Chapter 1Personal Financial

PlanningSection 1.1

Financial Decisions and Goals

Personal Financial Planning Definition: arranging to spend, save,

and invest money to live comfortably, have financial security, and achieve goals.

Benefits

Personal Financial Planning Step 1

Determine Your Current Financial Situation

Example• Disposable Income

Personal Financial Planning Step 2

Develop Your Financial Goals

Personal Financial Planning Step 3

Identify Your Options

Personal Financial Planning Step 4

Evaluate Your Alternatives• Sources of Financial Information• Consequences of Choices

Opportunity Cost – What is given up when making one choice instead of another.

• Understanding Risks Inflation Interest Income Personal Liquidity – Ability to easily convert financial assets

into cash without loss of value.

Personal Financial Planning Step 5

Create and Use Your Financial Plan of Action• Increase Savings? = Cut Spending• Increase Income? = Get part time job

Financial Goals – 3 Types Short Term Goals

Intermediate Goals

Long Term Goals

Different Needs Service – Good – Consumable goods

Durable goods

Intangible items

Guidelines for Setting Goals

Influences on Personal Financial Planning

Life Situations and Personal Values Economic Factors

• Economics – 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.

• Supply – • Demand –

Other Key Terms Federal Reserve System

• Central banking organization of the United States. • Primary role in the US economy is the regulation

of the money supply. Inflation

• Rise in the level of prices for goods and services Consumer

• Person who purchases goods and services Interest

• The price that is paid for the use of another’s money.