Unit 1B - SMART Goals & Decision Making

Mr. ElsesserIntroduction to Financial

Management

NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins

Objective:

• Define the purpose of Decision Making

and creating a Financial Plan

• Analyze trade offs of an economic decision

• Identify economic risk factors to consider in the decision making process

Do Now:

How does the process of Decision Making relate to your SMART Goals project?

The Decision- Making The Decision- Making ProcessProcess

EvaluateEvaluateResultsResults

Make a DecisionMake a Decision

Identify YourIdentify YourGoalGoal

Weigh Pros Weigh Pros and Consand Cons

EstablishEstablishCriteriaCriteria

Monitor & ModifyMonitor & Modifythe Planthe Plan

Implement Implement the Planthe Plan

Set GoalsSet Goals

Create a PlanCreate a Plan

AnalyzeAnalyzeInformationInformation

The Financial The Financial Planning ProcessPlanning Process

Decision Making and Financial PlanningDecision Making and Financial Planning

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NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins

Alternatives

Consequences

Opportunity Cost

Risk

Financial Planning also means....Decision Making…

NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins

You Know What You WantYou Know What You Want

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In order to make a good decision you must be informed of In order to make a good decision you must be informed of what you need to do to achieve it!what you need to do to achieve it!

What is What is opportunity costopportunity cost??

A possibility that you give up whenA possibility that you give up whenyou make one choice insteadyou make one choice insteadof another.of another.

Example: Example: You can buy You can buy coffee every day or coffee every day or

save save money and get a data money and get a data planplan

for your phone. for your phone.

NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins

Opportunity Cost“Consequences of Choices”

**A Trade off…...

**Refers to what you give up when a decision is made or the cost of giving up one thing in order to get something that you want more;

**The cost may involve your time, money, and/or effect

NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins

Identifying More Examples:

Personal: For example time spent on studying usually means lost time for hanging out with your friends.

Financial:For example, the purchase of an item with money from your savings means your will no longer earn interest on that money

NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins

Consequences

**Outcomes or results of a decision;

**What will happen depending upon what you choose to do.

**These are determined by your actions or lack of actions

NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins

Alternatives

**Choices….

**Different ways to solve a problem;

**Opportunities to choose between several courses of action

NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins

Risk

**The possibility that your decision will result in a negative outcome;

**Taking a chance;

**Risk may involve losing money

NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins

Risk

1) Inflation Risk2) Interest Rate Risk3) Income Risk4) Personal Risk5) Liquidity Risk

NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins

Inflation Risk

Inflation is the rise in the level of prices

for goods and services over time

Inflation Risk Example:If you wait to buy a car until next

year, you accept the possibility that the price may increase.

NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins

Interest Rate Risk

Interest is the price that is paid for theuse of another’s money

Interest Rate Risk Example: Interest rates go up and down, which may affect the cost of borrowing or the profits you earn when you save or invest

NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins

Income Risk

Income Risk – you may lose your job due

to unexpected health problems, familyproblems, an accident, or changes in

your field of workHow Can you prepare? Prepare and save – build up 3-4 months

ofsavings to cover cost of living

NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins

Personal Risk

Personal Risk: Risk you assume yourself based upon your actions or choices.

Personal Risk Example – Driving for eight hours on icy mountain roads may not be worth the money youwould save on airfare.

NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins

Liquidity Risk

Liquidity is the ability to easily convertyour financial resources to cash without aloss in value

Liquidity Risk Example: Some long-term investments, such as a

house or an antique doll collection, can be difficult to convert to cash quickly.

NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins

Other InfluencesOther Influences

NEFE High School Financial Planning ProgramNEFE High School Financial Planning ProgramUnit One - Your Financial Plan: Where It All Begins

People

OtherPublications

Agencies

Magazines Books

Social Media

In Order to Make a Good Choice…

Find Advice; Find Information Find Advice; Find Information Making a good choice equals using…Making a good choice equals using…

Internet