing Personal Financial Goals Short-Term Goals Intermediate Goals Long-Term Goals One year or less Two to five years More than five years

  12. Personal Financial Planning Chapter 10 Section 1 Financial Decisions and Goals Influences on Personal Financial Planning LifeSituations PersonalSituations EconomicFactors

  13. Personal Financial Planning Chapter 10 Section 1 Financial Decisions and Goals Influences on Personal Financial Planning Economic Factors MarketForces FinancialInstitutions Global Influences

  14. Personal Financial Planning Chapter 10 Section 2 Opportunity Costs and Strategies • Explain the opportunity costs associated with personal financial decisions. • Understand the time value of money. • Identify eight strategies for achieving financial goals at different stages of life.

  15. Personal Financial Planning Chapter 10 Section 2 Opportunity Costs and Strategies Personal Opportunity Cost Personal Resources Require Management Health Knowledge Skills Time

  16. Personal Financial Planning Chapter 10 Opportunity Cost An opportunity cost is what you give up to get something else. Source: www.collegeboard.com

  17. Personal Financial Planning Chapter 10 Section 2 Opportunity Costs and Strategies Financial Opportunity Cost Save Spend Invest Time Value of Money Time Value of money – increase in the amount of money due to earned interest or dividends.

  18. Personal Financial Planning Chapter 10 Section 2 Opportunity Costs and Strategies Future and Present Values Future Value of Single Deposit Future Value of a Series of Deposits Present Value of a Single Deposit Present Value of a Series of Deposits Time Value of money – increase in the amount of money due to earned interest or dividends.

  19. Future Values • Future value – the amount your original deposit will be worth in the future based on earning a specific interest rate for a specific amount of time. • Future values are “compounding” which means your money increases in value faster. (interest is added to principal each year) • Deposit of $1,000 at age 40 at 5% = $3,387 at 65 • Deposit of $1,000 at age 25 at 5% = $7,040 at 65

  20. Present Values • Present value – the amount you would need to deposit now in order to have a desired amount in the future. Principal • Principal– the original amount of money on deposit. (For a loan, this is the amount you borrow)

  21. Personal Financial Planning Chapter 10 Section 2 Opportunity Costs and Strategies Future and Present Values $1000 at 7% for 7 yrs = $1,606 (one deposit) $1,000 at 5% for 6 yrs = $6,802 ( 6 deposits/annuity) Take $400 each year for 9 years at 8% = $2,498.80 (one deposit now) Want $1,000 at 5% in 5 yrs = $784 (one deposit now) Tables on page 307

  22. Personal Financial Planning Chapter 10 Section 2 Opportunity Costs and Strategies Achieving Your Financial Goals Strategies 1 5 Obtain financial records. Borrow wisely. 2 6 Plan how you will spend your money. Invest to increase current income and for long-term growth 3 7 Spend wisely. Manage risk. 4 8 Save on a regular basis. Plan for retirement.

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