Personal Finance Basics and the
Time Value of Money
McGraw-Hill/Irwin
Copyright © 2009 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 1: Learning Objectives
1.
Analyze the process for making personal financial decisions 2.
Develop personal financial goals
3.
Assess personal and economic factors that influence personal financial planning
4.
Determine the personal and financial opportunity costs associated with personal financial decisions
5.
Identify strategies for achieving personal financial goals for different life situations
2
The Financial Planning Process
Personal Financial Planning is the process of managing your money to achieve personal economic satisfaction
Advantages of Personal Financial Planning are:
1.
Increased effectiveness in obtaining, using and protecting financial resources
2.
Increase control of one’s financial affairs
3.
Improved personal relationships
4.
Freedom from financial worries
3
The Financial Planning Process
Six-step procedure for Financial Planning
Determine your current financial situation
Develop your financial goals
Identify your alternative courses of action
Evaluate your alternatives
Create and implement your financial plan
Review and revise your financial plan
4
The Financial Planning Process
Step 1: DETERMINE YOUR CURRENT FINANCIAL SITUATION
• Current situation regarding income, savings, living expenses, and debts?
• List current asset and debt balances and amount spent for various items
• Match financial goals to current income and potential earning power
5
The Financial Planning Process
Step 2: DEVELOP YOUR FINANCIAL GOALS
• Identify feelings about money and reasons for those feelings • Determine the source of your feelings about money
• Determine the effects of economy on your goals and priorities • Goals should be your own and tailored to your own situation 6
The Financial Planning